Crowdfunding group CrowdBnk has called on the government to include both equity and debt crowdfunding within ISAs to help young businesses get much needed funding.
CrowdBnk made the appeal ahead of the closing of the government’s consultation on crowdfunding today with the option to include both types of investment within ISAs.
CrowdBnk said concerns that allowing equity-based crowdfunding investments within ISAs was a step too far because they exposed investors to excessive risk were wrong.
Ayan Mitra, chief executive of CrowdBnk, said a blanket exclusion of equity investments would be the incorrect approach to take, and could lead to companies opting for debt-raisings over equity-raisings regardless of which one was actually more suitable.
“Like any investment, you have to do the due diligence before you invest,” Mitra said. “We believe the best approach is to provide investors with the flexibility to decide what structure works for them, and by allowing both debt and equity crowdfunding investments within ISAs it could help more businesses which need funding.
“Conversely, allowing one form of capital-raising to be treated more favourably could cause problems in the future.”
While it seems likely only debt-based crowdfunding will be eligible for inclusion in ISAs, Mitra added it would nonetheless help accelerate the growth of an increasingly popular sector for investors.
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“Some 23m British people have ISA accounts, which shelter cash or investments from capital gains tax and cap income tax at ten per cent,” he said.
“Now the annual savings limit has risen to £15,240 per person, it is the perfect time to expand the variety of investments which can be held within ISAs by including the increasingly popular crowdfunding market.”
As well as putting forward its views to HM Treasury on crowdfunding, CrowdBnk has also created its own charter of core principles which it hopes will be adopted by the wider crowdfunding industry over time.
CrowdBnk said the charter was its commitment to investors and contains five key pledges.
1. Always invest
“We only offer our clients genuine opportunities that we believe in. To prove our commitment to these businesses, CrowdBnk always invests alongside clients in every company which successfully funds on our platform.”
2. Act as a filter
“Our investment committee has decades of experience when it comes to both evaluating and running successful small businesses. It is their job to assess businesses on behalf of investors and either accept or reject them based on their fundamentals.”
3. Be forensic
“If a business is overvalued when it looks to raise capital, it will be that much harder for investors to make a real return. Therefore our investment team strives to only promote businesses which have realistic goals and accurate valuations that stand the test of time. In practice, this means for every business we promote, at least 60 hours of research and analysis will have been carried out by our experienced team, covering everything from balance sheet strength to strategic growth plans.”
4. Be inclusive
“For too long, investing in exciting new businesses has been the preserve of the wealthy. CrowdBnk is challenging this with low minimum investments that help people access the best deals, regardless of how much money they have to invest.”
5. Focus on the right structure
“If businesses offer the wrong investment structure they can risk investor returns and business growth. This is why CrowdBnk is focused on helping businesses to select the most beneficial investment structure for them, be it equity, debt or a blend of the two. This helps to provide a platform for better returns and a more effective capital raise.”
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