Crowd Funding for Startups – should it be legal?

Legislation is moving in the USA and the UK to make business angels of us all – and that is, to allow crowd funding.

We want to help the USA and UK governments decide about crowd funding – so please take our short survey below.

Should crowd funding (investing small amounts of between £1k or $1k to £10k or $10k) be made legal?

If crowd funding were legal I would be interested (subject to opportunities) in investing

I would wish to invest in startup businesses in any of these countries (tick any that apply)

Would you like to receive information about crowd funding opportunities in the future? If so, please leave your email address

Your answers will remain confidential and we will only contact you if you have requested it.

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  • Jeff Butler
    Is it currently illegal?

    Will it be monitored differently than other investment products by the investment regulators?

    What is the current status of business angel investing ? I cannot imagine that I am prevented from investing in a friends business if I choose to do so. I guess that funds which make business angel investing easier in stranger businesses should be carefully regulated.

  • Hi Jeff

    Crowd Funding is illegal as it is a collective investment under FSA rules and it is illegal to allow a collective investment to promoted in the UK (even if your product or trading office is outside – say in Isle of Man) – and can result in a criminal (or prison) sentence for the company directors who allow it to be promoted.

    So, placing an advert on a website – which is viewable by UK residents – for an investment in a startup (where the investor takes a small part of the investment – shares – and has shared control) is illegal.

    If you choose to invest in a friends business – that is okay – assuming that he hasn’t promoted it to unknown people (ie stuck the offer on a website or printed it out and posted it to a list of potential investors).

    Hope this helps.


  • Mark Nugent
    Is this crowdfunding….

    I am keen to know. Mark

  • Adrian Smith
    Very interesting, and it shows some problems with the FSA rules which I believe make friends fools and family funding illegal?
    so does this mean crowdcube which has closed c£1.6 m to date is illegal (it even closed 300k for its own business
  • Hi Adrian – that’s a very good question. A lawyer I spoke to recently expressed the view that he thought it was illegal – but equally, CrowdCube have gone to considerable lengths to be as legal as possible.

    Here is what I understand…

    Crowd Funding is where a large(r) number of people (a crowd) invest in a collective investment (ie where the control is shared) – which is what equities are.

    Now, collective investments have special rules about whether you are allow to promote them.

    Some are ‘authorised’ by the national financial regulator (in the UK the FSA) and that means they can be promoted or marketed or made available by sitting on a website.

    Others are not ‘authorised’ and anybody who markets or makes the web page available in a given country (eg UK) and even if they or their business is based abroad (such as British Virgin Islands) they are liable for a prison sentence if they allow the ‘unauthorised’ collective investment to be made available (ie sitting on a website is generally regarded as sufficient).

    Now, there is a way around this – that is, if you check that anyone seeing the advert or promotion is a High Net Worth Individual or Sophisticated Investor – then that’s okay.

    So, there is a grey area where Crowd Funders make the offer available – without any advice or explicit promotion and then only allow registered High Net Worth Individuals or Sophisticated Investors to get access to the contact details. In this way, they can claim they are not promoting it per say.

    However, as per the article,, there is a bill before the US Senate to make Crowd Funding legal – ie. clear up the grey area.

    Hope this helps

    ps. I am not a lawyer – but an entrepreneur – so don’t take this as the final word – there may be a specialist lawyer who would explain it better… but equally, I find lawyers often disagree about the laws here – as I say – it’s a grey area.

  • Adrian Smith
    thanks for that, I was sure that as long as who you present it to self certifies as a HNWI or sophisticated investor it’s ok, I cant remember how crowdcube does it, but like you I have found it a grey area, just the sort of think you want when something is a prisonable offence – private eye calls the FSA the Fundamentally Supine Authority!

    At least with face to face looking for cash, the investor meets the guy and makes an offer subject to due dilligence – this does not seem to happen in crowdfunding (or at least not to anywhere near the same extent)

    it will be interesting to see if anyone thinks they have been mislead and takes action (ironically my gut feel was that I thought 300k for 9% in the crowdcube pitch would not have got through due dilligence but it raised the money through its website with ease)

    There are also crowdfund solutions around peer to peer lending and “sponsorship” where the return is a non return on investment benefit

    I think the US bill will put a limit on the amount you can raise from an individual, they also look to “persuade” companies to go public if there are over a certain number of shareholders

  • Hi Adrian ‘go public if over a certain number of shareholders’ is interesting…

    … so, we’ll get ‘small’ crowd funding?

  • Paul V Harris
    I don’t think is considered crowd funding, though I thought the same thing originally. On kickstarter people don’t “invest” in a project, nor do they get shares for there investment. They are contributing, and perhaps getting their name in the credits (for a movie project) or a copy of the game, posters, what have you.
  • Yes Paul – if there is no ownership – then it is a charitable type donation rather than a investment – and will be outside the rules prohibiting the promotion of collective investments.


  • Fabrizio Marino
    We have raising 350k with 74 small investors….but not with platform!!!
    Only in Italy…..
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  • Cameron Bone
    Hello is it possible to view the results of the survey? I am conducting some research into the possibilities of crowdfunding in the U.K and it would provide useful public opinion. Thanks
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