Startups around the world raised $1.8 billion through 453 crowdfunding sites in 2011, a British report says.
In Europe there were five portals for equity crowdfunding (which allowsdonors to take an equity stake in the venture to which they give money)operating at the end of 2011 which raised a combined total of $12.2million. Three more equity crowdfunding sites are slated to launch inEurope by the end of this year.
Although the study concludes there are many potential advantages tocrowdfunding, it also points out that crowdfunding mayattract lessexperienced investors who may not be fully aware of the risksinvolved in equity investment, especially investing in startups. Thereport recommends that rigorous and transparent risk disclosureinformation should be included on equity crowdfunding sites.
“Nesta data shows that only 40 per cent of businesses are still a liveafter their first 10 years and less than 10 per cent of these achievesignificant growth in employment,” the study says.
“Platforms need to ensure that investors are adequately informed of therisks involved in investing in businesses for equity. One experiencedventure capital investor noted that over-optimism on the part ofamateur investors could be one of the greatest barriers to ensuring thesuccess of equity crowdfunding,” the researchers concluded in theirreport.
ITBusiness.ca is hosting a live Webcast and chat tonight at 7p.m. ET with Sherwood Neiss from his appearance at a Startup Grindevent. Neiss is widely recognized as the architect of the U.S.JOBS Act which recently legalized equity crowdfunding forstartups in the United States. Check it out tonight to watch hisappearance and even ask him a crowdfunding question.