Crowdfunding is commonly perceived as a method of funding new or expanding ventures without the need for a more formal ask from banks, equity houses or stock markets. The market has experienced rapid growth in the last two years. A number of recent and forthcoming developments would indicate that further expansion is likely, but only in line with increased regulation.
At the end of 2014, when figures were last available, the market was calculated to be £50m worth of funds invested and that had doubled the figure for the previous year. There are now in excess of twenty crowdfunding sites, enough to give the average investing member of the public, a wide spread of investments as well as platforms, but also cause them some confusion as to their governance and control.
A West Midlands based site, Thin Cats, recently floated on the Alternative Investment market (‘AIM’), which would indicate that some of the companies originally set up to challenge established forms of capital raising, are now becoming the establishment themselves.
The first crowdfunding brokerage, InvestUP that provides a service to investors across the sector, received its Financial Conduct Authority (‘FCA’) authorisation in November. No doubt other aggregators will follow suit. This year a crowdfunding Individual Savings Account (‘ISA’) is due to be launched. There is a lot happening in the sector which should provide reassurance to investors and encourage more to invest using such platforms.
There are still many applications from crowdfunders being dealt with by the FCA , whilst many of the longer standing ones have now gained approval. This does not mean that investments made through these sites are in any way risk free. Indeed they are all likely to be at the very risky end of the equity investment spectrum.
However, as with all investments, if investors spread their investments across a wide spectrum and a large number, they will be reducing their overall level of risk. Any providers who assist them to do this should be welcomed by investors and regulators alike.
Whilst the sector is set to expand further with greater assurance and a reduction of risk levels, there still remains the problem of investors realising their investments in the future. Whist the crowdfunders themselves are heading for public ownership and a wider market for their shares, the same needs to be demonstrated for the investments on their platforms.
Until this is widespread, the market cannot claim to be fully mature.