Finance: Greg Allan of Future50 sponsor Birketts, examines new rules on crowdfunding
- Credit: Archant
Crowdfunding is a way of raising finance by asking a large number of individuals for a small amount of money. Essentially it provides a vehicle for businesses to directly access the public, usually via a web platform, to obtain funding for projects.
In recent years the popularity of this source of alternative finance has dramatically increased with examples such as BrewDog and its “Equity for Punks” scheme grabbing headlines.
Crowdfunding has been particularly popular with start-ups and entrepreneurs offering an alternative to traditional bank loans or equity funding. However, the Financial Conduct Authority (FCA) has decided to get tough on crowdfunding with regulations coming into force from April 2014.
The FCA has attempted to strike a balance between keeping this source of finance open and providing the necessary protection for potential investors.
The new regulations require crowdfunding platforms to ensure investors are either certified as sophisticated or of high-net worth, or are limited to investing 10% of their net assets.
This may substantially limit investor numbers. Commentators are consequently asking whether crowdfunding will remain a viable source readily available to start-ups. Will the new regulations take the “crowd” out of “crowdfunding”?
Loan-based crowdfunding is being reviewed with a view to introducing a disclosure based regime so investors have sufficient information to make an informed investment. That said, for those who have used it, crowdfunding has provided a vital cash resource which has been easy to access, user friendly and open to new businesses where traditional lending is still hard to come by.
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The UK has been a leader in crowdfunding projects so with the economic upturn and improving market confidence, many believe it will continue to flourish despite the potential dip in investors.
: : To contact Greg Allan, email email@example.com or call 01603 756418.