Politicians have been pretty keen to jump on the bandwagon too. In September of last year, in answer to a question about “repairing our broken banking system”, David Cameron responded:

“As well as looking at the big banks and how we nurse them back to health… we also need to encourage what are called “challenger” banks, and new lenders into the British economy. Those can be crowdsource funders as well as new start-up banks, or businesses such as supermarkets that are getting into banking.”

Whilst those of us who work in alternative finance welcome Mr Cameron’s enthusiasm for the sector, his reference to “crowdsource funders” – a non-existent entity – just serves to highlight the level of confusion when it comes to even the basics of crowdfunding.

If the industry is to continue expanding at the current rate (equity crowdfunding grew 618% from 2012 to 2013) it’s essential that we foster a better understanding amongst the policy makers in Westminster. Crowdfunding has the potential to transform our economy; to democratise investment, and to transfer the financial might of this nation from the establishment to the people. But, having said all that, it also needs proper regulation and scrutiny. So before I launch into a crowdfunding panegyric, a word of warning for a future Labour government.

The devil is in the detail:

One of the key positives of crowdfunding is that it gives the opportunity for greater transparency. But to have greater transparency, we need to ensure that the individuals who come together to back new projects, ideas and businesses understand exactly where their money is going.

Equity crowdfunding is simple on the face of it. Investors, “the crowd”, purchase shares in an unlisted company, and if that company does well, so do they. If that company fails, their shares become worthless. But what if I were to tell you that it’s possible for a company to do well, but for the crowd’s shares to still end up worthless? That doesn’t quite figure, does it?

If the crowd haven’t carefully read the investment terms assigned to the shares they’re purchasing, they could be in for a nasty surprise further down the line – even if the company they are investing in is successful. If they have no pre-emption rights and no voting rights, for instance, they could find themselves diluted down to virtually nothing, just when they think that they are quids in. We’ve not seen any big exits in crowdfunding just yet, but big exits will happen, and I fear that unless we properly address the lack of understanding about investment terms, there’s a disaster just waiting to happen.

Greater transparency when it comes to the investment protections attached to each deal could and should be enforced by government, and through the Financial Conduct Authority (FCA). This kind of information shouldn’t be left to the small print.

And now we’ve got that rather dramatic caveat out of the way, here are the key benefits of crowdfunding that I would like Labour to digest ahead of their 2015 manifesto:

One Nation finance:

Geographically speaking, that is; one of the beauties of facilitating online investment versus, for example, pitching to groups of business angels for funding, is that it doesn’t matter where investor and entrepreneur are based. For instance, on SyndicateRoom (where I am the Head of Communications) we have wealthy investors in London and the South East investing in startups from all over the UK.

Getting things moving:

Crowdfunding is on the side of innovation, new business and job creation; infinitely preferable to investors leaving all of their money gathering dust in a bank account to the benefit of the organisations that collectively contributed to the economic crisis in the first place. Crowdfunding truly has the power to bring a fresh source of capital into the real economy.

Levelling the playing field:

For those who’ve read my post about gender inequality in business, you’ll know that this is an issue I’m passionate about. In 2012, Labour’s Shadow Equalities Minister Kate Green MP stated that:

"Increasing the number of women on boards is an important driver of both business and the economy. The Minister for Women Theresa May promised more to help working women and women in business, but warm words are not enough.”

I couldn’t agree more. We’ve been at a halt, a standstill, a virtual impasse on this issue. But crowdfunding provides at least a glimmer of hope. Initial stats from the Crowdfunding Centre show that 40% of all crowdfunding campaigns that reached their goal were led by women; women-led businesses are faring considerably better when raising their finance through crowdfunding (versus more traditional funding sources such as Venture Capital funding, where only 4.2% of funding goes to women).  

What’s more, on some platforms women are also more likely to invest than men. BloomVC reported that 64% of the total offers of cash on its platform come from women, and 78% of the money from women went towards supporting female-run businesses. This supports my thesis that, whether consciously or subconsciously, people tend to invest in people like them.

A new kind of socially-minded investor:

The past decade has seen an increase in efforts to build a funder base for social ventures, but more support is needed, particularly for highly innovative, but therefore higher risk, social businesses.

Whilst in many ways I’m of the belief that all businesses should be social businesses, crowdfunding does provide a potential solution for those social ventures struggling to get their idea off the ground.

Innovation charity Nesta described the crowd in equity crowdfunding as being driven by a “combination of intrinsic social and financial motivation”; a large proportion of those who invest through equity crowdfunding are doing so not just for the financial returns, but also because they wish to have a positive impact on the world. This is to be celebrated. And to give credit where it’s due, this government has increased the motivation for making social investments through their social investment tax relief too.

It is my hope that over the next few months, when that little alert pops up in my inbox to let me know that someone has been talking about crowdfunding again, I’ll find fewer misconceptions and greater understanding, so that if Cameron gets a little confused again, we can all set him straight.