This independent report -‘The Future of Crowdfunding in the UK’ is from writer/ researcher/ economist Ian Youngman, who specializes in reporting on new financial ideas, tackles UK crowdfunding. The author is no fan of Kickstarter and postulates the industry must get itself in order to become successful.
Youngman comments, “Most publicity has come from crowdfunders or their opponents, so this is the first major independent review of crowdfunding in the UK.With around 100 platforms plus another 40 loan only ones, every week brings a new player.”
Crowdfunding is an increasingly popular way of financing projects, business ideas, charity and loans through small contributions from a large number of individuals. The collaborative power of crowdfunding can stimulate the economy, democratise financial systems, create new and better jobs, foster innovation and entrepreneurship, strengthen civil society, and help local communities flourish.
Raising funds for projects, loans and business ideas through business angels or traditional lending from banks is hard. But there are concerns on regulation, scams and fraud that need to be watched.
There is confusion on the differences between equity, debt, donation, reward and revenue based models. The UK is the most advanced country in the world for equity crowdfunding. The potential for use with or instead of traditional lending is huge and is a real new alternative to banks and venture capitalists as their traditional role as gatekeepers to finance is undermined.
This report only covers peer-to-peer lenders that also offer other types of crowdfunding – as a separate report on UK Peer to Peer lending is in preparation -‘The Future of Peer to Peer Lending in the UK’
An extract from the report is posted below:
In the coming decade, we will see an increase in crowdfunded projects. At a time when “free” is becoming the norm in a society that’s producing more and more artistic, social and humanitarian projects, micro-funding appears to be enjoying its day in the sun. it is a positive way to directly support good ideas, relieving project founders of the burden of seeking large sums and going through the cumbersome procedures of investment, which can be exhausting and keep them from their primary goal: to make good things happen.
Banks and other lenders are downplaying crowdfunding and peer to peer lending as it takes away their control as gatekeepers between investors and investments/lenders/ social causes.
With the right frameworks and standards,and as banks still promise the earth on lending but deliver little and at a larger cost than SME’s can stand, the environment for a massive growth in crowd funding exists.
But much of what is written about crowdfunding comes from within the market or its supporters. I have studied other areas that have grown from nothing to international in a short time and the main problem is that such growth attracts the scammers, the sharks and the snake oil salesmen keen to make money out of a gullible public before they truly understand the new market. They are usually gone within a decade , but can cause huge damage or lead to such tight regulation that it strangles the concept
As banks and other traditional lenders get increasingly risk averse, crowd funding is vital for new technological ventures, media content such as games, independent films, lifestyle businesses and social ventures.
Growth is accelerating as more platforms are launched, particularly sector specific ones.
Investor excitement and interest may fall if there are spectacular platform failures or frauds.
With over 1000 platforms globally- there is a huge growth- but there are already signs that amateur ones have folded or are simply unable to get projects funded.
Many of the good professional UK platforms are rigorous in what they allow on, and reject no hopers .
But platforms that put any old junk on do the industry no favours which is why i am not a fan of Kickstarter with almost one in two failures and even some competed projects unable to deliver rewards on time.The industry has to get professional -if it does not -it could get regulated out of existence.
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