The UK Crowdfunding Association (UKCFA) is an organisation, established in 2012, which acts as the voice of crowdfunding in the UK. In its dealings with the public, media and policymakers it aims to promote donation, debt and equity crowdfunding as viable and valuable alternatives to traditional ways of raising funds.
The UKCFA was originally founded by 14 member companies and has since grown to include further members as well as supporters.
What is crowdfunding?
Crowdfunding is a young and fast-growing alternative route to finance for businesses and for projects of varying sizes. The UK Crowdfunding Association defines it as “a way of raising finance by asking a large number of people each for a small amount of money”. The term ’crowdfunding’ in fact encompasses several different models:
The donation model involves people giving money, usually to a project, without any expectation of a financial return. Instead, donors may receive a non-monetary reward or incentive by way of thanks for their contribution. Platforms include Indiegogo and Yimby.
Lending-based crowdfunding allows individuals to invest money in the expectation of getting their money back together with interest. Depending on the platform, individuals can lend money to businesses, projects or other individuals. Funding Circle (peer-to-business) and Zopa (peer-to-peer) are two well-known platforms. It is also known as debt crowdfunding or peer-to-peer (P2P) lending.
Equity crowdfunding is possibly the fastest-growing crowdfunding model. In this type of fund raising, individuals invest in businesses and in exchange receive an equity stake. The businesses seeking investment can be start-ups or early stage or growth companies.
SyndicateRoom is an example of an equity crowdfunding platform but differs from its competitors by being investor-led, allowing individuals to invest in companies backed by business angels and professional investors at the same price per share and same share class.
UKCFA code of practice
As a condition of membership, UK Crowdfunding Association members are required to adhere to a set of principles contained in the association’s code of practice. These principles apply to each UKCFA member in their relationships with their investors or members.
The principles cover aspects of funding ranging from the way investments or donations are handled, to the provision of a cooling off period. They are designed to apply to the different types of crowdfunding businesses that exist – including both those that fall under FCA regulation and those which don’t.