Crowdfunding is under a cloud
Once the failures begin, it will become much harder for crowdfunding sites to attract more investment.
When Escape the City wanted to raise £600,000 to increase the size of its platform for those wanting corporate career moves, the founders faced a difficult choice. They could either accept funding from a venture capital firm, or they could try investment-based crowdfunding instead.
They chose crowdfunding, feeling it would match the ethos of the company better, and managed to raise the money from their members, with 395 people putting in between £200 and £20,000, in return for a combined equity stake of 24pc.
Co-founder Rob Symington said: “It was so appealing to have people who use our service backing us to build it. Crowdfunding has an opportunity to fill a really interesting space in the enterprise investment area.”
It is not hard to see the appeal. Investment-based – or equity – crowdfunding works by amassing small amounts from individuals to create a sum large enough to be of use to a business.
The entrepreneurs get the funding they need, and investors can invest as little as £10 in return for a sliver of equity that may produce a gain if the business is sold.