AS I SEE IT
Crowdfunding has grown in popularity, but like all investments you should be aware of the risks, writes ROD ANDERSON
We live in an uncertain world at the moment and at times it can be difficult to look further than the next Covid 19 lockdown, or the next UK government pronouncement on Brexit, where, it seems, we may well be heading for a No Deal scenario and everything that comes with it.
These issues together with any number of global frictions have had a significant effect on world markets and it’s understandable that many investors are looking for a home for their savings – something that can provide a decent return, a store of value and, hopefully, acceptable risk levels.
Gold has recently been proving popular but over the years people have invested in everything from antiques and classic cars to rare whisky. Each of these carries certain benefits but also varying levels of risk and return and, for most, it probably wouldn’t feature as a key element of a typical financial plan.
One investment option which has become more popular over the years is crowdfunding, or more specifically, the opportunity to take part in a crowdfund appeal.
In short, it is a fund raising exercise by a business – asking a large number of people each for a small amount of money. In many cases, the business will have a specific project in mind and will use the power of the internet to attract potential investors. In return for an investment, an investor will receive a range of benefits, but not always in the form of a direct financial return.
Among the most high profile of these has been Brewdog, and its Equity for Punks programme. Since 2009 it has raised over £75m from 148,000 investors. In return, those taking part can receive anything from a case of beer to discounts on Brewdog products. Brewdog has also said that every penny raised through the latest appeal will be committed to cutting-edge sustainability projects.
‘The risk you carry is your own and it is vital that you undertake thorough research on the company before making a final decision’
More recently we have seen the fast-growing Glasgow based digital pharmacy Phlo exceeding its crowdfund target of £1.65 million within a day and having to extend it to meet demand. The benefits in this case do include a financial return and potentially a shareholding in the company.
Investors will choose to invest in a crowdfund for a variety of reasons – maybe it’s the firm’s environmental credentials, you want to support a local business, or just be associated with a particular brand. The potential benefits can be exciting, but like all investments they carry risk.
However, the risk you carry is your own and it is vital that you undertake thorough research on the company before making a final decision. Any reputable crowdfund will provide substantial research and documents and is likely to be organised through a well-known platform such as Crowdcube.
Ultimately, whether to invest in a crowdfund is very much an individual decision but the key point of any financial plan is that it should be balanced between risk and return, and it should be tailored to your individual needs. Questions you should be asking are whether it meets your short, medium and long term requirements and, importantly, if you were to lose all or some of the investment, what financial impact would this have?
For most people, pensions, longer term regulated investment products and savings for a rainy day are the foundations of any financial plan, and an Independent Financial Adviser (IFA) can be a great help in designing an appropriate portfolio, balancing risk and return.
If you already have a financial plan in place, then now is as good a time as any to review it. And if you don’t, seek professional advice, it could very well provide the protection you need in these difficult times.
Rod Anderson is an independent financial adviser at Aberdein Considine
This article appears under the terms of DB Media Services