Monday, 1 June 2015
Is it possible for equity crowdfudning to work? Part I
We had a question on one of our blogs - how can this space be made to work?
By this space we mean specifically equity crowdfunding, not P2P lending and the original rewards based crowdfunding.
It's a difficult one to answer but it is clear that the current model as run by Crowdcube does not work. Why?
1. Lack of transparency on the platform
2. Lack of real time information due to the UK's accounting system
3. Lack of knowledge on the part of the crowd with early stage company growth, valuations etc
4. Lack of investor rights
5. Lack of secondary market
6. Lack of due diligence and FCA's hopelessness.
7. Profit incentive for platforms based entirely on completions.
8. Ease of access to EIS and SEIS
9. Ease of entrepreneurs and founders to hide behind Ltd status, use of pre packed deals etc
10. Lack of legal liability on the part of the platforms and the pitchers.
Is it possible to design a system that could correct all of these?
We think possibly. However it would be more along the lines of a National Investment Bank than a stand alone for profit platform. The emphasis would be the creation of successful, sustainable businesses, creating wealth and jobs, rather than the game show millionaire dream promoted currently. If investors can benefit, all well and good but the con peddled by the current platforms that anyone can be their own VC is just nonsense. A nonsense currently being fuelled by burning taxpayers money. If the EIS and SEIS sop was removed there seems little doubt that ECF would disappear as fast at it arrived.
The solution would be a longer term slow burn not some over night mirage. Investors would be protected but would not expect instant gratification. Shares would be tradable, taxpayers money better protected and businesses and their plans more intensively scrutinised. Entrepreneurs would not see this as easy access money.