Private equity crowdfunding can level the playing field by linking up exciting startups and non-traditional investors – but it’s being abused by famous figures, according to the founder of Better Capital.
Jon Moulton, who also helped to fund the corporate crowdfunding platforms InvestmentZone and Funding Circle, took to the pages of CityAM today to highlight some of the ways that well known business figures are using such services to blindside trusting investors. “It transpires that investors in crowdfunding equities like stories and personalities,” he says. “The crowdfunding platforms like them too, because it pulls in the investors. Celebrity types have spotted this demand and, as is normal in markets, are testing the limits of exploitation.”
In particular, Moulton points to Sir Stelios Haji-Ioannou, founder of EasyJet, as an example of this exploitation. Sir Stelios recently listed 1.5% shares in his latest venture EasyProperty for £1m apiece – a figure that Moulton hints is overpriced and based only on Stelios’ reckoning. “The business is not trading, so he’s valuing it at £67m,” says Moulton.
The crowfunding craze is creating exciting options for new ventures to get the funding they need and for smaller investors to gain the same opportunities as big hitting VCs. But, Moulton warns, it’s important that those involved are able to get the same protections that more traditional investment routes would afford.
“Crowdfunding seems very exciting when you invest, but investors should take time to notice that they lack the ability to stop managers milking the company, or risk being diluted by strange deals with their tiny stakes being powerless and sometimes voteless,” says Moulton. “All entirely legal, of course, but so far there has been very little effort put into developing sensible corporate governance for such companies – although there are people working on it.”
“Venture capitalists worked out the protections you need years ago – crowdfunders typically get none of these. Crowdfunding investors deserve a fair deal.”