Margareta Pagano: Let the crowd invest in the next Facebook

Why should the regulator dictate who can who can't put their money in start-ups

If the young Mark Zuckerberg were starting out with his Facebook project today and wanted to raise equity on a crowdfunding platform either here in the UK or in the US, most people would not be allowed to buy shares because they would not be considered either rich or clever enough.

You would be able to have a punt on the unknown Facebook start-up if you were able to prove you were either a high net worth individual (about £250,000 in the bank) or a sophisticated investor. But if you are what the Financial Conduct Authority (FCA) describes as a retail investor, you would have to seek advice from a regulated financial adviser. Even with that advice, which comes at a price, you would have to certify that you were investing only 10 per cent of your portfolio. (How many people have portfolios, for goodness sake.)

One rule for the rich, another for the squeezed middle? It certainly seems so. But these are precisely the new restrictions proposed by the FCA last week in its latest efforts to regulate crowdfunding. The guidelines are terrible news for this innovative method of equity funding as they discriminate against "ordinary" people who should be as free to back the next Facebook as any rich investor. So long as retail investors are presented with big health warnings about the risks, they should be allowed to invest as they wish.

But the FCA doesn't get this at all. It justifies the new rules by saying they reflect the fact that most investments in start-up businesses result in total losses and that up to 70 per cent of new enterprises fail in their early years.

So what? Any first-year business student knows that equity provides far greater financial security to a start-up than repayable loan capital. Why is it that the Brits are allowed to waste £2bn a year in gambling – or, for that matter, on buying listed stocks on the exchanges – without such petty rules?

While it's entirely proper that the crowdfunding platforms should be scrupulous in undertaking due diligence for the companies raising funds, they shouldn't be asked to behave like nannies to their investors by asking them to certify. Nor should investors be treated like children; one of the beauties of online platforms is the transparency of the process. Indeed, you could argue that the intelligence of the crowd will root out the baddies even quicker than financial experts, whose track records over the last few years have hardly been glittering.

You only have to read the fascinating book The Wisdom of Crowds, by James Surowiecki, to see how the crowd is nearly always smarter than a few experts in making the right calls – whether it's the TV audience getting 91 per cent of the questions right on Who Wants to be a Millionaire? or the way in which stock market traders dumped shares in Morton-Thiokol, the company that made the booster rockets for the Challenger, within hours of the shuttle blowing up. Counter-intuitively, the crowd gets it right more often than not.

We need to be told by the politicians why the FCA can dictate whether the man or woman in the street is or isn't allowed to invest in the next Facebook. Is it because it is terrified there will be too many collapses on its watch and it will be blamed for being too lax? Possibly, but it's not a good enough argument. Crowdfunders – and hopefully a growing lobby of politicians - have until December to show why it must go back to the drawing board.

Ironically, what the economy needs is more risk – proper equity risk, not debt-driven leveraged risk – if we are to kickstart the next generation of companies.

Ineos, be magnanimous

Here's a thought for Jim Ratcliffe, the Ineos boss, now he has pushed Unite and its members into agreeing a survival plan so that the Grangemouth plant can be reopened.

Mr Ratcliffe should show his gratitude by giving the 800 or so workers who agreed to the plan a chunk of shares in his privately owned Ineos. Who knows, such a scheme – whether it is done through employee share-ownership schemes or giving away shares – might help secure these latest negotiations in the longer term. Both sides have given way – Mr Ratcliffe has promised new investment and Unite members have given up the right to strike for three years, and agreed to a smaller pension pot and a pay freeze.

Mr Ratcliffe should show his appreciation and make the deal worthwhile for Unite – and a more united workforce.