A text transcription follows.
This transcript is for anyone with a hearing impairment or who for any other reason cannot listen to the MP3 audio file.
The following is the text spoken by OUT-LAW journalist Matthew Magee.
Hello and welcome to OUT LAW Radio, where we hope to keep you up to date with the latest news and the most fascinating features from the world of technology law.
My name is Matthew Magee, and this week we hear about a company that is using the power of crowds to overcome a funding drought.
But first, here are some of the top stories from OUT LAW.COM, where you can read breaking technology law news throughout the week.
Consumer watchdog to investigate online business practices
Shop posts pictures of alleged shoplifters
Consumer protection watchdog the Office of Fair Trading will investigate online pricing tactics and internet advertising techniques that mislead consumers, it has said. It will also probe price comparison sites and behavioural advertising.
The OFT, which polices the behaviour of businesses on behalf of consumers, may propose an industry code of practice on advertising and pricing if it finds enough evidence of unfair behaviour by online retailers.
The OFT said that some of the practices it will investigate includes 'drip' pricing, where consumers only see an element of price upfront but price increments 'drip' through during the buying process; 'baiting' sales which entice consumers with promises of discounts but then have very few items on offer at that price; reference prices, where promotions create an artificially high reference price compared to sale price; and time limited offers such as sales which finish at the end of the month or special prices which are available for one day only, it said.
Images of suspected shoplifters caught on CCTV are being published online by a retailer which wants the public to identify the individuals. Liverpool based TJ Morris has published the pictures, which were captured in its Home Bargains shops.
Images of seven people are displayed on the page in colour still photographs taken from CCTV footage.
Information law specialist Rosemary Jay of Pinsent Masons, the law firm behind OUT LAW, said that the publication of the images may well be acceptable under privacy legislation the Data Protection Act.
She said the question is whether the publication is proportionate balancing the rights of the store and the rights of the people shown. If the store is sure that these people were committing crimes and has taken every care on that then they may be able to point to a justification. They would have to make sure the photos came down as soon as the person was identified, said Jay.
Those were some of the top stories from this week's OUT LAW News.
While all eyes have been on the collapse of banks' balance sheets, the closure of companies and the loss of thousands of jobs, the ongoing recession is having consequences that might not be apparent for a few years but could have a major impact on the economy.
Technology and research based companies in their early stages need investment to keep them going until they are ready to sell their products or services. These kinds of companies are the ones most likely to turn into tomorrow's Microsofts or Googles, yet they report that such funding has become impossible to come by as recession hit investors pull up the drawbridge. Those investors are becoming conservative and risk averse, and this means that early stage tech firms are feeling the pinch.
So what can they do? London's Trampoline Systems has an innovative answer, and it is so of the moment and web 2.0 it hurts. It is crowd sourced funding.
Founder and Chief Executive Charles Armstrong explains.
Charles Armstrong: We are now raising £1 million through a technique that is called crowd funding and this is a technique that has become quite well established in the film industry and the music industry but it is really the first time that anybody has used it to finance a technology venture at the scale that Trampoline is operating at. And really the big difference with crowd funding is that you raise smaller amounts from a larger group of people. So typically if you are working with venture capitalists you would just raise quite large amounts of money from one or two or three different funds. What Trampoline is doing with this crowd funding initiative is raising money from up to 100 private investors where the minimum stake is £10,000. So it is a very different balance between the size of the investment and the number of people who are participating.
Trampoline already received £3 million in venture capital funding, but Armstrong says that the recession put an end to funding rounds like that.
Charles Armstrong: The financial crisis has had quite a dramatic effect on the global venture capital industry. For one thing the overall levels being invested have declined by something like 30% but at the same time the way that venture capital firms are investing that money the pattern has changed as well. The firms are supporting their existing portfolio companies to make sure that they can weather the crisis. They are also investing in late stage businesses so businesses that are already either at profitability or on the verge of profitability. And that has left businesses similar to Trampoline that are at the stage that a lot of the development works have already been done, but it is so near the early beginning stages of commercialisation it has become almost impossible for businesses in that situation to raise venture capital. So that is really what prompted us to think of what the alternatives were, what different ways we could actually finance the business and continue its growth.
Trampoline makes software that helps businesses to see who on their staff knows whom and who knows what by analysing their use of email and the internet. Armstrong used his academic training in ethnography to put it together.
It has already raised funds twice, once in a one small round from friends and family and a bigger £3 million one from a US hedge fund.
So it has experience of more traditional funding, where a venture capitalist will take an interest in the companies they invest in that can often border on control. Typically they will take a seat on the company's board to make sure its money is being well spent.
You cannot have 100 small investors on your board, though, so how does Armstrong plan to stay accountable to those whose money he is spending? There, too, he plans to use social media, and even online interactivity.
Charles Armstrong: I have heard lots of cases where there have been issues of control and tensions in the boardroom that have impacted negatively on a business's development. One of the things that I am talking to lots of people about at the moment is how we can best make use of this community of influential, intelligent, experienced investors who are becoming involved in Trampoline now; whether there are voting techniques or idea rating techniques that we can use that will keep as many of those people who are interested involved in strategic decision making.
The plan is three weeks into operation and already the company has raised £330,000, a third of its target. Now that Armstrong has seen traditional and crowd sourced investment at work, what are some of the problems of the new system? The biggest, he says, are the barriers that financial watchdog the Financial Services Authority puts up to stop consumers being duped by dodgy investment scams. The barriers should be there, he says, but they could be improved.
Charles Armstrong: The Financial Services Authority regulations were not drawn up with this kind of fundraising process in mind. It is only really with the advent of the internet that crowd funding as a technique has become viable. So we had spent a lot of time understanding very closely what the different areas of regulation that this touched were and finding a way to design the process such that it would fit within all of those regulations. The FSA has a very important role to protect ordinary consumers from scams and people offering snake oil and that is an absolutely legitimate function that they serve but at the same time I do think there is an argument for some reform of the regulations to enable crowd funding techniques and other internet era investment techniques to be operated with a little less bureaucracy around them.
Usually investment is a secretive business. Nobody wants to give too much away: deals are built on brinkmanship and hard negotiating and information is the scarcest, most valuable commodity.
So it is refreshing to hear Armstrong be so open about the process his company are engaged in. But Trampoline has gone one further than just talking about it: it is operating a blog on the whole process, publishing its findings about the ups and downs of the new funding method. It is, says Armstrong, all part of the ethos underpinning the funding itself.
Charles Armstrong: This is going to be a model that is relevant for a lot of businesses and part of what we are really hoping to achieve is to share the information about how we made it work so that it is actually easier for other businesses to consider the same course. I think that is really part of the whole ethic of crowd funding; that it is very much about being transparent; that part of the reason and the fact that it works is that we put a lot more information about the business into the public domain and we really felt that that should carry through to everything that we had learnt about how to do a process of this kind. So I think that it is certainly a model that is going to establish itself as part of the corporate venture finance eco system.
That's all we have time for this week, thanks for listening. Why not get in touch with OUT LAW Radio? Do you know of a technology law story? We would love to hear from you on email@example.com. Make sure you tune in next week; but for now, goodbye.
OUT LAW Radio was produced and presented by Matthew Magee for international law firm Pinsent Masons.