DIY Investor Magazine
/
March 2016
44
CROWDFUNDING
DON’T LET RECENT HICCUPS SCARE YOU AWAY
by Adam Braggs
Crowdnetic
It would appear that that the crowdfunding industry is
currently experiencing a number of difficulties.
At the start of the month it was announced that claims
management group Rebus went into administration,
less than a year after raising £816,790 via an equity
crowdfunding round. This makes it the largest
equity crowdfunding failure so far and even more
disappointing given the complete lack of comment from
management on what went wrong.
Then listeners to Radio 4 heard some highly
disparaging remarks from Lord Turner, former Chairman
of the FSA, on the peer-to-peer lending industry. One
of his most controversial comments was: ‘I strongly
suspect that the losses on P2P lending which will
emerge within the next 5-10 years will make the worst
banks look like absolute lending geniuses...’ His main
concerns were over the P2P platforms’ performance of
credit analysis, or in his view, lack of it.
But while crowdfunding has received (unfairly in my
view) such negative press recently the industry is in fact
continuing to grow strongly.
The recently published UK Alternative Finance Industry
Report, compiled by Nesta and the University of
Cambridge, suggests that the UK equity crowdfunding
market grew by 295% to £332 million in 2015. The
industry also saw its first successful exit, with E-Car
Club being taken over by Europcar and delivering an
estimated return of 3-4 times for investors.
Of course, the recent failure of Rebus has been a blot
on the reputation of equity crowdfunding. But in the
wider scheme of things it is not really news at all – early
stage businesses go bust every day without making it
into the headlines.
And regarding Lord Turner, his comments have been
widely criticised by the industry for being ignorant and
ill-informed – incidentally he also has a new book to
promote.
What these incidents have made clear however is
that if the crowdfunding industry wants to continue to
grow, investor education must remain a priority for the
fundraising platforms, especially regarding the potential
loss of capital. The more strict risk warnings within
the equity crowdfunding industry currently (and quite
rightly) state that investors are more likely to lose all of
their capital than make a profit in start-up/early stage
businesses.
This rigorous approach could be more widely adopted
in our opinion, and also be made more prominent on
equity pitches.
A periodic update on how many pitches have failed on
each platform would also help investors to make more
informed decisions.
WHILE CROWDFUNDING HAS RECEIVED NEGATIVE
PRESS RECENTLY THE INDUSTRY IS IN FACT
CONTINUING TO GROW STRONGLY’
