The current system will not work

It is very simple - ECF as the UK currently allows it to be run, will not work. This is not a guess or an assumption. It is a fact that is backed up by the all the available evidence.

What evidence? OK lets take a look.

1. Platforms have routinely manipulated the information presented to potential investors to improve the chances of pitches completing. They claim to carry out due diligence checks - the evidence suggests otherwise. Forums are used to promote only positive queries, any negative ones are removed. Some platforms have very poor security, Crowdcube being the worst. Anyone can join and then post comments supporting a pitch - thereby increasing interest in it.

2. Companies pitching and the platforms have used various tactics to prevent the company's real situation being known by potential investors. These include -

• Moving accounting filing dates so the the pitch completes before accounts (which will be 9 months plus old) are filed. 
• Pitching for only half or three quarters of the required amount - research shows that if companies can get over the 30% complete mark within the first 20 days of the pitch, their chances of completion are greatly enhanced. Platforms then allow them to 'overfund' and for some reason closely related to lemmings, this overfunding period always surges ahead.
• Commencing a pitch for £200k with £120k already invested. This is often VC money which is dependent on the pitch completing (a fact not shared with crowd investors) - the better the pitch appears to be doing, the more likely it is to complete.
• Playing with the time frames
• Failing to mention that a pitch has already raised money on the site and that then, its projections proved to be very optimistic. Investors would only know this if they had been on the site at the time - maybe two years ago. Those projections are gone once the pitch is finished.
• Failing to mention that a pitch has or is currently raising money on another site for ECF or P2P lending site.
• Manipulating the financial snapshot - this is specific to Crowdcube. Pitches post previous 12 months 'accounts' but they do not always tie in with the later filed, Companies House accounts. For example a company might want to hide a LT loan or make it look as though founders have invested more than they really have.
• Using highly emotive language in the pitch - essentially exaggerating the founders' credentials, the potential market, previous businesses' sales etc. These can on occasions be outright lies, but more normally it's what is not mentioned that is important. One example on Crowdcube was a claim that the founder had been involved in founding her own businesses, 3 of which she had taken to IPOs. It turned out she had been involved in some IPOs whilst working in the City and had founded 2 businesses - both of which had failed. The IPOs and her businesses where not connected although they appeared to be in the pitch.
• Claiming pages and pages of order enquiries totalling many hundreds of thousands of pounds  - most of which will complete after the funding is complete. They do not materialise.
• Reducing the funding total as the pitch nears the end of its term so that it manages to complete.

It is essentially a minefield of misinformation. The internet is an easy place to create an image and misinform. The current UK accounting system for SMEs means that even filed accounts show very little and they are 9 months old before they are filed.

This is all small potatoes when compared with the main problem. Pitches use their projections to sell their equity.

Business projections are supposed to steer a business through a middle course - where they can see that cash flow, debt and sales are achievable. If they exceed the figures that's a bonus but if they fall below them, it shouldn't be by much.

There are many examples of pitches on Crowdcube where the projections have been missed by factors of between 3 and 10 - so a company projecting a Yr1 t/o of £860k, in fact produced sales of £86k. All the records we have show that only 1 company to date of the all the ones that have filed accounts since funding, has managed to achieve it projections - all the others have missed them, most by a very long way. This either leads to a cash flow crisis, re funding and or closure. The trail of closures is building - it will take another two years before we see the full results of this hyped funding scheme. By then many firms will have closed, with the obvious knock on effects to o/s creditors and the loss of taxpayers money through EIS and SEIS.