Equity Crowdfunding in Between the Wisdom and the Madness of the Crowd

Although there is no shortage of equity crowdfunding sites around the world and the global industry is likely to consolidate over 2017 according to analysts, a brand new platform has been recently launched, technology website TechCrunch reports.

Its name is GrowthFountain, it is based in the US and focuses on investors looking for local investment opportunities.

Talking about their strategic role in the current ecosystem, its CEO Ken Staut contended:

Until now, small business finance options were cost prohibitive and inefficient and only a limited number of people met wealth or income thresholds that allowed them to invest.

TechCrunch’s pointed out also that:

In addition to providing the platform for formalizing the investments and dealing with the SEC-required documentation related to an investment, GrowthFountain produces tutorials and tools specifically tailored for local equity crowdfunding. The company has published a number of calculators, for example, helping companies to determine the amount of capital to raise and explore potential valuations.

This is of great importance, indeed, as investing in early stages ventures implies a level of risk which can be detrimental of the industry reputation if not properly managed.

In this respect, a recent piece from The New York Times pointed out that a number of equity platforms owners as well as crowdfunding advocates have expressed concern about the low levels of compliance among many of the early companies that have raised money and the bad terms the companies have offered investors.

Therefore, it comes as no surprise that a recent survey made by CrowdCheck found that almost none of the companies that have been listed so far are fully in compliance with even the basic rules set down by the Securities and Exchange Commission.

In the UK market, FCA, Britain’s Financial Conduct Authority, believes it is appropriate to modify a number of rules for the market as to improve safety and transparency for investors.

Andrew Bailey, Chief Executive of the FCA, stated:

Our focus is ensuring that investor protections are appropriate for the risks in the crowdfunding sector while continuing to promote effective competition in the interests of consumers. Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas. We plan to consult next year on new rules to address the issues we have identified.

Commenting on this, CrowdCube‘s Co-Founder and CMO Luke Lang wrote in a recent op-ed that:

We welcome (FCA’s) review, which aims to ensure the crowd is treated fairly and can make sound and well-informed decisions while continuing to enable businesses of all kinds to access seed and growth finance.

SyndicateRoom‘s Co-Founder and CTO Tom Britton, who has been also recently named Non Executive Director of the UK Business Angel Association said in an exclusive interview with Oliver* that:

I think the FCA is right to be generally concerned about the welfare of investors and they’ve gone about this exactly the right way, by getting feedback from those operating in the area.

The thing is of huge importance for the industry itself since, as argued by Joan MacLeod Heminway, a law professor at the University of Tennessee:

Even though a lot of people want to come to the party early, they may ruin the market if the market gets a reputation for being one where people don’t comply with the rules.

Therefore, considering World Bank’s projections on the size of the crowdfund investing market which could range from US$3.98 billion to as much as US$300 billion over the coming years depending on the level of enabling regulation adopted by governments, intelligenti pauca.