Vannessa Cowling, general counsel of equity platform VentureFounders, writes in TechCityNews on a subject close to our crowdfunding hearts – getting the simple things, like names, right.
“In 2013, when crowdfunding was first gaining momentum in the market, in the consultation paper ‘The FCA’s regulatory approach to crowdfunding (and similar activities)’ the Financial Conduct Authority described crowdfunding as ‘a way in which people, organisations and businesses (including business start-ups) can raise money through online portals to finance or re-finance their activities and enterprises’.
“In addition, the FCA set out the main types of crowdfunding:
“At first glance, this is a pretty clear definition and division of the main sectors of the crowdfunding industry.
“However, as the market has matured and more models have entered the alternative financing space, the term crowdfunding seems to have become diluted.
For a start, crowdfunding is used interchangeably with other similar concepts such as crowdsourcing, crowd finance, community financing, peer to business investment and peer to peer lending (which in turn is also confusingly known as marketplace lending or crowdlending as well as many other things).”
“At Money&Co., we have long held the view that there’s no hope of getting anything right if you don’t actually know what you’re talking about. We’ve consulted with Bryan Zhang and Professor Robert Wardrop of Cambridge University’s Judge Business School, and here’s our own taxonomy – first published here over a year ago:
Crowdfunding is a general term for the process of raising money – “funds” – directly from “the crowd”. Typically, the crowd is constituted of a large number of persons each of whom contributes a small sum of money to a specific purpose.
There are two points to amplify here.
First, what do we mean by a “person”? For crowdfunding purposes, a “person” is a rather legalistic entity, whose definition takes us a long way from common-sense, everyday language. A human being is a person in the eyes of the law, as is a big company. So Mrs Smith is a person, and so is Rolls-Royce plc. Both Mrs Smith and Rolls-Royce are capable of being among the persons who make up the crowd that does the funding. We’ll go into more detail on who’s in the crowd later.
Second, what’s the “purpose” of crowdfunding? As we say, crowdfunding is a general term for the process of raising money. Back in the early days of email, people who raised money for charity by emailing all their friends in a big group email were doing a primitive form of charity crowdfunding. Other common purposes for crowdfunding are to raise share capital incestment (the person in the crowd takes a direct stake, or shareholding, in the company seeking funds). Many commentators say this process rather risky, and that a high percentage of the typically young companies seeking funds fail. It is known as equity crowdfunding.
The purpose of the fund raising on Money&Co.is to lend money to much more mature, developed businesses with a strong profit record. The process does not involve investing, but lending money. Its technical name is credfund lending, or peer-to-peer (P2P)business lending (a person, human or corporate, lends to a business).
Money&Co. is in the P2P business lending sub-sector of crowdfunding.
Current Loan & Risk Factors
Our current loan offering is 40 per cent funded, with an indicative rate of 8.9 per cent, with 17 days of the auction remaining. See Home Page or Lend, and register for full detail.
Our loans are only offered if our borrowers are free of all other debt, and have a track record of sustained profit. Moreover, Money&Co. takes a charge on the assets of the company, which is exercisable if a borrower defaults. The relevant assets could then be sold and used to reimburse lenders. As yet, after two years’ trading, no borrowers are in default. See our recent article on Money&Co.’s conservative attitude to vetting deals.
That said, remember that when lending, capital is at risk. Please see risk warnings on our Home, Lend and FAQ pages and elsewhere on this site.