Crowdfunding represents a massive change to the way businesses raise funding, and one criticism that is worth taking seriously is that the changes haven't been throught through. That's a risk inherent in innovation; the players in the crowdfunding sector are making it up as they go along.
Today, we're reading a piece by Richard Goold in Alt-Fi News where he relates the risks of equity crowdfunding to the legal structures that can be put in place to manage a business's relationships with its investors. Richard is a financial technology specialist and the co-chair of one of the largest groups of tech lawyers in Europe. He knows his profession is not glamorous, and approaches his subject with humour.
As I dip into the world of legal structures, rights and obligations I can already hear the yawns and visualise eyeballs glazing over. However, as someone that manages multiple rounds of financing for companies on a high growth trajectory I know all too well that companies that get their seed financing or series A financing back to front can close the door on series B financing and beyond.
Richard's thoughts are available in a two part article which we link to below. His choice of title 'Founder Beware' emphasises that it is the business owners, not just the backers, who are taking risks. It's a matter of taste - or a moot point, as lawyers would say - whether an entrepreneur would rather deal with a few angels or a crowd of retail investors with small stakes.
Everyone who attended our event in October heard David Salomons of Cubism Law talk through a case study of the Camden Brewery and the various challenges involved in corporate governance in the hospitality industry. Business have to relate to a crowd of shareholders, and that takes special skills and carefully organised shareholder agreements.
Different platforms have different approaches to investor relations, and we'd suggest that any would-be investors familiarise themselves with the details of how each platform works.