The recent establishment of the UK Crowdfunding Association shows that the crowdfunding model is becoming an established way for businesses to attract equity investment through SEIS/ EIS schemes by presenting themselves online to large numbers of investors.

The key players in the equity crowdfunding space are currently Seedrs and Crowdcube.  They have been industry pathfinders finding innovative ways to engage with the FSA to get approval to market investment opportunities.  This innovation has in some commentators view, come with compromise.  In Crowdcube's case businesses have to welcome a crowdcube representative onto their board.  In Seedrs case they retain the nominee vote on behalf of the "crowd" investors.  It is heartening to see these early adaptors in the sector work hard to protect investors.

Both Crowdcube and Seedrs have focused on the start-up sector. These are businesses who find it the most difficult to find cash but they are also the investments who potentially can give the highest returns, but as has been mentioned in other blogs (and is well known in the venture capital world) the failure rates are very high.  

This is the challenge the equity crowdfunding sites haven't faced yet - how will they cope with their failures?  Seedrs and Crowdcube's sites are clear about this and warnings are explicit but how the crowd copes with emails explaining that the start-up has failed or what is inevitable, they need to carry out another round of funding to continue, will be a key moment for them.

A site which is also a founding members of the UK Crowdfunding Association is Bank of The Future and they are pushing things further than a pure equity investment by offering investors the opportunity to make both equity investments but also pledge funds with the expectation that they'll be rewarded with the product they are funding.  They don't appear to have approached the FSA for approval.  This is closer to the Kickstarter model.  They gained international notoriety for the pebble watch that attracted so much crowdfunding investment that they went from a small tech company to a world wide manufacturer almost overnight.  They had offered the investors the opportunity to pledge money with the expectation they would receive a watch, which is recognised as the forerunner for the Apple watch.  This rapid expansion would break many a company, but despite some set backs in terms of missing deadlines, they have started delivering the watches.

Another sector in this space are the crowd lenders like Funding Circle.  They offer investors the opportunity to provide loans to established, trading businesses with good credit ratings in exchange for interest rates.  This is works very well and is particularly good with investors with cash who want a return and a quick exit. The scrutiny the Funding Circle put on borrowers make it a solid vehicle without the potential problem of failing businesses. 

What comes next is the big question for the Crowdfunding Association.  They have a membership of Crowdfunding sites offering loan, equity, pledge, sponsorship funding for all types of mainstream business, social, environmental, entertainment and other sectors.  My thinking is that it will become another facet of ecommerce.  We visit most business websites with the expectation that that there will be an opportunity to buy their products directly.  Will we in the near future read about an exciting start up or product and visit their site with the expectation that we can invest in them directly or lend them money or pledge funds with the expectation we'll be the first to have their product directly through their own site?

Only time will tell - but in the music and sport industry we already do it.  Buying a ticket nine months before a music festival is crowdfunding the event. Buying a season ticket for a football club is crowdfunding.  How long until Burberry "crowdfund" their next handbag or a pharmaceutical company approaches the crowd to take a drug or treatment from testing to market?  Time and the power of the crowd will show us. But I don't think it will take that long.