The Rise of Real Crowdfunding
Crowdfunding has become a mot du jour in the media and entrepreneurial circles. However, the use of crowdfunding as an umbrella term has led to confusion around what it actually is, and what it is really meant to be. The FCA plans to impose new regulations on all equity-based crowdfunding platforms from April 2014 and released a regulatory approach paper this week. In light of this and our recent blog posts surrounding reward-based models, we though it best to demystify exactly what this means for entrepreneurs that are considering crowdfunding for their businesses.
In their latest consultation paper published 24 October 2013, the FCA identified different types of crowdfunding models, and confirmed the distinction between rewards-based crowdfunding, and the equity-based models. The regulations which the FCA has decided to enforce in April 2014 will only address the equity platforms.
Equity platforms are not a genuine “alternative” in the world of alternative finance. They operate on a loan or investment basis, and in essence they are simply the online versions of traditional financial institutions. The FCA’s decision to introduce new regulations to control these platforms is a recognition that they are burdened with exactly the same restrictions and the same risks as the banks.
Reward-based crowdfunding – real crowdfunding – is different.
It is a genuine alternative finance solution, which allows people to support entrepreneurs or creative projects in exchange for personalised rewards. Reward-based models are not just about profit, but about great ideas, and allowing a spirit of sustainable entrepreneurialism to flourish. This is the ethos of real crowdfunding: a democratic, inclusive way for anyone with a great idea to garner financial support, without having to give up equity or control of their business.
Equity and investment platforms can have many complex loopholes and fine print that may trap an unwary investor. Real crowdfunding, however, is simple, transparent, and accessible to everyone. The project owner explains what they need crowdfunds for, and what they will give in reward – whether this is the first copy of their new single, a personalised thank you, or tickets to their show. If the rewards and the project are appealing enough for someone to want to give their financial support, they can then promise as much or as little as they like. At BloomVC.com we harness the collaborative power of the crowd. We connect an online community that generates financial support based on nothing more than curiosity and generosity.
Rewards-based crowdfunding is real crowdfunding, and it is the future of finance. Its popularity is testimony to the ingenuity and generousity of funders and project owners alike, as well as to its ability to produce viable, successful businesses. We are confident that it is the only source of genuinely innovative enterprise finance, and we welcome the FCA’s decision to distinguish it from other models. Real crowdfunding is a flourishing alternative movement, which can only continue to thrive.