ryan carter lfig crowdfunding
Ryan Carter: crowdfunding will run along similar lines to mutual investment funds

Britain’s economy faces a major problem, one which stifles aspiring entrepreneurs’ ability to reach their personal goals. The problem centres on the inability of start-ups and small firms to get the funds they need, whether to grow, to develop ideas or to complete an essential patenting process.

Small businesses generally only succeed after years of personal investment, and it is overwhelmingly inventions and innovations seeded by small firms that often solve key problems in society. Smaller firms are also more likely to take greater care of the surrounding environment as there is less divide between ownership and control, person and place. And this would be even more likely a key feature of the business plan if the main source of funding was the wider community in the first place.

Funding is a problem that central government tinkering has had little success in solving, as the private banks overwhelmingly lend to businesses already making enough money to guarantee repayments, and not to those needing funds to help them to get going. Successive governments have tried to direct finance to the SMEs (Small and Medium Size Enterprise) with little success, from the Merlin project or more recently with the Funding for Lending Scheme (FLS).

This is where peer to peer (P2P) lending, through the more collectivised community funding and community shares schemes, has opened a new source of funding that will directly benefit communities both in lending and in returns. As Labour, we should be harnessing this and developing crowd funding programs, which would help nurture the long-termism the Shadow Cabinet advocates when promoting its ‘Responsible Capitalism’ by involving wider society in enterprise.

There have been countless numbers of cases from new Co-operatives financed by community shares programmes similar to the proposed crowd sourced funds, not just here in Britain but in Scandinavia and parts of America too. To highlight the success of this alternative funding route we have seen the amount raised and given to start-ups in the UK grow by 91% between 2012 and 2013. A quick Google search reveals start up companies, products and ideas that entrepreneurs are promoting and vying for your finance to work on, as well as the odd Rock and Pop bands such as Foo Fighters who have recently been booked for a show using crowd funding.

This is the power Labour should be harnessing to create communities that work together to solve problems, communities that serve themselves with background support from government. Labour has rightly and boldly put good and proper use of resources at the centre of its agenda, highlighted by its ideas for creating local PACs (Public Accounts Committees). These governance models however need not only politicians but community stakeholders.

The emergence of LEP’s (Local Enterprise Partnerships) has seen big money directed to large projects, meaning it has failed to deliver for the small business community. Meanwhile, with crowdfunding platforms now much easier to set up, we could apply the same rigour and scrutiny to ideas before they go out for crowdfunding. As we do with projects and government spending, these could then be overturned using a petition or just by not getting government backing and using another platform such as Kickstarter.

Labour has made it abundantly clear there will be less money around when we come to power, and has gone so far as to say we cannot reverse any cuts and will not leave the Coalitions spending envelope in the first 2 years of government. The fiscal restrictions we have set ourselves mean this is a viable way of promoting investment and getting money flowing as it will be financed by long term loans from banks, credit unions, individuals, local authorities, community stakeholders and underpinned by government.

These funds will run along similar lines to mutual investment funds, and by spreading the risk around all stakeholders it serves the purpose of allowing everyone to benefit from a lower risk while providing a direct investment into the community, its people and the wider economy.

Finally it looks like it might be in our power to facilitate a new way forward for financing small enterprise while also building communities and tackling short-termism from the bottom up. The question is: will Labour be able to harness the power of community investment by supporting and promoting crowdfunding by building the first platforms seriously to open crowdfunding as an option for start ups and SMEs?

Ryan Carter reads economics at Portsmouth University and is chair and vice chair of Young Labour and the Co-op Party respectively in Hampshire and the Isle of Wight region

Harnessing Community Funding to Boost Start-Ups
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