MoneyTalk

 

How To Be An Armchair Dragon

22 March 2011
In this week’s episode:

David chats with Darren Westlake, the co-founder of CrowdCube, which offers a new way of helping businesses raise finance. They look at different types of venture capital, from seed and growth capital through to buyout funds. Darren explains how and why CrowdCube was created, and looks at how we can be an armchair "Dragon" with very little money.

 

A transcript of this podcast is also available.

David Kuo and Darren Westlake
David Kuo and Darren Westlake

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

rober00 22 Mar 2011 , 5:19pm

This sounds like a very DANGEROUS concept, no wonder it is not FSA approved. Anyone who knows anything about the dragons den knows the difficulties experienced by both the investors and the investees there.

I myself will stick to investing via Venture Capital Trusts, where there is a great deal of expert knowledge, tax reliefs and and the ability for experts to carry out proper due diligence.

medelia 22 Mar 2011 , 11:03pm

My understanding from listening is that they ARE FSA approved.

It seems to me that that crowdfunding is about lots of people investing very small amounts - say £20 each - rather than the traditional approach of one or two wealthy angels putting in a lot more. Of course the £20 is at risk, but at that level of investment i'm not sure it's 'dangerous'.

Looking at some of the pitches on the site, someone thinking of putting in more can ask questions, do due diligence etc - I guess they would follow the normal angel investment process - and at least one company mentions EIS relief too.

Personally I think it's great - a similar thing in the US (Kickstarter) has seen phenomenal success - and for start-ups it may be the only way to raise the cash they need.

darrencc 23 Mar 2011 , 12:23pm

Hi, Darren from Crowdcube here...

medelia, you have got it spot on! :)

Our web site IS approved as a financial promotion by an FSA authorised firm.

Crowdfunding is more about lots of investments of smaller amounts of money.
Investing this way is very transparent compared to something like a venture capital trust and allows you to engage directly with the business you may be interested in investing in.
You can indeed perform your own due diligence or as a 'crowd' use pooled knowledge to perform a crowd based due diligence.
I'm sure its not as safe a bet as a VCT but with higher risk can come higher reward. And its definitely more fun!

southtopia 25 Mar 2011 , 8:43am

Darn... I have a small request: in interviews about services like this, could you please specify if participation is restricted to people in certain countries? The interview seemed to suggest crowdcube was open to anyone (as does the site's FAQ), now after reading the fine print I discover I'm locked out as a non-UK resident. This has happened a few times now, so a heads-up in future stories would be appreciated.

bobbob42 25 Mar 2011 , 9:44am

This seems like a great idea, but I'm a little bit confused about the FSA issue. You say that the website is approved as a financial promotion by an FSA authorised firm, which means (under Rule 4.2 of the FSA's Conduct of Business Sourcebook) that the firm must have concluded that anything on the website that could induce investment -- including especially the startups' business plans -- are fair, clear and not misleading. Are they reviewing all of the plans as they get posted? If not, how have they approved this promotion? And why are there none of the health warnings you usually see on financial promotions?

It also seems to me that you're arranging deals in investments, which is a regulated activity under FSMA -- how are you allowed to do that without being FSA authorised yourself? And what about anti-money laundering checks, which would seem to be required if you're accepting and pooling payments?

The concept is a wonderful one, and I absolutely disagree with rober00's views -- investing in VCTs is sure-fire way to lose money, while making small investments in the startups you find appealing makes a whole lot more sense. But financial regulation is tricky, and it's really important that both investors and entrepreneurs know that this is above-board and understand the analysis.

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