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FCA warns crowdfunding sites on social media use

posted Jul 15, 2014, 12:35 AM by Siamak Ebarhimi

The FCA has written to crowdfunding websites raising concerns they are not using the appropriate risk disclaimers when promoting their business on social media.CrowdFunding advertizing

Equity crowdfunding allows small, private companies to raise money from online investors by selling stakes from £10.

The Times reports the regulator has told the sites to put risk warnings into every Twitter message or “tweet”. A start-up seeking funding
using equity crowdfunding, industry comparison website The Crowdfunding Centre, and leading crowdfunding platforms Seedrs and Crowdcube are all understood to have received the warnings.CrowdFunding marketing

The FCA is concerned potential investors do not fully understand the risks of crowdfunding, including that most start-ups fail, equity stakes are difficult to sell and consumers may see shares diluted by future investors.Kickstarter Marketing

But the industry has told The Times that adding these risk warnings will hurt businesses’ ability to discuss funding rounds.

The Crowdfunding Centre founder Barry James told the newspaper: “Social media is the life-blood of crowdfunding. It ceases to be viable without it … There are full risk warnings once you click through [to a site], way before anyone can consider parting with any cash.”Indiegogo Marketing

Seedrs co-founder Jeff Lynn said: “It doesn’t make sense for every tweet to have a full risk warning.”

An FCA spokesman said: “We are in contact with firms operating crowdfunding platforms to make sure they understand their responsibility to give potential investors information that is clear, fair and doesn’t mislead.”crowdfunding websites

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By David Khorram