Crowdfunder Not Crowdpleaser

20th February 2018.

The alternative finance platform, crowdfunding, has come under criticism after one of their own went into administration, taking investors’ money with it.

Square Pie, which started out as a stall in a market in London encouraged investors through a ‘Pie Bond’ where 324 business leaders lent a hand to the startup, in exchange for a slice of the business. Investors lent over £650,000 to fund Square Pie restaurants and products only for it to leave many investors in the lurch when it went into administration earlier this month. Experts have accused the crowdfunding site, Crowdcube, of not providing enough information to investors about the company’s stakes, nor warning them of the dangers involved. Alternative funding platforms, such as these, are innovative, but can also be unstable.

Here at the Credit Protection Association, we offer many startups the chance to grow their business. Rather than relying on someone else’s money, however, we help our members recover cash from bad debts and late payments that are owed and deserve to be returned.

This incident has exposed flaws in the alternative finance platform, where investors are given little control over their own cash. Rob Murray Brown, the founder of crowdfunding consultancy ECF Solutions, expressed distaste for the way the investors had been left in the dark, even suggesting that company projections were “over-egged” to encourage investment interest.

Julia Groves, co-founder of the UK Crowdfunding Association, further stated that some platforms were not upfront about their fees and any problems with the companies they feature. This lack of transparency can “make it really challenging for investors to assess that risk”, she said.

Groves warned that the fees charged by the crowdfunding platforms were sometimes “hidden away”, but investors must ensure they understand them before signing up.

On paper, it’s a rewarding scheme, as it encourages collaborative interest in startups and small businesses. However, for the business owner, this can be a disadvantage as much as an advantage. While third-party investors provide owners with the funding to expand their business, in return they demand a piece of the pie. The business’ successes will now be shared with the investors, and as Square Pie has demonstrated, so will the failures.

Here at the Credit Protection Association, we ensure our members maintain their professional integrity and independence. We establish this through freeing up cash flow and ensuring our members are rightly rewarded for services rendered. If you want to expand your business, you should do so on your terms and without creating further debt or obligation to someone else.