03/09/12

Why crowdfunding is trending: Investing in the Facebook era - Spend & Save - Money - The Indepe

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Whycrowdfundingistrending:Investinginthe Facebookera
Youcouldbuyintothenextbigthing,butyoucouldjustaseasilylosethe lot
CHIARACAVAGLIERI,JULIANKNIGHT Send Recommend 7 Tweet SUNDAY02SEPTEMBER2012 16 Share 11 4 PRINT EMAIL
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LatestinSpend& Save Don'tbesnowblind: Alpinehomeshavea summervalue WealthCheck:'ShouldI focusonahouseormy pension?' JulianKnight:Rain keepsfalling,so insurancewillkeepon rising Usedcarbuyerbeware evenfromadealer Morrisons'loyalty schemeoffersanew twistonfueldiscounts TheBargainHunter: Discountdealson brandnewcars MarkDampier: Infrastructurefundison therightroadfor attractiveyield Greentaxesareadding 2bntoourenergybills FiveQuestionsAbout: Claimsmanagers Newsinpictures It'salittlelikebeingoneofthedragonsontheBBC's hitseriesDragons'Den.Businessespresentyou AdsbyGoogle withtheirpitchandyoudecidewhetherornotto VoloperAmsterdam invest.Suchisthebasiccrowdfundingconcept, Trovasubitounvoloper AmsterdamPrenotae whichhasspreadfromtheUStotheUKat risparmiafinoal70%! breakneckspeed. Amsterdam.volo24.it WealreadyhavethelikesofPleaseFundUs, PeopleFund.it,BuzzbnkandSpacehive,whichall focusoncreativeandpublicprojects.Andtheseare beingjoinedbylaunchesbanktothefuture.comand Kickstarter,whichhailsfromtheUS.
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QuestionsofCash:Iwouldnotflywhilemymother wasterminallyill,butAerLingusseemedtogain frommybereavement Whycrowdfundingistrending:Investinginthe Facebookera Paymentholidayscanbeanythingbutawelcome break Tenwaystoearnasecondincome Morrisons'loyaltyschemeoffersanewtwistonfuel discounts

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Whereassociallendingsitessuchas andprivatefinancingof infrastructure Fundingcircle.comusedebtasthefocusfortheir www.meridiam.com collectivepower,thesecrowdfundingsitesare offeringequityaskingagroupofinvestorstoput uprelativelysmallsumsofmoneytohelpstartups getontheirfeet.Insteadofearninginterestonaloan,theinvestorsputupcash inexchangeforastakeinthebusiness. ThelikesofCrowdcubeandthenewlylaunchedSeedrsprovideanonline platformforpeopletopitchtheirbusinessideaoraproject,inthehopethatthey willbringinasmuchmoneyaspossible. Typicallythereisaspecifiedtargettoreachwithinaspecifiedtime,andmoneyis returnedtotheinvestorsifthisisnotmet,muchasagroupbuyingsitesuchas Grouponworks.Ifthetargetismet,investorsreceivesharesinthebusinessor

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projecttheyhavehelped,althoughinsomecasescontributorscanreceive rewardsinstead. "Thepullforinvestorsistheabilitytohaveastakein'thenextbigthing'the nextTwitterorFacebookortoplayatDragons'DenanduncoverthenextLevi Rootsthateveryoneelsehasmissed,"saysAndrewWhiteleyattheindependent financialadviserProvisio. Fromaninvestmentperspective,yougettoinvestwhatcanbefairlymodest sumsofmoney(fromaslittleas10)withthepotentialforimpressivereturnsif youbacktherighthorse. Taxwise,returnsfromequitybasedinvestmentsaresubjecttotheusualrules, butmanyoftheequitymodelsofferinvestorsEnterpriseInvestmentScheme (EIS)andSeedEnterpriseInvestmentScheme(SEIS)reliefontheir contributions,whichcouldmeanupto50percentincometaxreliefand exemptionfromcapitalgainstax.

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However,it'snotallplainsailingwithcrowdfunding.TheFinancialServices Authority(FSA)warnedrecentlyoftherisksthatinvestorscouldlosethewhole oftheirstakeandsaiditshouldbethepreserveofsophisticatedinvestors.To date,Seedrsistheonlycrowdfundingsitethatisauthorisedandregulatedbythe FSA. Moststartupsfail,andeveniftheydon't,theyareunlikelytoturnaprofit quicklysoyoumaynotseeareturnonyourinvestmentforanumberofyears. ThereisalsonoaccesstotheFinancialServicesCompensationScheme(FSCS) ifthingsgowrong,andtheFSAhasalsowarnedthatinvestors'shareswill producefewdividendsandwillpotentiallyprovetobeverydifficultoreven impossibletosell. Evenifyoudomanagetobackayoungbusinessthatgoesontodoverywell,you mayhavetohandasliceofyourinvestmentbacktotheplatformSeedrs,for example,chargesinvestors7.5percentofanyprofitstheymakeifthebusiness issold,floatsorpaysadividend.Additionally,whenthecompanyneedstoraise moremoneyandissuesfurthershares,existingshareholdingsmaybediluted. KusalAriyawansaatAppletonGerrardWealthManagementsays:"Itisabout timewehadtheregulatorstandingupandforecastingproblemsproblems whichonmanyoccasionshavebeencreatedbybadadvicebasedaroundgreed, bothfortheadviserandtheclient.

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"Thisway,theclientreallywillneedtobewelloffbeforeanadvisercansign suchinvestmentsoffassuitable." Thatdoesnotmeancrowdfundingcan'tplayaroleinadiversifiedportfolio,but onlyifyouarewillingandabletotakeapunt.Investingforgrowthandincome isimportanttokeepanyportfoliobalanced,butthemessagehereistoonlyplay aroundwithcashthatyoucanbeartolose. HarryKatz,afinancialadviseratNorwestConsultantsisunequivocal."Asfaras investorsareconcerned,thisshouldbelookedatasasubstituteforwasting moneyatWilliamHill,thelotteryorthefootballpools,"hesays."Itislessofan investmentandmoreofaflutter."
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