‘Kiki’ In The (Ruck) Sac!

By Adrian Harvey

Sunday Times

I’ve been at it again, reading the paper and getting all worked up about what I’ve read. I changed papers from the Daily Mail to the Sunday Times in the hopes of being less irritated but then I read this naive article about Crowdfunding by Kiki Loizou.

Kiki is the Small Business Editor for the Sunday Times and she was bemoaning the lack of regulation surrounding crowdfunding sites and the fact that, when compared to the Stock Market, the budding entrepreneur didn’t have to “provide any concrete financial information on their companies.”

Now I don’t know Kiki but she has a nice photo and her LinkedIn profile is blank so I was unable to establish if she had personal experience of raising money for her own small business or indeed if she had ever had any experience of starting and operating a small business.

Kiki tells us that the problem with crowdfunding sites is that some investors lose their money. Really? At what point did John Harris (the poor chap singled out by Kiki in her article) tell investors it was a guaranteed return? Risk and start-ups go hand in hand.

Kiki went on to say crowdfunding sites aren’t regulated like the Stock Market and are akin to the wild west and entrepreneurs don’t have to provide concrete financial information. Errr Kiki, that is because by the very nature of the business ‘concrete’ financial information is not available, only forecasts are. Now I looked up the definition of the word forecast and it says a “prediction or estimate of future event or trend.” In other words, a guess.

Kiki then bangs on about “further vetting of the facts put forward by entrepreneurs.” Errrr Kiki what facts are those then? The company is a start-up with minimal trading history – there are few if any factual historical data points in relation to that company. If a company quotes market trends and sector values in any prospectus these are easily checked by a remedial play with Google. But of course, failing that, one could always use one’s brain and if it sounds too good to be true, it probably is!

Oh and by the way Kiki, the reason the Stock Market is so much more robust is that firms on the Stock Market have, by default, a proven track record. Usually years of factual evidence on which to base their forecasts. Which is why generally the Stock Market represents a far lower level of risk and reward than crowdfunding.

So Kiki not only did your article damage the crowdfunding industry – one of the few legitimate and proven routes for raising money for start-ups, you also demonstrated incredible naivety in suggesting that the solution to entrepreneurs’ inaccurate forecasts is regulation.

Regulation will not improve the accuracy of entrepreneur’ forecasts in relation to start-ups, it will not remove the inevitable high degree of risk associated with each and every start-up. It would have more likely than not made any difference to John Harris, the entrepreneur who risked all to start his business Field Candy. Which, by the way, when post administration was snapped up, continues to operate because it’s a damn good idea.

Regulation will not stop budding entrepreneurs from lying their butts off, it certainly doesn’t as far as the Stock market quoted firms are concerned, if recent scandals like LIBOR fixing are anything to go by!

So perhaps instead of Kiki-ing a valuable and innovative source of working capital in the balls and scaring off budding investors with comments like ‘the wild west’ – you might be better served advising investors that they need to use their common sense and expect bad news more frequently than good and that forecasts are, by their nature, almost always inaccurate.

Kiki if you want a risk free investment with a certain return I notice that this website recommends TSB who are offering an exciting 3% return ….!

For the record those private investors that did their own due diligence on our investment prospectus when we were a start-up have seen returns 100 times that offered by TSB and our forecasts went out the window after the first month of trading! But then again, they are business savvy adults, who knew the risks they were taking and didn’t expect or need regulation.