Crowdinvesting: how safe is it?

In the last two years equity-based crowdfunding has grown by almost 300 percent, The Independent’s Kate Hughes writes as earlier this month, Chancellor Phillip Hammond hailed the “growing importance” of crowdfunding.

However, given that around 85 percent of all early stage businesses fail, the FCA warns that

it is very likely that you will lose all your money.

In this respect, Adam Tavener, chairman of the Alternative Business Funding portal, The Independent reports, estimates that fewer than 1,000 UK businesses have been successfully crowdfunded to date.

The wisdom of the crowd is a phrase that used to be popular amongst crowdfunding sites, he says. That’s beginning to look more like ‘the behaviour of lemmings’. Just because a model is fashionable does not make it a sustainable long-term proposition. Crowdfunding has a long way to go in terms of the quality of investments on offer and how they manage relations post investment.

Ed Molyneux, chief executive and co-founder of FreeAgent – which raised £1m on crowdfunding platform Seedrs in 2015 and late last year, the business listed as a PLC, the first equity crowdfunded business to IPO raising £10.7m in AIM listing and achieving a market capitalisation of about £34.1m – claims:

Preparation is probably the most important thing to get right.

How? The crucial, but often overlooked step is to investigate the platform as well as the companies seeking funds, Jon Medved, founder and chief executive of OurCrowd, says:

Investors should seek out those opportunities where they can co-invest with well recognised venture capital funds, experienced angel investors or corporate partners, which will reduce your risk of failure and improve the chances of getting a significant return.

(Via: The Independent)