List your business on an authorised online platform and allow members of the public to buy shares in it.
Equity crowdfunding can help your business raise funding from a number of investors, in a regulated way. You list on an online platform that allows investors and members of the public to buy shares in your business.
An equity crowdfunding platform will assess your business, and the associated documentation you provide, to make sure it complies with its requirements. Some platforms will also help you choose the timeframe or amount of investment you ask for.
Every crowdfunding platform is different. Some will manage your communication with shareholders, while others offer business advice. You should always speak to the platform about its services and specialties before you commit to listing.
Regulations and tax incentives
Financial Conduct Authority (FCA)
In the UK, the FCALink opens in a new window regulates all equity crowdfunding platforms. It also enforces the Prospectus RulesLink opens in a new window, which state that if a crowdfunding raise goes beyond €5m, the company will need to produce a prospectus for the FCA to approve.
Enterprise Investment Scheme and Seed Enterprise Investment Scheme
For crowdfunding projects, the Enterprise Investment Scheme (EIS)Link opens in a new window and the Seed Enterprise Investment Scheme (SEIS)Link opens in a new window offer tax relief incentives to investors. Businesses can raise up to £150,000 under SEIS and up to £5m under EIS.
While equity crowdfunding offers investors a small share of your business in return for money, peer-to-peer (P2P) lenders loan money to your business in return for a fixed return over a fixed period.
People often confuse the two, but there are important differences. Each has different benefits and suit companies at different stages of their growth. You should consult a qualified financial adviser if you are unsure about the options available to you.
Access to capital
Opens up the world of finance for businesses that may have been rejected before.
Ordinary people choose to invest their own money in your business.
You can give away as much or as little of your business as you like, meaning you can stay in control.
Platforms must operate according to regulations, which makes them a controlled environment in which investors and businesses can connect.
Help and advice
Depending on which platform you choose, you can get help and support at various stages in the process.
Complement other forms of funding
There’s nothing to stop you using equity crowdfunding alongside other types of finance.
Some equity crowdfunding platforms charge you to list your business with them.
No guarantee of success
Unfortunately, there’s a chance your raise won’t have the result you're hoping for. Added to that, any failure will be in the public eye.
Due diligence and your credit report
Crowdfunding platforms will conduct due diligence. Depending on the type of checks a platform carries out, this may affect both your personal and your business credit reports.
About your business
- Business stage: Pre-revenue through to more established businesses
- Annual turnover: Less than £5m
- Sectors: All
- Regions: All
About the finance
- Purpose of finance: Creating new products, acquisition finance, product development, project fulfilment, entry into new markets
- Amount of finance: Up to £4.3m without a prospectus, higher with a prospectus
- Duration of finance: Depends on the type of business
- Cost of finance: Depends on the platform. Some charge a success fee (usually a percentage of the amount raised) with a listing fee. Others charge a percentage of profit
- Time to finance: Once your documents are in order, it can take as little as a month
Ask an expert: Bruce Davis, founding director at UK Crowdfunding Association (UKCFA)
There are lots of myths surrounding equity crowdfunding, but they are often unfounded. Here are some of them – and an explanation for why businesses should reconsider what they think they know.
Myth 1: Crowdfunding is too risky
Businesses worry about the risk of damage to their reputation. But crowdfunding platforms are responsible for conducting due diligence and complying with financial regulations, to keep businesses on the right side of the law.
Myth 2: It’s only for high-profile businesses
Some people may look to invest in very consumer-focused businesses, but the crowd is often as diverse as businesses are themselves. You just need to find the platform that’s the best fit for your business. Do your research and, with each platform, see what kind of businesses have raised funds with them in the past.
Myth 3: It’s just an extension of your marketing
Equity crowdfunding is more than just a way to sell your product. It’s actually a regulated investment world that operates like other types of equity finance, such as angel investment and venture capital.
Myth 4: It’s easy money
The crowd isn’t necessarily easier to secure money from than an investment fund, for example. The complexities of the due diligence process mean that they involve similar commitments of cost and time.
An open forum
If your business fails to raise money, it does so in firm view of the public.
There are lots of checks. Crowdfunding platforms will expect you to have your company financial information and Companies House filings in good order, and will do background research on members of your team.
You'll have to answer questions from potential investors, as well as managing their expectations once they've invested.
Platforms often charge a success fee (usually a percentage of the amount raised) with a listing fee. Others will take a percentage of your profits.
The UK Crowdfunding Association's list of membersLink opens in a new window is a good place to start.
You must spend time looking for the right platform for your business. And be aware that the journey involves lots of due diligence and hard work, so you need to be prepared!
Learn more about equity crowdfunding
The UK Crowdfunding Association (UKCFA) represents crowdfunding platforms in the UK. The UKCFA has put together some simple videos outlining how crowdfunding works and their role.Visit UKCFA Link opens in a new window
“Crowdfunding gives businesses the opportunity to tap into the right crowd. These are people who believe in your business and who are willing to put their money behind it.”
Other finance options
|Purpose of financessss||Working capital, product development, entry into new markets, build teams, increase sales|
|Amount of finance||Usually £15k-£500k, but large Syndicates may offer up to £2m|
|Duration of finance||Typically 3-8 years|
|Cost of finance||None|
|Time of finance||2-6 months|
|Business stage||Generally early stage, pre-revenue or pre-profit|
|Annual turnover||Less than £5m|
|Sectors||All sectors, but especially suitable for companies with a scalable business proposition|
Start Up Loan
|Business stage||Yet to start or trading for less than two years|
|Sectors||Some exclusions apply (see <a href='https://www.startuploans.co.uk/am-i-eligible/' target='_blank'>here</a>)|
|Purpose of financessss||Acquisition, product development, new markets|
|Amount of finance||Up to £50m on AIM; unlimited on the Main Market|
|Duration of finance||10 years +|
|Cost of finance||You will need to appoint an accountant, a law firm and usually a PR firm. Assume this will cost 8% of the amount you hope to raise|
|Time of finance||IPO processes takes 10-12 weeks; but planning and negotiations can take 12-18 months|
|Business stage||Established and growing|
|Annual turnover||Over £5m; this does not apply to healthcare businesses|
|Sectors||All sectors; healthcare and tech may be able to list earlier in their lifecycle than other sectors|
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