In this weekend’s Financial Times (March 7 2015), InvestingZone’s Chief Executive, Jean Miller, spoke to money reporter Judith Evans in her piece ‘Popular Capitalism or the Madness of Crowds’ (this article is behind a paywall).
The article looked at the growth of the industry to date, some of the major players, but also some of the questions investors must be aware of before they consider investing and issues that may arise.
Here are some of the key points that Jean and the InvestingZone is keen to point out:
“Jean Miller, chief executive of the crowdfunding platform InvestingZone, advises investors to ask themselves how much they expect a company to be able to grow. “If it’s valued at say £20m now, even if it does well, will it do well enough for me to get 20 times [my initial investment] or am I going to get two times? You need your winners to do well.”
Crowdfunding should only make up a small proportion of an individual’s investments; those who are not “sophisticated” or “high net worth” investors must certify that they will not commit more than 10 per cent of their assets.
Opinions are divided on whether investors, especially small ones, actually want the opportunity to vote as shareholders. InvestingZone, which is itself backed by venture capitalists including Jon Moulton, founder of BetterCapital, believes that investors will want to be involved in the companies they back, so it has created a series of online tools for them to do so; it offers proxy voting online.
“All those small shareholders collectively have a big voice,” says Ms Miller.
Issues such as pre-emption and dilution may be of little interest to people paying £20 to help out a friend. But for those who want a long-term stake in the success of the company, they can be crucial. Most early-stage companies carry out several fundraisings, which will dilute existing funders.
If an investor has pre-emption rights, they will be offered early access to future fundraisings, giving them the opportunity to top up their stake. Without them, they face dilution in future fundraisings.
It is worth reading the piece in full if you have the chance, InvestingZone is keen to see the industry grow, yes we want to see investors make a return on their capital, but is important that they aware of what they are investing in and that they understand all the terms and conditions up front.