Crowdfunding – risky business

I wrote back in November 2015 about my first tentative foray into investing through crowdfunding platform Crowdcube.

I’ve now made several small punts on the following businesses, all of whom raised funding through the Crowdcube platform:

  1. Alexi – a curated book app
  2. Vulpine – cycling apparel brand
  3. Chilango – Mexican fast food
  4. Cauli Rice – healthy food
  5. One Rebel – funky gyms
  6. Five Point Nine – coffee subscription
  7. Simply Cook – recipe kits

And one through the Syndicate Room platform:

  1. Lobster – digital photo marketplace

These are all equity crowdfunded investments. Separately, I’ve also put small amounts into a couple of crowdfunded mini-bonds, debt funding for businesses a little further along the growth curve:

  1. The Bondi Bond – a chain of Aussie style cafés (11% interest rate)
  2. Brewdog – craft beer (6.5% interest rate)

I’ve also been to investor events at Crowdcube and Syndicate Room, to meet the management teams and to network (ugh!) with other investors and some of the entrepreneurs pitching their businesses and investment opportunities.

I’m under no illusions about how risky this brave new world of crowdfunding is, as I noted in my November article. But you’d expect Crowdcube – and all the other crowdfunding platforms – to carry out a minimum level of due diligence before putting opportunities in front of investors. Especially as they’re regulated by the FCA.

But stumbling on this blog from Rob Murray Brown – fantasy equity crowdfunding – reveals some serious concerns about this brave new world of crowdfunding. It’s not surprising that he shines the brightest light on Crowdcube – the oldest and largest UK platform – which as of today claims to have raised £148.5m for 378 completed campaigns, from 267,169 investors currently registered with them.

If some of RMB’s accusations have merit, crowdfunding could be the next financial services disaster in the UK. So far, I’ve only invested small amounts that I’m prepared to lose. I hope one or two successes exceed the inevitable losses on most, and I have a bit of fun along the way, but – if I take off my rose-tinted glasses – that’s probably unlikely.

With the current levels of publicity and momentum behind crowdfunding – and historically low interest rates on traditional savings vehicles – there’s a real risk that naive investors might lose a significant proportion of their wealth.

I’m thinking about starting a separate blog myself to dig deeper into this burgeoning world, so that I can understand it better and to try and help others along the way.

What do you think? Potentially interesting and useful….or will everyone just continue to follow the crowd?

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