Triodos has an investment crowdfunding platform that allows investors to invest directly in UK-based organisations doing good – and we’ve seen some great successes – from investment in high-quality sustainable bicycle manufacturers, to funding pet care practices making a difference.
What are the different types of crowdfunding?
There are several types of crowdfunding. For example, reward-based crowdfunding is where you invest (often small amounts) of money in return for discounted products or perks, such as merchandise or event attendance. Another type of crowdfunding is donations, albeit where the funder expects nothing in return. Some websites that do this include Kickstarter and Crowdfunder, however this is not what the Triodos crowdfunding platform is set up for.
How does investment crowdfunding work?
Investment crowdfunding is what the Triodos crowdfunding platform was created for, and it can be split into two types – bonds and shares.
Bonds are a form of debt, where you lend your money to a company for a fixed period in return for some interest. Over the course of the term, or at the end, the loan is repaid.
Shares mean that you become a part-owner of the company. Some established companies pay dividends each year (a return on the shares), whereas earlier stage or growing companies typically don’t pay dividends and instead reinvest profits in the growth of the business. Typically, shareholders will exit their investment by selling their shares to someone else.
What are the benefits?
For anyone that wants to invest their money in line with their values, a major benefit of crowdfunding is that it allows you to pick specific companies and projects to support. That could include a community-owned renewables project, generating clean energy and often re-investing surplus profits in the community, a charity in need of finance or an organic food business looking to expand. Investing in these organisations means you will get a good sense of where your money is going and what it is being used for. It’s also possible to invest small amounts – for example, as little as £50 – making it a very inclusive form of investing.
It is possible to invest in some crowdfunding bonds through an Innovative Finance ISA (IFISA). Investing through the IFISA allows you to earn interest tax-free. As with all ISAs, there are eligibility criteria.
What are the risks?
Crowdfunding investments are bonds or shares that are not listed on a stock market, which means they may be difficult to sell. Bonds are for a set term, and investors can’t sell their investment unless they find someone who wants to buy it and agrees to a price, which in practice may not be easy. You should therefore only invest if you are comfortable holding the investment for its full term.
Investments in shares (or equity) do not have a set repayment date; they are long-term investments.
Investments are not covered by the Financial Services Compensation Scheme, so if the company doesn’t perform as expected and isn’t able to pay interest or repay the capital, investors could lose the money they invested.
It is always good to spread money across different types of investments. This diversification should reduce overall investment risk.
How do I get started?The first step to crowdfunding with Triodos Bank is registering on our crowdfunding platform. You will need to do this even if you are already a Triodos Bank customer. Once you are fully registered you will be able to make investments through the platform. It’s important to read the offer document for each investment so you can decide whether the investment is right for you.
Please remember, investing is not the same as depositing money in a bank account as your capital is at risk and you may not get back the full amount that you invested. Repayment is dependent on the financial performance of the company and isn’t guaranteed. Investments in bonds or shares are not covered by the Financial Services Compensation Scheme.
Find out more about investing through the Triodos Crowdfunding platform at: https://www.triodoscrowdfunding.co.uk/investing