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Crowdfunding Background Checks

The Importance of Crowdfunding Background Checks

by Myles Harding | President, Inline Reference Check


Crowdfunding, also known as crowd financing, equity crowdfunding, crowd equity, crowd-sourced fundraising is the networked effort of individuals who pool their money, to support efforts initiated by other people or organizations. Crowdfunding platforms include: donation-based, peer-to-peer lending, and equity crowdfunding.


It’s being used to finance many activities and recently also refers to the funding of a company by selling small amounts of equity to many investors. Unlike in the UK where equity-based crowdfunding is already legal and open to all, in many countries, equity investments are hindered by investment restrictions.


In the USA equity crowdfunding is currently limited to accredited investors with a net worth of $1 million or $200,000 in annual income.


Myles Harding of Toronto based Inline Reference Check thinks that crowdfunding will become as much of a game-changer for SMEs in Canada as it is already becoming globally.  Harding, who is President of Inline Reference Check was recently appointed as an advisor to the National Crowdfunding Association (Canada). He says that numbers are lighting up the story in different parts of the world.


In Britain, crowdfunding and the alternative finance market already fill an important niche in Britain’s funding ecosystem. NESTA a UK innovation Not- for-Profit organization estimates that 5,000 SMEs have accessed early stage, growth or working capital via alternative platforms since 2011. Often these are businesses that would have found it difficult or impossible to access traditional bank, angel or VC funding. In 2012, Crowdfunding in the UK experienced exponential growth. Equity-crowdfunding platforms enjoyed growth of 618% in business volume to 28 million pounds while peer-to-peer lending sites saw the value of deals rise by 211% to 212 million pounds.


The largest crowdfunding markets were the USA with 59% or 1.6 billion raised and Europe with 35% or $945 million raised. In 2012, $2.7 Billion was invested globally in more than one million crowdfunding campaigns. This represents an annual growth rate of 81% vs. 64% in 2011. The expected annual growth for 2013 is estimated to be 89% which translates to a total of $5.1 billion raised through crowdfunding. And in 2012, donations and reward-based funding grew 85% to 1.4 billion, lending-based crowdfunding grew 111% to 1.2 billion and equity based crowdfunding grew 111% to 1.2 billion.


Crowdfunding Background Checks

Crowdfunding Background Checks

 Regulators will move to protect small investors against fraud


The numbers are still small in comparison to more traditional forms of financing, but it is apparent that as crowdfunding goes mainstream it will increasingly attract the attention of financial regulators. Equity crowdfunding has recently received attention from policy makers in the United States and is being closely scrutinized in Canada. The Ontario Securities Commission (OSC) announced on December 4th, that they will publish a proposed equity crowdfunding exemption including a framework for portal registration for public comment by the end of Q1-2014.[2]  While in its infancy, the growth and impact of equity crowdfunding is steadily advancing in Canada, the U.S. and many international jurisdictions, and is bound to have a significant impact on how small-to-midsize-businesses (SMEs) raise early rounds of seed and expansion capital resulting in a new pipeline of crowdfunded ventures.

In regard to regulators’ concerns about fraud Craig Asano, the Executive Director of the  National Crowdfunding Association (Canada) recently commented that “Performing cost effective and appropriate levels of background checks and due diligence on equity crowdfunding transactions is key to ensuring a sustainable and robust industry long term.”

Background checks will avoid killing the Golden Goose of crowdfunding

Harding points out that “Compulsory background checks have been recommended by both the SEC and the Ontario Securities Commission in order for companies to take advantage of the proposed Crowdfunding Exemption which will eliminate the requirement for small companies to file a prospectus. At Inline we feel strongly that one way to effectively mitigate the risk of fraud is through independent background checks on the principals of those companies seeking crowdfunding”

Inline Reference CheckAbout Inline Reference Check

Based in Toronto, Inline Reference Check is Canada’s most experienced background checking company. Inline enables knowledge-based companies to make better decisions about their workplace environment. Inline provides management with timely and actionable information sourced from reference and background checks as well as exit and retention interviews.

For more information on Crowdfunding please visit Inline Reference Check’s Crowdfunding Page, Contact Inline Reference Check, or visit the NCFA website.



-Art courtesy of Rocío Laura/Flickr