Tick Tock, Tik Tok: The perils of fundraising via social media

Emboldened by the growth of crowdfunding, raising a new round of investment is often no longer about knocking on a few VC doors but a multi-channel public strategy. Social media is now at the forefront of the pump, especially for younger investors.

The FCA recently consulted on the use of social media, affiliate marketing, and finfluencers by authorised firms. In doing so, it pointed out the perils and pitfalls that is sees as a regulator in the use of social media.

What can founders learn to avoid falling into the same traps?

Well, the first is that financial promotions are (still) unlawful unless issued or approved by an authorised firm. But we wouldn’t expect you to be inviting customers to subscribe for shares by social media.

Points we can takeaway are:

• The FCA are ready to jump in - whatever the channel. So, whether you twitch, tweet, insta, TikTok, YouTube, Discord or Reddit your brilliant idea, the financial promotion rules apply.
• Shares in private companies are high risk investments, so do think about the likely audience on the channel you choose. Eight-year olds don’t look good on the cap table so consider using targeting tools to narrow your recipients.
• Social media is, well, social. Whilst you may be desperate to go viral, is your message still fair and clear even if you didn’t intend you post to go that
• If you do pay others to drive interest, they are likely to be acting ‘in the course of business.’ That has implications for regulated activities such as ‘making arrangements’ or ‘advice’.
• If you are looking for an influencer to plug your brand in the middle of a fundraising, how do you ensure they don’t overstep the mark? You may struggle to disavow what they said to their followers.
• Paid promotion is subject to the ASA’s #ad guidance.

If you would like to know more about how to promote your round without upsetting the rozzers, our DM’s are open.