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Crowdfunding is “disruptive”, “good” and likely to be an important finance route for business

Crowdfunding is “disruptive”, “good” and likely to be an important finance route for business. So said the panel at the Herald and Herald on Sunday Budget Briefing breakfast this morning. Whilst  we mulled over a budget announcement that was short on bright moments in either measure or outlook that stood out for me as a highlight, despite not being mentioned in the budget at all.

A panel of commentators which included Jeremy Peat of the David Hume Institute, Professor Colin Mason of the Adam Smith Business School gave us their take on the Chancellor’s statement and responded to a diverse set of questions from the room.

Amongst a general and somewhat downbeat assessment of “what can be done” to address the somewhat moribund situation we find ourselves in, some novel ideas came from the floor in the best tradition of a bit of crowd wisdom. These generally related to TAX adjustments that might help including freeing up access to R&D tax breaks.

But inevitably the conversation came to banks, and there was general agreement that a greater separation of retail and investment banking would be a good thing if for no other reason than to rebuild confidence in banks as service providers, something they have rather lost sight of.

It was in this context that Professor Mason, a specialist in access to finance, mentioned the emerging practice of crowdfunding. His endorsement of this as another and useful approach to raising funding, and a further contribution to making the sector more competitive was a ringing one, and he held out the idea that this will become increasingly important. Fraser Campbell joined in and was able to readily name some of the main Peer 2 Peer lending platforms. General nodding and agreement ensued around the panel and it was a rare moment of enthusiastic endorsement from a panel otherwise finding the whole budget predictably uninspiring.

What I find particularly interesting about this is that these are members of what one might refer to as the traditional business and economic fraternity,  not only knowing about crowdfunding but also seeing it as relevant, useful, credible and disruptive is most interesting and a significant development.

This progressive acknowledgement of crowdfunding as a sustainable and valuable addition to the funding environment by established commentators and government and civic bodies is clearly gaining momentum. For those in the industry itself this must be a welcome development. For those considering using it, this will build their confidence.

In an environment where we cast around for solutions to our current economic woes, it’s interesting to hear of novel approaches being taken seriously and that the new disruptive possibilities brought about by the advent of social and collaborative technologies hold a potential for change – to “redesign the garden” as Fraser Campbell put it.

As for the banks? Well Jeremy Peat argued for a return to relationship banking in order to compete and rebuild confidence. This is good advice but requires a culture shift as it was the cost cutting drive away from this practice that in large part led to a knowledge failure and the inevitable collapse in 2008. So they best be quick as it seems crowdfunding is becoming less of a “loopy” idea and more the finance model of choice. As Manuel Castells would argue, when trust in institutions breaks down we are increasingly empowered to simply by pass them. Is this a case in point?

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