Equity Crowdfunding in the United Kingdom vs. United States


With changes to regulations in the United Kingdom, equity crowdfunding has become a lot easier for businesses. It’s a different atmosphere in the UK than it is in the United States right now, so much so that it may make more sense for investors to go overseas [or stay domestically] in their support. Why? Because the Financial Conduct Authority [FCA] has eased the rules about who can buy shares of equity in a business.

Are you wondering if you might qualify under the new FCA rules? Here is a brief look at the highlights of who can invest into a business now on an equity crowdfunding platform.

Anyone can invest into a business with an equity crowdfunding campaign that is active after April 1, 2014. .
The only rules that are in place for a first-time investor is that they must keep their first two investments to an amount that is less than 10% of their net assets. It must come from reserves that will not affect their housing status, their pension, or their life insurance.

What happens after the first two investments?
Once someone makes their first two investments, they are able to self-certify themselves as a sophisticated investor under the new FCA rules. This means an investor can put up as much money as they want in an equity investment. In the past, only those with proven investing knowledge and experience or investors that were certified or had a high net worth were allowed to take these steps.

There are higher levels of risk involved with UK equity crowdfunding.
The FCA estimates that up to 70% of the startups that are currently seeking equity crowdfunding funds are going to fail. The market is fairly complicated and the levels of risk are extremely high. With that being said, however, the average investor could potentially see a 1% per month gain instead of the typical 1% per year gain that they have been seeing recently.

It opens more doors for businesses to get in touch with high net worth investors.
There are a number of businesses in the UK that would never get a sniff from a high net worth investor, much less an investment, before the de-regulation of equity crowdfunding. Some businesses have seen more than 70k investors into their campaigns with many of the investors qualifying with a high net worth, but in the past would never have been able to reach them because of the FCA rules.

There must be a high amount of due diligence performed.
Although the FCA rules allow for anyone to invest, they don’t require an entrepreneur to outline the experience they have in a particular industry. Investors are left to make their own decisions, which mean it is up to the individual investor to perform their own due diligence. This may still keep many individual investors away from equity crowdfunding, even though they may wish to participate in it.

US rules are expected to follow the rules in the UK to allow for individual investors to get involved with equity crowdfunding in a way that makes sense for them. Until that happens, however, it might just be a little more worthwhile to look at UK startups as a key investment opportunity for long-term financial security.