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Don’t just follow the crowd on peer to peer lending


I read last week’s crowdfunding analysis piece in Money Marketing with great interest.

Crowdfunding is getting plenty of attention in the national press. And it’s not without its critics. Quite rightly there is a degree of scepticism. Any emerging investment opportunity must be thoroughly researched and the appropriateness to potential investors questioned.

There are many crowdfunding opportunities out there, and a number of platforms – some regulated, some not – offering people a chance to get involved. These ‘investment opportunities’ range from risky start-up businesses, with little or no security – a speculative punt if you will – to more secure fixed return debenture style investments using already established projects that have had a good deal of scrutiny and due diligence undertaken before being set up as investment vehicles.

But, when it comes to comparing opportunities and advising clients, it’s sometimes hard to see the wood for the trees.

Unfortunately, at the moment at least, all crowdfunding opportunities are tarred with the same brush. That’s understandable as it’s still a relatively new sector.

However, for clarity, crowdfunding involving repayable finance/investment is a regulated activity. Firms are authorised by the FCA, the main ones being Abundance Generation, Seedrs and Crowdcube. There are others operating as appointed representatives of authorised firms (Trillion Fund for example).

Donation or reward crowdfunding and peer to peer platforms utilising simple bilateral loans are “outside the scope of regulation” (p2p is regulated in part by the OFT).

There are some models of crowdfunding which are exempt but this is not the same as being “unregulated”. 

The soon to be published consultation from the FCA is about clarifying the regulatory framework so that it is more appropriate and proportionate – balancing the need to provide protection for consumers and helping develop a robust, well run, growing industry sector.

The industry, through its main trade association the UKCFA, is asking for regulation that is appropriate and proportionate.

Like any investment, there are risks involved in crowdfunding, but those risks differ wildly depending on the actual project you’re investing in. The old adage ‘if it looks too good to be true’ has never been more appropriate, so caution must be exercised before advising clients in this area.

As Plutus Wealth’s James Robson said in last week’s Money Marketing analysis, advisers are going to have to be able to talk knowledgeably about crowdfunding with their clients.

And they shouldn’t make the mistake of assuming that all crowdfunding opportunities are created equal. They are not. Some raise debt, some issue equity, while some look for donations. The businesses seeking the money vary significantly too – from speculative and risky ones to sensible businesses with reliable and predictable revenues. There are some very good investments out there that could help diversify a portfolio, hedge against inflation and provide market level returns. It would be a shame to ignore these opportunities. 

One suggestion for advisers would be to find a crowdfunding platform that they like, with a team and a due diligence process that they trust and a business model they understand. 

 Guy Tolhurst is Managing Director at Intelligent Partnership


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Nice piece Guy

    I got blasted for daring to criticise last week.

    I also notice that there has recently been the announcement of a launch in the New Year for ‘dot com’ entrepreneurs. No details yet – so I wonder why they bothered making the announcement.

    Also I find it very sad that if their avowed aim is for a measure of ‘social good’ that their first effort is not in the manufacturing and potentially export led field. No doubt too difficult and requires the founders to put in too much of their own money. Computer based operations in general pretty asset light and a bit of an investment soufflé – as experience has shown. Unfortunately people have short memories.

  2. Goncalo Vasconcelos 8th October 2013 at 9:58 am

    Great piece indeed Guy,

    As per your article last week, we are finding IFAs and wealth managers approaching us to learn more about crowdfunding. However this is usually instigated by their clients as conversations always seem to start “A client of mine asked me about crowdfunding and I would like to give him a good answer. Can you help?”

    Our model is a far more sophisticated approach to equity crowdfunding. We give smaller investors the power to invest together with Business Angels in the very same deals under the same economic terms.

    Interestingly we argue that it gives the greatest level of trust possible – nobody is advising anybody else to invest. Instead Business Angels are confident enough to invest their own money into the very same deal and allowing smaller investors to make their own decision to follow suit.

    IFAs and especially individuals seem to like it. A lot.

    Goncalo, founder of

    Ps – Harry – check last week’s article as I thought you had a good point to raise and followed up your comments –

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