Crazy for crowdfunding

 

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Once upon a time in a land far, far away, I presented a prospectus to my parents that argued, among other things, that a trip to London, England, with my 18-year-old girlfriend would be, for me, an edifying sojourn.

On the back of a dinner napkin, I laid out the particulars: Travel makes the callow youth wiser and tougher; life, for a time, in a different country connects the footloose to the ground on which he must tread for the rest of his life and, therefore, makes him a better financial risk in the future; and, most importantly, “c’mon, Mum and Dad, I want an adventure.”

To my astonishment, the parental units fell for it, and, in no time at all, my future wife and I were winging it, courtesy of British Airways, to the U.K. just in time to catch Joe Strummer and The Clash playing live in Hyde Park.

An item a couple of years ago in the Financial Times of London reported that “Crowdfunding is a new and emerging way of funding new ideas or projects by borrowing funding from large numbers of people.”

With all due respect to The Times, no it isn’t.

Although, the numbers from which I drew resources were not especially large, I was effectively crowdfunding when Silicon Valley and Menlo Park were still apple orchards.

Still, The Times persists in its inimitable way of explaining simple things in the most complicated and convoluted terms possible:

“In these (crowdfunding) markets, any individual can propose an idea that requires funding, and interested others can contribute funds to support the idea. These markets have recently emerged as a viable alternative for sourcing capital to support innovative, entrepreneurial ideas and ventures.”

In fact, “A novel aspect of crowdfunded markets is the nature of the publicly observable popularity indicators typically recorded and published within the marketplace. For instance, the information on prior investments in crowdfunded markets typically includes a time stamp and the specific amount contributed, or both. These values contribute to what is often referred to as a project’s current ‘funding status’. This status encompasses prior funding decisions made by others regarding a particular project, indicating the total funds raised, the number of contributors, and the duration over which that funding has taken place.”

Meanwhile, “Most crowdfunding offerings don’t involve an ‘ownership’ stake. Hence, equity sales are prohibited by regulatory bodies such as the Securities and Exchange Commission in the US. Recently, however, regulation is in the works to ease such constraints and enable equity stakes.”

In New Brunswick, it seems, the barriers have just come down. According to a piece in The Saint John Telegraph-Journal last week, “The province’s Financial and Consumer Services Commission has decided to allow crowdfundig for equity, opening up the doors for small businesses to sell shares online. Under rules announced by the commission, startup companies can raise a maximum of $250,000 per crowdfunding campaign, with up to two campaigns per year.”

The craze for crowdfunding in the small business sector ever since the financial meltdown of 2008 is, of course, perfectly understandable. Traditional lenders – banks and credit unions – are typically tight with their money. In Atlantic Canada, effective venture and angel capital is practically non-existent.

Still, crowdfunding also carries inherent risks, the biggest of which is that it is a broadly unregulated market built on trust and instinct (paradoxically, two of its biggest draws).

All of which is great, until Mum and Dad want to know what happened to their money while junior was. . .ahem. . .edifying himself.

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