People invest in crowdfunding platforms for a host of reasons - perhaps looking for better returns from their money, or to try something new.
But according to Dr Mark Davis at the University of Leeds, a large part of it is to do with setting aside a small portion of one’s portfolio, to invest in something ethical or to have a punt on something more adventurous.
An economic sociologist, he conducted a research exercise with the Financial Conduct Authority (FCA) looking at why people invest through these platforms.
He says: "It really is a challenge to conventional investor behaviour, where all that matters is maximum value in terms of financial return.
"A lot of investors we spoke to had a well-diversified portfolio, with 80 per cent to 90 per cent of their funds in standard products, and that's where they expected to get their financial returns.
"The remaining 9 per cent or 10 per cent they had earmarked for more social outcomes. It might get you a good financial return or it might not."
He continues: “We spoke to people who wanted to support business sectors they've worked in previously, or who invested in specialist regions, such as Yorkshire or East Anglia.
" A lot of people approached it with a different set of motivations and perception of risk; there was a tendency to take a chance on a crowdfunding investment because of the broad social and environmental goals."
Many peer-to-peer (P2P) and crowdfunding platforms will make it clear what you are investing in, especially if the loan or debt product is for a business, and these can be, for example, investing in a wind farm, or helping to support a local community project.
But a lot of the P2P lending platforms are much less clear about who investors are lending to, transferring your funds into a portfolio of borrowers who fit a risk profile, and of whom you might not know their identity.
Making the right choice
So how does an investor go about selecting the right platform, and choosing the most appropriate investment?
Alan Sheehan, a technical manager at in:review, which provides technical support to advisers at network In Partnership, whose clients want to use one of these platforms, says the most important thing is to do due diligence on the platform.
For a start, when deciding on whether to opt for P2P lending and equity crowdfunding, the former is far more liquid than the latter. Mr Sheehan says: "With equity crowdfunding you're buying shares in a private company, and you will not be able to sell those shares.
"They are not a listed company. You will be looking for an exit, only when that company is bought by a larger competitor. It's a long-term investment."
