Equity crowdfunding, which allows members of the public to invest in private company shares, has boomed in recent years – it grew by 420% in the UK in 2014. But some have expressed concern about the potential for investors to be mislead by the sky-high valuations and incomplete data that accompany some businesses' investment pitches.
CrowdRating, a new ratings agency for crowdfunding pitches that launched today, hopes to put those fears to rest. Its website will rate every pitch on leading crowdfunding platforms Crowdcube, Seedrs and SyndicateRoom, on the quality of their management, the viability of their product and the terms of the investment.
‘As it stands, investors are reliant on the information provided by the issuing company typically via the crowdfunding platform,’ said CrowdRating co-founder Modwenna Rees-Mogg. ‘There is no independent validation, let alone regulated comment by experienced analysts available to investors. We know that the platforms themselves recognise that properly independent research is necessary for the market to mature successfully.’
CrowdRating will provide the ratings to investors for free, but also plans to introduce a premium service once it has built up an established customer base. It will also provide a paid-for ‘campaign health-check’ service to entrepreneurs planning to raise money. The ratings themselves won't be crowd-sourced, but instead created by 'rapid semi-automated data compilation, systematic scoring using our checklist driven ratings engine, a thorough review by an experienced, authorised director with additional input from relevant investors or sector specialists on our advisory panel, prior to a final review by our compliance officer.' It might be difficult for an early stage start-up to do that thoroughly and accurately, but time will tell.
Crowdfunding has the potential to transform the way that early stage businesses in the UK are funded, but for its growth to continue investors will need to feel they can trust the people they are handing over their money to. If its reports are up to scratch then CrowdRating will be a welcome injection of transparency.