Monday, 15 February 2016

Equity Crowdfunding's praying for a Second Dawn

There can be little doubt that the UK equity crowdfunding sector needs a new approach.

With two of the three main platforms making very pointed public comments about the behaviour of the third and by some way largest platform, it has to be time for some action. Privately these two are saying far more about the conduct of the third platform, which as this blog has illustrated time and time again, is verging on the absurd.

You do have to give Crowdcube some credit. They were the trail blazers. But right from the get go, they have used methods and published pitches which have no place here. One of the main problems has been that despite their claims, the two founders, Luke Lang and Darren Westlake, have very little if any entrepreneurial experience or flair. They have been unable to sort the wheat from the chaff and to be honest seem unable or uninterested in making any real effort to do so. Preferring to issue a constant stream of PR, which has been lapped by the on line altfi media in a fashion that is not far short of sick making.

Just as an example, in the week that the FT,  The Times and the Sun newspapers carried stories related to Crowdcube misusing investment to encourage interest in pitches, what do Crowdcube do? They release more PR about their enormously 'successful' 5 year history and simply deny the allegations.

What is so surprising is that you might forgive Crowdcube for starting off this way before realising the mistakes and changing course. But far from it. Current pitches now live on the site show the same disregard for basic honesty and the Crowdcube out to lunch department (aka Due Diligence) has not yet ordered its pudding course.

As the CEO of Syndicate Room pointed out just last week, without a return for investors, equity crowdfunding will die as quickly as it sprang up. Of course this type of investment is high risk and of course there will be failures. That is not the point.

The point, which both Seedrs and Syndicate Room have openly accepted but which Crowdcube denies flatly, is in the nature of the failures. Read this blog for examples - there are plenty of them!

Maybe the problem here stems from the platforms themselves being seen by investors and VCs as a way of making money. We dont believe they are - certainly not in the short or medium term. But the investment has been flying in so some serious people must think otherwise. The drive for revenues, only obtained by completed pitches, has encouraged the very behaviour that must be eradicated.

One thing is for sure, the market is wide open for someone to get it right.

We dont want more this will put up the costs of pitching and remove this important SME funding facility. The situation in the USA is a good example of this. It is now estimated that to raise $300k using the recently sanctioned equity crowdfunding channel, it will cost the company a minimum of $50k - up front. This is down to SEC regulations which require both platforms and businesses to carry out far more rigorous due diligence. The risk of losing $50k if the pitch is not successful is going to prevent many SMEs taking part.

What we do need is some responsible behaviour. We have to hope for a new dawn.  

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