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FSA: 'Crowdfunding’ for sophisticated investors only

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8/17/12

F S A : 'C row dfunding’ for sophisticated inv estors only - Telegraph

FSA: 'Crowdfunding’ for sophisticated investors only
Websites which allow small businesses to raise finance from consumers should not be promoted to amateur investors, the Financial Services Authority has warned.

Michael Howe (pictured left) from Escape the City, which raised £600,000 from small investors using Crowdcube, defended crowdfunding

By James Hurley
9:57AM BST 17 Aug 2012

The FSA said so called “crowdfunding” internet sites that allow start-ups and small companies to raise funds in return for small equity stakes, should “be targeted at sophisticated investors who know how to value a start-up business, understand the risks involved and that investors could lose all of their money”. The regulator’s guidance also warned that investors’ shares will be difficult to sell, will produce few dividends and that investments will be diluted when more shares are issued — when a company raises its next round of investment, for example. Sites such as Crowdcube, the leading UK example of a crowdfunding site, have promoted the value of
telegraph.co.uk/finance/y ourbusiness/9482082/F S A -C row dfunding-for-sophisticated-inv estors-only .html

8/17/12

F S A : 'C row dfunding’ for sophisticated inv estors only - Telegraph

allowing consumers to back small businesses through stakes of as little as £10. Michael Howe, director of career-change website Escape the City, which raised £600,000 from small investors in 10 days on Crowdcube, defended crowdfunding. “It’s great that normal people can put a bit of money into a growing company and feel like they’re part of something tangible,” he said. “It’s more exciting than having shares in Lloyds. In some ways it’s more transparent than normal investing. Investors backing a company using crowdfunding usually have better access to the owners of the business than if they’re putting money into some mining company in Mongolia.” However, James King, of Find Invest Grow, which invests in the businesses of students and recent graduates, backed the FSA's guidance. "Equity crowdfunding, in near enough every instance, is not appropriate for the retail investor. If companies want to raise money from the general public they should list on a public stock exchange and provide the relevant material and public updates. Crowd-venturing is effectively trying to create a public market without the controls." The FSA also noted its “concern” that some of the markets involved are failing to separate clients’ money from their own “and therefore may not have adequate protection in place for investors” should a marketplace fail. The regulator is understood to have contacted some crowdfunding firms to advise them on best practice on handling client money, although only one of the UK’s crowdfunding providers, Seedrs, is FSA authorised.

© Copyright of Telegraph Media Group Limited 2012

telegraph.co.uk/finance/y ourbusiness/9482082/F S A -C row dfunding-for-sophisticated-inv estors-only .html

Summary
The FSA said so called “crowdfunding” internet sites that allow start-ups and small companies to raise funds in return for small equity stakes, should “be targeted at sophisticated investors who know how to value a start-up business, understand the risks involved and that investors could lose all of their money”.

Description
Michael Howe, director of career-change website Escape the City, which raised £600,000 from small investors in 10 days on Crowdcube, defended crowdfunding. “It’s great that normal people can put a bit of money into a growing company and feel like they’re part of something tangible,” he said.

Tags: Crowdcube, Crowdfunding, Crowdsourcing, escape the city, FSA, Michael Howe, Seedrs, Startups

Posted by Harshida Patel

Aug 17, 2012 01:12 pm GMT Viewed 844 times

Author: James Hurley Source

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