Equity crowdfunding is a rapidly growing form of capital raising that is proving to be especially attractive to start-ups, micro-companies, and small businesses throughout the world. Fueled by the Internet and social media, platforms are opening up new investment opportunities to the street that in the past have only been available to the likes of venture capital funds and private equity firms.
In fact, if equity crowdfunding continues to grow at the same rate it has for the past two years, some experts believe that this new form of capital formation will surpass venture capital as the leading source of start-up funding by 2020, grossing over US$36 billion1.
...some experts believe that this new form of capital formation will surpass venture capital as the leading source of start-up funding by 2020...
One particular challenge presented by this form of Fin Tech2 however, is that unlike companies raising capital through traditional established channels, many of the issuing companies raising money through crowdfunding have little or no track record. Although they can present exciting growth opportunities for investors, these issuers can also expose investors to unknown risks particularly around the probity of their current and future governance.
As equity crowdfunding becomes a more accepted way of raising capital, platforms will need to empower investors to feel confident that their funds will be handled with the utmost care. Sound governance and compliance practices, underpinned by a comprehensive risk management program provided by a long-standing and trusted insurance carrier will be integral to platforms’ future success.
AIG is proud to now offer Crowdfunding Fidelity, coverage designed specifically with the need of equity crowdfunding platforms in mind . Crowdfunding Fidelity covers the theft of assets by any of the issuing companies’ directors, officers or employees that cause the failure of the business and financial loss to investors. To learn more click below or contact Fred Ling at Fred.Ling@aig.com or Monica Tigleanu at Monica.Tigleanu@aig.com.
2 Financial technology, also known as FinTech, is an economic industry composed of companies that use technology to make financial services more efficient. Financial technology companies are generally startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software (Wiki)