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Does Crowdcube’s pulling of Shaw Academy’s crowdfunding campaign herald the beginning of a significant change for the Crowdfunding sector?

Does Crowdcube’s pulling of Shaw Academy’s crowdfunding campaign herald the beginning of a significant change for the Crowdfunding sector?

21 days ago


24 November 2017: Something rather interesting happened this week, Crowdcube pulled Shaw Academy’s crowdfunding campaign from its platform.

 

Shaw Academy, if you don’t know of them already, provides online learning for a range of different skills – from photography to languages, finance to beauty – and was established in 2012.  When Crowdcube announced that they were pulling the campaign they were days away from the end of their funding round and had exceeded their £2.2 million target. Understandably Shaw Academy is rather peeved.

 

Co-Founder and CEO of Shaw Academy, James Egan, told the Irish Times that:

“We refute any wrongdoing at all on our part and feel that the process was lacking in support and guidance throughout. Over the last number of weeks, the process had become incredibly frustrating with almost all the funds invested coming from our own audience [which was] quite the opposite to what our expectations were. In addition, the support and guidance for this matter was totally non-existent. As frustrations developed throughout the campaign, we looked at cancelling it on a number of occasions.”

 

For their part Crowdcube have stated that they pulled the campaign because of concerns that materials sent to investors fell foul of the Regulator, the Financial Conduct Authorities, ‘clear, fair and not misleading’ rules for financial promotions. “As a platform regulated by the Financial Conduct Authority, we were unable to close the fundraise while ensuring accuracy and fairness for all investors”.

 

Who is right and who is wrong here is not for businessagent.com to judge.  Crowdcube can choose to pull a campaign from its platform if it feels that its conditions are not being met and if that happens it is unsurprising that it should upset the company in question. What is more interesting here, are the comments from both parties.

 

Let us begin with Shaw Academy: “..with almost all of the funds invested coming from our own audience..”    “..support and guidance for this matter was totally non-existent..” The crowdfunding platforms pride themselves on two things; connecting businesses seeking capital with investors looking for the high returns that the investment in young growing companies can potentially give and providing companies with the support and guidance that they need to make the most of their opportunity in-front of investors when they have it. Shaw Academy is suggesting that Crowdcube offered neither of these things; that is pretty damning.

 

Of course this could all be sour grapes on Shaw Academy’s part, as we know successful crowdfunding campaigns tend to bring their own lead investor and make the most of their own networks and contacts. Of course the work that they are putting in is beneficial to them, but it is also a benefit for the platforms who gain new investors. Our question is, as the market becomes more sophisticated are companies starting to wonder if the value that the platforms offer them justifies their fees?

 

Crowdcube’s statement is equally revealing. As the industry continues to await, and to an extent second guess, the Regulator’s (FCA) review of the sector and updated rules, is it applying a more rigid and perhaps less flexible due diligence than in the past? If so, is the experience that Shaw Academy has had likely to be replicated by other companies? The crowdfunding platforms need to protect their investors and should be following the spirit, rather than the letter, of FCA guidance, but as we have seen in other investment sectors the somewhat grey wording of the Regulator can lead to more stringent interpretations of the rules. No financial firm wants to fall short of the Regulators standards but based on the past experience of other investment sectors this approach can sometimes lead to unintended consequences – is that starting to happen here?

 

We don’t have the answers yet, but we will be watching and you can be sure that the Regulator, other crowdfunding platforms and companies looking for funding will too.

Tagged: Crowdfunding Crowdcube Investors investing Shaw Academy fairness for investors




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