Crowdfunding Explained


20 Apr
20Apr

What is Crowdfunding?

It's raising money by asking a wide range of people to each contribute a relatively small amount of money. It is commonly done via online platforms set up specifically to connect with potential funders.

"Crowdfunding is a way in which people, organisations and businesses, including business startups, can raise money through online portals (crowdfunding platforms) to finance or re-finance their activities. Some crowdfunding activity is unregulated, some is regulated and some is exempt from regulation." FCA

C-fundees

The C-fundee (i.e. the person, business, social enterprise etc. seeking funds) will explain and profile the to-be-funded project on a selected specialist Crowdfunding website and will ask for contributions, based on the information they have provided.

Which? explains that C-fundees will need to register their details on the Crowdfunding website if they want to start raising funds or see other people’s pitches to invest in.

 C-funders

For as little as £5, someone who wants to fund via a Crowfunding platform, can invest in a project that they’re interested in, which could range anything from a small startup to funding a film or theatre production.

Hopeful C-fundees looking to raise money should tell potential C-funders:

  • How much needs to be raised
  • How much has been raised so far
  • The share in the business offered
  • What the money will be used for
  • How long the pitch is open for
  • How many people have already invested
  • When you will receive a return for investing

Which? also recommends that C-funders contact C-funders for further information if anything has been left unclear in their pitch. C-funders will have a 14 day cooling-off period in case they change their mind.

Investments can only go ahead if the business, individual or social enterprise meets their target amount in the time specified - if not a C-funder's money will be returned.

Risks of Crowdfunding

Crowdfunding is a relatively new way of raising money for new and emerging businesses and does carry risks.

According to The Money Advice Service the risks are:

The business you invest in might go bust. Many new businesses fail in the first few years, so you could lose all your money.

The return is not guaranteed. The shares may not rise in value and you may not receive any dividend payment (a share of the profits).

It may be hard to sell the shares. The shares are normally unlisted, which means you may not be able to sell them easily in the way you could sell shares in a big company that’s listed on the stock market.

The crowdfunding platform itself may go bust. This could mean you lose money if you’d paid the crowdfunding website but it goes bust before your money was invested with the business.

The Financial Conduct Authority (FCA), which regulates Crowdfunding (see below), sets out its own risk analysis including this:

"Consumers who invest via loan-based crowdfunding platforms need to be aware that:

you won’t have access to the Financial Services Compensation Scheme (link is external) (FSCS)

although some platforms have a way of cashing in your investment (a secondary market), you may not always be able to cash it in quickly or for as much money as you paid

loan-based crowdfunding is higher risk than holding money on deposit. You may lose some or all of the money that you invest"

Regulation

Most crowdfunding platforms are regulated by the UK's financial watchdog, Financial Conduct Authority (FCA).

If your crowdfunding platform is authorised and regulated by the FCA, they must comply with a number of rules about how customers are treated.

The FCA regulates:

loan-based crowdfunding: also known as ‘peer-to-peer lending’, this is where consumers lend money in return for interest payments and a repayment of capital over time

investment-based crowdfunding: consumers invest directly or indirectly in new or established businesses by buying investments such as shares or debentures

These are regulated activities under the Financial Services and Markets Act 2000.

The FCA also regulates payment services provided in connection with:

donation-based crowdfunding: people give money to enterprises or organisations they want to support

pre-payment or rewards-based crowdfunding: people give money in return for a reward, service or product (such as concert tickets, an innovative product, or a computer game)

The Financial Ombudsman Service (FOS), deals with disputes between consumers and regulated financial companies.

Be sure to check whether the crowdfunding platform you use is regulated or not as this will affect whether or not they have to comply with the FCA and your ability to make a complaint about the running of the service.

The FCA's approach to Crowdfunding regulation is explained in its Policy Statement.

Crowdfunding FAQsby UK Crowdfunding and others:

Who can be a crowdfunder? / Is there a minimum or maximum amount for investment or donation? / What are the main risks? / As a consumer how am I protected? / What is the difference between a donation and an investment? / Why are some crowdfunding platforms regulated and not others? / Why do you need a code of practice? / How do I know a crowdfunding platform is following this code? / What happens if a business or venture I invest in or donate to goes bust? / What happens if a crowdfunding platform I use goes bust? / What is the difference between debt crowdfunding and equity crowdfunding?

Crowdfunding Platforms

There are many platforms offering a variety of different ways of raising money for different causes and businesses.

The members' list of UK Crowdfunding is a helpful place to find and research some of these (as at July 2019):

Abundance Investment Ltd

The first FCA-regulated community finance platform allowing investors to invest directly in UK renewable energy projects from as little as £5 and get a regular cash return based on the energy produced.

Website: www.abundanceinvestment.com

Contact: Bruce Davis bruce@abundanceinvestment.com

 AngelList

A platform for startups to raise money and find talent.

Website: www.anegellist.co

Contact: Andy Chung andy@angel.co

Axiafunder

Litigation Crowdfunding Platform offering both debt and equity securities to investors issued by UK registered companies.

Website: www.axiafunder.com

Contact: info@axiafunder.com

Crowd for Angels

Crowd for Angels is a regulated crowdfunding platform that funds companies through the issue of shares and bonds to investors. We fund companies from seed to listed.

Website: crowdforangels.com

Contact: Tony De Nazareth info@crowdforangels.com

Crowdcube

Crowdcube helps startups and growing businesses to raise business finance by letting people invest via their equity crowdfunding platform.

Website: www.crowdcube.com

Contact: Darren Westlake media@crowdcube.com

CROWDJET

CROWDJET is an equity crowdfunding platform helping start-ups and growth stage businesses raise investment.

Website: www.crowdjet.com

Contact: G S Bhalla info@crowdjet.com

CrowdJustice

CrowdJustice is specially tailored for legal action. Unlike other crowdfunding platforms, we handle compliance issues and transfer funds raised to your lawyer directly – you don’t have to handle cash, and your backers know exactly where funds are going.

Website: www.crowdjustice.com

CrowdProperty

CrowdProperty is a specialist property peer-to-peer lending platform facilitating loans between private individuals and UK professional property businesses. Actual property development and investment experience lies at the heart of the business meaning hands-on, expertise-led due diligence and loan monitoring. Lending is focused on the SME property developer market, a key segment for supplying much needed UK housing stock, which is poorly and inefficiently served by traditional funding sources. CrowdProperty is a fully independent platform, authorised and regulated by the FCA, is an HMRC approved ISA manager and is also the only property development platform in the Peer-to-Peer Finance Association (P2PFA).

Website: www.crowdproperty.com

Contact: Michael Bristow info@crowdproperty.com

Crowd with Us Ltd.

Property Crowd Funding Platform specialising in the purchase on London based properties.

Website: www.crowdwithus.london

Contact: Rob Wilkinson: rob.wilkinson@crowdwithus.london

Downing Crowd

We design and manage investment products that help investors look after their financial wellbeing, while our investment partnerships support businesses in their ambitions. Our established Crowdfunding platform offers asset-backed bonds to high net worth, sophisticated, everyday and advised investors.

Website: www.downingcrowd.co.uk

Contact: Julia Groves: julia@downing.co.uk


ENVESTORS

ENVESTORS® (private investor network) and ENVESTRY™ (white-label crowdfunding platform)

The Network for Sophisticated Investors www.envestors.co.uk is authorised and regulated by the Financial Conduct Authority (FCA). Envestors has 3,500 registered sophisticated investors who have invested over £100m in 200+ companies. In 2014, Envestors launched ENVESTRY™. a white-label regulated crowdfunding platform enabling organisations to have their own platform www.envestry.com. We have two white label products: Envestry™ Engage for fundraising companies (single deal) wanting their own investment portal to raise investment and Envestry™ Network for investor networks and special interest groups (multiple deals) wanting to build their own investor network and generate revenue from syndicating investments. Prices from £195 per month. Please contact us for a free demo.

Website: www.envestry.com

Contact: Jerry Plant: jerry.plant@envestors.co.uk

Ethex

A not-for-profit ethical investment intermediary based in Oxford, UK. Our directors offer a wealth of expertise in social investment.

Website: www.ethex.org.uk

Contact: Jamie Hartzell help@ethex.org.uk

FundingSecure Ltd

FundingSecure is a peer-to-peer lending platform that offers short term loans to individuals and businesses secured against their personal assets, including arts, antiques, classic cars, boats and property. Loan sizes range from £500 to £1 million

Website: https://www.fundingsecure.com/

Contact: Nigel Hackett: info@fundingsecure.com

Godwin Finance

Godwin Finance operates a crowd funding platform that seeks to raise funds for property developers and other businesses. This investment platform matches investors wanting the potential for competitive returns with businesses looking to raise funding via a number of attractive bonds eligible for IFISA investments.

Website: www.godwinfinance.co.uk

Contact: info@godwinfinance.co.uk

GrowthFunders

GrowthFunders is an online equity-based crowdfunding and co-investment platform, we match entrepreneurs, who have great ideas and potential, with investors who are looking to build strong investment portfolios. We also have professional partners who work alongside entrepreneurs to ensure that their businesses are investor-ready.

Website: www.growthfunders.com

Contact: enquiries@growthfunders.com

Intro Crowd

Our platform allows people to invest in strategic land, which are sites on the edges of towns and villages. The Government has pledged to build one million new homes over the next five years and the challenge is finding the land on which to build them. We believe our investors can make a contribution to reducing this shortfall, while having potential for a strong return on investment.

Website: www.introcrowd.com

Contact: gregory@introcrowd.com

Kuflink

The first UK platform that lends alongside other lenders through it’s sister company by taking the first 20% to provide that extra comfort. Kuflink Bridging provides pre funded deals on the platform that have gone through two rigorous underwriting processes and separate credit committees – lend from as little as £100.

Website: http://www.kuflink.co.uk

Contact: hello@kuflink.co.uk

MercyCrowd

MercyCrowd is an equity real estate crowdfunding platform that aim to be inclusive and have a positive impact on society. We are offering people the opportunity to purchase their home without debt. The platform is also offering investors interest and debt free real estate investment

Website: http://www.mercycrowd.com

Contact: info@mercycrowd.com

Money & Co.

Money & Co will operate its business through its website. Lenders will be able to lend money to companies that the Money & Co credit analysts have carefully vetted.

Website: http://moneyandco.com/

Contact: CEO@moneyandco.com

MoneyThing

MoneyThing is a peer-to-peer lending platform and part of the fastest growing sector in alternative banking. We match lenders with business borrowers, leaving out the banks and offering better deals all round. We lend to British businesses and all loans are secured by an asset: be that property, vehicles, or business stock. Our lenders earn between 8% and 13% interest per annum, paid monthly. What makes MoneyThing different from other peer-to-peer lenders is our approach to lending. We are committed to providing the best service we can to lenders and borrowers. We do that by listening to our customers, learning from feedback and aiming for excellence. We are a self-funded family business and since our launch in February 2015, we have experienced fantastic organic growth, due to the support of our growing lender and borrower base.

Website: http://moneything.com/

Contact: support@moneything.com

Property Partner

Property Partner is a property crowdfunding platform and trading exchange. We enable people to invest in residential property from as little as £50, earn returns and exit on platform.

Website: http://www.propertypartner.co

Contact: hello@propertypartner.co

Rebuilding Society

Rebuildingsociety.com is a peer-to-business lending platform that connects creditworthy UK businesses looking for a loan with individuals prepared to lend their own money for returns that outstrip retail savings products.

Website: https://www.rebuildingsociety.com/

Contact: Nick Moules nick@rebuildingsociety.com

Sancus Funding Ltd

Sancus Funding Ltd is a peer-to-business crowdlending platform. We match businesses seeking finance with a wide range of investors seeking an attractive return from a diversified portfolio of loans.

Website: https://www.sancus.com/

Contact: Patrick Blair info@sancus.com

Seedrs

Seedrs is a leading online platform for investing in startups and is open throughout Europe. We allow investors to invest as much or as little as they like in startups they choose, and we handle all the paperwork and manage the shares as nominee on their behalf. Seedrs is authorised and regulated by the Financial Conduct Authority.

Website: www.seedrs.com

Contact: Roberto Napolitano: roberto.napolitano@seedrs.com

ShareIn

The UK’s experts in crowdfunding technology and solutions. With ShareIn you can: Run a white label crowdfunding platform to promote your property deals, equity deals, and crowd bonds; become an appointed representative, operating in an FCA-compliant manner without the need for your own authorisation; allow eligible investments to be held in an ISA wrapper and facilitate ISA transfers into an Innovative Finance ISA (ShareIn are an ISA Manager). Raise capital your way.

Call us to learn more: +44 (0)131 641 0018

Website: www.sharein.com

Simple Crowdfunding

Simple Crowdfunding is a UK property marketplace that offers both Peer to Peer Lending (including investment through the Innovative Finance ISA) and Equity projects. Our projects range from basic planning gain opportunities to full scale multiple-unit developments and builds. Some of our projects also offer ‘Learn Whilst Investing’.

Simple Crowdfunding is authorised and regulated by the Financial Conduct Authority.

Website: www.SimpleCrowdfunding.co.uk

Email Atuksha Poonwassie: Contact@SimpleCrowdfunding.co.uk

Triodos Crowdfunding

Triodos Bank is the first UK bank to launch a crowdfunding platform and offer the Innovative Finance ISA. We only promote investment opportunities in social and environmental organisations delivering positive change.

Website: www.triodoscrowdfunding.co.uk

Email: Whitni Thomas: crowdfunding@triodos.co.uk

UOWN

UOWN is a platform for people to own a share of a house and enjoy the benefits of property investment from as little as £20.

Website: www.uown.co

Contact anything@uown.co

By the publications team at: Contracts-Direct.com

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