The Importance of Crowdfunding Background Checks

Inline Reference Check | Myles Harding, President | February 10, 2014

Crowdfunding, also known as crowd financing, equity crowdfunding, crowd equity, crowd-sourced fundraising is the networked effort of individuals who pool their money, to support efforts initiated by other people or organizations. Crowdfunding platforms include: donation-based, peer-to-peer lending, and equity crowdfunding.

It’s being used to finance many activities and recently also refers to the funding of a company by selling small amounts of equity to many investors. Unlike in the UK where equity-based crowdfunding is already legal and open to all, in many countries, equity investments are hindered by investment restrictions.

In the USA equity crowdfunding is currently limited to accredited investors with a net worth of $1 million or $200,000 in annual income.

Myles Harding of Toronto based Inline Reference Check thinks that crowdfunding will become as much of a game-changer for SMEs in Canada as it is already becoming globally. Harding, who is President of Inline Reference Check was recently appointed as an advisor to the National Crowdfunding Association (Canada). He says that numbers are lighting up the story in different parts of the world.

In Britain, crowdfunding and the alternative finance market already fill an important niche in Britain’s funding ecosystem. NESTA a UK innovation Not- for-Profit organization estimates that 5,000 SMEs have accessed early stage, growth or working capital via alternative platforms since 2011. Often these are businesses that would have found it difficult or impossible to access traditional bank, angel or VC funding. In 2012, Crowdfunding in the UK experienced exponential growth. Equity-crowdfunding platforms enjoyed growth of 618% in business volume to 28 million pounds while peer-to-peer lending sites saw the value of deals rise by 211% to 212 million pounds.

The largest crowdfunding markets were the USA with 59% or 1.6 billion raised and Europe with 35% or $945 million raised. In 2012, $2.7 Billion was invested globally in more than one million crowdfunding campaigns. This represents an annual growth rate of 81% vs. 64% in 2011. The expected annual growth for 2013 is estimated to be 89% which translates to a total of $5.1 billion raised through crowdfunding. And in 2012, donations and reward-based funding grew 85% to 1.4 billion, lending-based crowdfunding grew 111% to 1.2 billion and equity based crowdfunding grew 111% to 1.2 billion.

Crowdfunding Background Checks

Regulators will move to protect small investors against fraud

The numbers are still small in comparison to more traditional forms of financing, but it is apparent that as crowdfunding goes mainstream it will increasingly attract the attention of financial regulators.