Barry E James, founder of collaborative capitalism think tank the Social Foundation, and Huddersfield MP Barry Sheerman have written to George Osborne asking him to repudiate suggestions from the Financial Conduct Authority (FCA) that crowdfunding is unsafe for investors. Their concerns centre on news reports this week in which the FCA raised fears about crowdfunding investors being only partially aware of “risks” associated with the process.
“We believe most crowdfunding should be targeted at investors who know how to value a start-up business, and who appreciate the risks involved and that they could lose all of their money,” the FCA told the Sunday Times. “We want it to be clear that investors in the majority of crowdfunds have little or no protection if the business or project fails.”
In Monday’s edition of the Kensington & Chelsea Today, John Williams – managing partner of investment firm Kuber Ventures – added to the criticism, saying that “by investing in small business through crowdfunding websites, investors leave themselves exposed.”
James and Sheerman believe the FCA has adopted “fear doubt and uncertainty” (FUD) tactics to undermine public confidence in crowdfunding, which has raised millions of pounds for new UK businesses. Sheerman said the FCA’s comments unjustly infer that crowdfunding should be limited only to experienced investors. “At a time when it is very difficult for small businesses and start-ups to get access to funding,” he argued, “many of us regard crowdfunding as a welcome alternative to a banking sector that has failed investors, customers and small businesses alike.”
He added: “These negative, unattributed comments from the FCA, which strongly imply that crowdfunding should be reserved only for experienced investors and city-types, are unhelpful and give a distorted picture of the crowdfunding sector. Those of us with deep knowledge of the sector have not seen any evidence of investors being systematically misled or exploited.”
James, meanwhile, declared that the transparency of crowdfunding provides investors with more than adequate security: “In fact,” he said, “it’s increasingly clear that crowdfunding operates differently than the shadowy world of these ‘city types’ because it is, by its nature, open. Everything is on show and the crowd is watching – and typically has many thousands of eyes … many more than any regulator.”
Spearheaded by online platforms such as Kickstarter, Quirky and PledgeMusic, crowdfunding has democratised investment, bringing barriers of entry down and challenging traditional models by allowing everyday people to fund business projects.