Three key considerations:
- Crowdfunding may be an option if you are a start-up or small business with a compelling proposition and strong business plan, as it consists of raising money directly from a large number of people all putting in relatively small amounts.
- With equity crowdfunding, people invest in an opportunity in exchange for a small stake in the business. This is different from debt crowdfunding, where people lend the business money, and expect to be repaid. Equity crowdfunding is more risky for investors, who will expect a potentially higher return.
- If you are prepared to spend time preparing your offer to be promoted on a crowdfunding website, then equity crowdfunding may be for you.
Is equity crowdfunding right for me?
The use of equity crowdfunding by companies looking to raise equity finance is becoming increasingly common. This is a means to connect companies with potentially hundreds of thousands of potential investors, some of whom may also be current or future customers.
It does this by matching companies with would-be angels via an internet-based platform. Raising equity finance through crowdfunding platforms can be an alternative to seeking angel or VC finance through more traditional routes – for start-up, early-stage and growth companies.
Preparing for equity crowdfunding
Before putting a pitch for equity investment on a crowdfunding platform, you would need to show that your business is investment-ready. As with attracting traditional angel or VC investment, you would need to produce a business plan and financial forecasts. A business might also include a video summarising the opportunity.
The fees payable for raising equity finance on the crowdfunding platform will typically be a success fee and legal fees related to the issue. You may incur additional legal and advisory fees in the preparation of the pitch. Limited due diligence is usually carried out by the platform and the investor may have the option to ask for more information. Although the investment will be listed on the platform, investors will not be advised to invest in a particular equity offering.
Equity crowdfunding is regulated by the Financial Conduct Authority (FCA).
Some crowdfunding platforms offer both equity and debt finance.
To find out more including details of Crowdfunding platforms visit the UK Crowdfunding Association (UKCFA) website.
To find out more about the other finance options for your business, go back to the Finance Journey tool.