2,805 crowdsourcing and crowdfunding sites
The authorization means investors on the platform will have access to the Financial Ombudsman Service if they have a complaint, and will be able to apply for compensation from the Financial Services Compensation Scheme.
The authorization process, which took over a year for Crowdcube, reviews a company’s system and controls, resources, and sustainability.
Crowdcube is the first equity crowdfunding platform that lets its users invest directly in companies to be authorized by the FSA. Seedrs, another crowdfunding platform based in the U.K., got its authorization in July 2012, but it operates more as a marketplace than a platform for investments. It also manages crowdfunders’ investments on their behalf, which (at least according to co-founder Jeff Lynn) adds a layer of protection.
This is great news for Crowdcube, and it should mollify some of the fears investors have when it comes to backing companies through crowdfunding.
“Our authorisation and the additional investor protection it affords will increase satisfaction and confidence, which is at the heart of our business and will be crucial to our long term success in the U.K.,” Crowdcube’s co-founder and CEO Darren Westlake said.
The announcement comes half a year after the FSA issued a warning against crowdfunding.
“Many crowdfunding opportunities are high risk and complex,” the advisory noted. Its authors also wrote that investors should “sufficiently understand the business or project, how and when you might get a return, whether you will receive an equity share in the business and the risks involved before investing in a crowdfund.”
Crowdcube has raised over 5 million pounds ($7.8 million) for 36 businesses since it launched in early 2011. Following this latest announcement, expect more people to join its ranks of 28,000 registered investors.