Crowdfunding vs The Investment Banks and Stock Exchange

Crowdfunding vs The Investment Banks and Stock Exchange
31st March 2016 Barry J. Murphy

Recently I decided to take a really close look at where crowdfunding is at and what its future is. My research involved speaking to a couple of legal experts in the crowdfunding space in the UK, Europe and the USA.

Before I go any further, let me share with you one of the most interesting opinions I read, which was that an investment banker’s average success rate of investment on new businesses is 30%, and the public’s success rate on crowdfunding websites is 70%.

The reason put forward was that the investment banker only looks at figures, forecasts, potential profit margins and statistics, whereas the ordinary citizen who decides to invest in a company or idea, only looks at it from the point of view of whether they think the idea is a good one or not. They are much more investing using basic human instinct, as against spreadsheets.

The main reason I wanted to understand crowdfunding a little better was because of my distaste for the heavily controlled and protected investment bank and stock market methods of raising finance for business.

crowdfunding2I always have a problem with the words “agents” or “brokers”, and especially very powerful controlling agents/brokers like stock brokers and investment bankers. These people can manipulate the value of a business or even a national currency very easily for their own gain, and they all have one thing in common, which is that they never created one real job themselves.

Thankfully, in the financial world a new alternative is emerging as a serious contender to the traditional method of funding a business, but the powerful traditional funding organisations are lobbying governments to try and make it as difficult as possible for crowdfunding to grow to its full potential. For example, a foreign company is not allowed to advertise to raise funds in the USA, and a private investor has to have wealth above a certain high level to be allowed to invest directly, which translates into “if you don’t have, let’s say, over a million dollars in net worth, you are too stupid to know a good investment from a bad one, and therefore you are forced to use the services of an officially appointed and approved stock broker”.

Think about it. One guy made a half a million starting with nothing and the next guy inherited 2 million from his uncle. I won’t ask which one was more stupid, because I can imagine the smart comments on that!

Despite all of these crazy, unnecessary and restrictive rules, crowdfunding, which started off as a way for the likes of small bands to raise a few quid to record an album and similar small projects, has, and is, changing very, very rapidly to become a platform for raising significant finance, which is undermining the traditional institution methods. Crowdfunding is now raising billions of Dollars/Euro for even multi-million Euro individual projects, and this should be welcomed with open arms across the world.

This is more proof that the more power you put in the hands of the many instead of the few, the better the outcome.

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