Questions about GrowVC's crowdfunding platform
By Trampoline Systems | Thursday, March 4th, 2010A couple of weeks ago Hong Kong based GrowVC came out of closed beta and launched their crowdfunding platform to the world. I was excited because GrowVC was described an “equity crowdfunding” platform, implying that investors receive equity in the businesses they back. To my mind this is an essential requirement for any platform that’s serious about bringing private capital into start-ups. The path from formation to exit is frequently long and bumpy. Only equity ownership can provide investors with strong enough assurance they’ll get a fair return at the end of the journey.
All previous platforms have shied away from equity ownership. After the experience of structuring Trampoline’s equity crowdfunding process I can fully understand why. The thorniest regulatory conundrums are concerned with situations where people put in cash and get equity. Consequently crowdfunding platforms like Bandstocks and Sellaband (which has recently seen some turbulence of its own) have tended to structure themselves as clubs. In this model investors pay a membership fee which gives them the right to a share of profits from projects they back. No equity changes hands.
However after registering with GrowVC and spending an hour on the platform it looks like there’s no equity element after all. Disappointingly the platform appears to be structured on the club model. Entrepreneurs, investors and “experts” pay a monthly (or annual) fee. 75% of the fees are invested in ventures selected by the investors. 75% of the money from a venture that reaches exit is distributed to the investors who voted for it.
If this analysis of GrowVCs model is correct I don’t believe it has any chance of succeeding. The relationship between an investor and a venture is indirect and woolly. What happens if a venture is restructured? Or if an entrepreneur issues equity to investors outside the GrowVC scheme? GrowVC investors have no control and little security regarding the ventures they back. Under such circumstances no intelligent investor will be comfortable staking more than pin money.
It’s a shame because the platform looks well-designed and the world really could do with a proper equity crowdfunding platform. We’ll just have to wait a little longer.
This entry was posted on Thursday, March 4th, 2010 at 7:56 pm and is filed under Crowdfunding. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
3 Responses to “Questions about GrowVC's crowdfunding platform”| |
Leave a Reply