Blog

Invest with the crowd, or not?

Jonathan Gold

01 Nov 2015

It’s amazing that people think Crowdfunding is new. What is new I guess is that the general public can go onto on-line platforms and share the risk of making an investment in a start-up or small business.

Actually, the stock markets of the world have allowed the public to invest in businesses for decades. The difference is of course there is a large barrier to entry for a business before it can “list” or be placed onto a public market, a lot of expense too. There are also rules that specify exactly the size, age and standards expected of businesses before they can list and trade shares to the public.

The reason for the standards is so that the public can be assured that they are not taking an un-necessary risk. Of course you can still lose money if you buy shares. They go down as well as up. On a stock market you are however assured that professionals have spent a lot of time and expense to ensure that what the business tells you about itself is correct and that its future projections for growth are at least credible and based on something.

So back to the small guys who can’t access the markets and public investors when they need to start up or raise cash to grow. Well, they turn to venture capital investors who are used to dealing with risky “un-listed securities” or businesses not on the market. Then of course there are business Angels who have enough money to loose and or know what they are doing, in theory.

There is now also of course Crowdfunding websites, a form of mass share issue to the public. Also the good news is that the regulators in the UK and USA, the FCA and SEC respectively are catching up to impose standards on the sector and the best sites are checking and working on the businesses. However, some crowd platforms are still, a bit like the internet in general, a place where the ill-informed can get caught out.

So ask around, take professional advice, it is sometimes better to come together and spread your risk. I am in favour of crowdfunding, just look and take informed decisions. There are also brokers and people like us here who can build syndicates to help suitably qualified investors come together and spread their risk with others. We can always tell you if you count as a qualified investor.

Whatever you do think before you invest and remember start up and small businesses are a great way to invest and lose your money but they also win, some of the time.


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