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Alternative Finance blog


Equity Crowdfunders or Investment Bankers?

02/02/2016 | 0 comments


Equity Crowdfunders or Investment Bankers?

What with the dizzying pace of change in the alternative finance world, it seems like decades ago, but just a couple of years back in December 2013, when I launched Business Agent to an unsuspecting world I had a couple of what you might call ‘heroes’ – namely the founders of Crowdcube and Seedrs.  After all, these guys have been largely responsible for triggering the alternative finance revolution that’s still under way today. They laid not only the foundations but also the footings for an amazing industry that’s changing the lives of entrepreneurs all over the UK by enabling them to realise their business visions.

To say I have the utmost respect for those guys would be an understatement. They’re pretty much the source of my boundless enthusiasm for anything and everything to do with equity crowdfunding! There’s always a ‘but’ at the end of a sentence like that – and here it comes!

Lately, when I look at the way they’re running their businesses I can’t help feeling a hint of disappointment… I’ve started getting the feeling the revolutionaries have swapped their red berets and combat fatigues for red braces and pin-striped suits. Instead of blazing the trail for our most imaginative entrepreneurs by providing a ground-breaking alternative to the rigid mindset of the financial establishment they seem to be slowly merging into the establishment! I say this because it would seem to me that they’re now turning down more businesses than ever before, they are not at as open or collaborative as they once were and are cherry picking what they deem to be the best company investments.

Just to be clear – it’s not that I blame them. They want to protect their business and It’s easy to see how this happens. It’s not just the fear of getting things wrong; the fear of failure, it’s also the fear of outside pressure, reprisals from the press and remaining legally compliant, especially with recent events like the collapse of Rebus that was funded on Crowdcube last year.

For me this approach takes all the romance and exhilaration out of what we’re all trying to do – the fear of reprisals, lack of openness and sharing goes against everything I thought equity crowdfunding stood for. Worst of all, it puts the power to invest in exciting new ideas back in the hands of the ‘In crowd’ and limits the exposure to retail investors (the man in the street) from those opportunities.

In short, I believe this is stifling the development of equity crowdfunding and I think they should attack it head on, rate the companies they are funding on both investment and altruism. Don't be frightened of backing the wrong horse; it happens. Open your doors to aggregators that offer opinions and ratings, let the crowd become a crowd don’t crush it.

Of course, it's not an unfamiliar scenario, as companies make the tough transition from fired-up start-ups to corporate entities with outside powers holding the reins and the purse strings. But the truly great innovators have always understood that you sacrifice collaboration at your peril. When Apple, for instance, opened its doors to app developers through the App Store their business changed overnight… When Google created its ad display network it’s revenues soared exponentially…

And anyway, if not collaboration, what is Crowdfunding about? Equity Crowdfunding is about creating a genuinely free market, an independent place where people trade and where ratings and feedback are given to companies, and Crowdfunding sites alike.  To keep the flame of inspiration burning I believe the entire community has to be able to communicate and share ideas with total freedom. In my view that means every business involved has to embrace openness wholeheartedly; has to collaborate enthusiastically; has to welcome collaborators and aggregators of all kinds and has to open their books and let everyone see their failures as well as their successes. That might sound daunting but a sense of community is important here if we are to create a sustainable liquid market and our regulator needs to support us not stifle the growth because of fear of failure.

It would be fantastic to be able to offer sensible advice online and the industry needs to promote the fact that this is not investment in traditional terms, the chances of getting rich are pretty slim (not impossible I might add!) but it’s fun, it’s tax efficient and you are helping people to fulfill their dreams. If you buy shares with this train of thought the industry's reputation will not be affected by failure.

The original idea was about spreading risk, about the masses investing small amounts to make a big pot. There are millions of SMEs that are looking for investment and the major crowdfunders are touching a matter of mere hundreds. The market leaders have got to stop harping on about investment as the word could insinuate you will get a return.

Equity Crowdfunding should be marketed with more altruistic values. Yes a small percentage of these companies will make it and they will possibly make it big, but the majority I'm sorry to say will fail.  This does not make it bad, it creates jobs, gives great ideas a chance, in most cases is a good tax write off with SEIS/EIS and if you spread your risk and invest in lots of companies one might be the next Google. All in all you should feel good about your investment you have helped someone get one step closer to their dream and in doing so you may fulfill yours by “possibly” choosing that 1 company that turns out to be the next Google.

Call me a naive sentimentalist – I may be both of those things, but I’m also a passionate advocate of the notion of people getting together to make great things happen! So, please, let’s not lose sight of what’s uplifting, exciting and truly inspiring at the heart of the equity crowdfunding revolution!

 



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