Equity Crowdfunding

Businesses list on a Financial Conduct Authority (FCA) authorised online platform which allows members of the public to buy shares in the business.

“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.”

Atuksha Poonwassie Co-Founder @ Simple Crowdfunding

Crowdfunding platforms raised £217.7m across 360 deals for UK businesses in 2017

Beauhurst, The Deal: Equity investment in the UK 2017

Key requirement

You must be willing to share information about your business publically

Key benefit

You can access funding from multiple investors in a regulated environment

Key consideration

You will need to create clear, concise and accurate documentation to present to the crowd

What is Equity Crowdfunding?

Equity Crowdfunding can help businesses raise funding from multiple investors in a regulated way.  Businesses list on an online platform, where investors and members of the general public can buy shares in the business.

Equity Crowdfunding platforms will assess your business and associated documentation to make sure it complies with its requirements. Some platforms will also help you choose the timeframe or investment amount you ask for.

Every Crowdfunding platform is different. Some platforms will manage your shareholder communication, whilst others offer advice. Businesses should speak to the platform about their services and specialties before they commit to listing.

What are Equity Crowdfunding regulations and tax incentives?

  1. The FCA

    The Financial Conduct Authority (FCA) regulates all Equity Crowdfunding platforms in the UK. The FCA also enforces the Prospectus Rules, where if a raise goes beyond €5m, the company will need to produce a prospectus which will need to be approved by the FCA.

  1. SEIS and EIS

    For crowdfunding projects, the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are available, offering tax relief incentives to investors. Businesses can raise up to £150k under SEIS and up to £5m under EIS.

What’s the difference between Equity Crowdfunding and Peer-to-Peer Lending?

Whilst Equity Crowdfunding offers investors a small share of your business in return for money, Peer-to-Peer Lenders loan money to your business in return for a fixed return over a fixed period.

The two often get confused but there are important differences. Each has different benefits and suit companies at different stages of their growth and lifecycle.  You should consult a qualified financial adviser if you are unsure about the options available to you.

“Equity Crowdfunding is a regulated way to raise finance and get long-term investors into your business.”

Bruce Davis Founding Director @ UKCFA

What are the benefits of Equity Crowdfunding?

Access to capital

Opens up the world of finance for businesses who may have been rejected before.

Engaged investors

Ordinary people choose to invest their own money in your business.

Minority shares

You can give away as much or as little of your business as you like, meaning you can stay in control.

Regulated environment

Platforms provide a regulated environment where 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.

Complementary

You can use Equity Crowdfunding alongside other kinds of funding – it doesn’t stop you accessing other types of finance.

What are the risks of Equity Crowdfunding?

Fees

There may be a fee to list your business, depending on the platform.

Unsuccessful raises

There is no guarantee your raise will be successful. Any failure will be in the public eye.

Due diligence and your credit report

Crowdfunding platforms will conduct due diligence. Depending on the platform and the checks it carries out, the checks may affect your personal and business credit report.

Is Equity Crowdfunding right for you?

About your business

Business stagePre-revenue through to more established businesses
Annual turnoverAny
SectorsAny
RegionsAny

About Equity Crowdfunding

Purpose of financeCreating new products, acquisition finance, product development, project fulfilment, entry into new markets
Amount of financeUp to £4.3m without a prospectus, higher with a prospectus
Duration of financeDependent on the business being funded
Cost of financeThis is platform specific. Platforms often charge a success fee (usually a percentage of the amount raised) with a listing fee. Others will charge a percentage of profit
Time to financeOnce your documents are in order, it can take as little as a month

Mythbusting Equity Crowdfunding Bruce Davis, Founding Director @ UKCFA

There are lots of myths surrounding Equity Crowdfunding, but they are often unfounded. Here are some of the myths – and an explanation for why businesses should reconsider what they think they know.

  1. Myth 1: It’s too risky Businesses worry about reputational risk. But Crowdfunding platforms are responsible for due diligence and financial promotion compliance, to keep businesses on the right side of the law.
  2. 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 look at platforms to see what kind of businesses have raised funds in the past.
  3. 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 investments, such as Angel Investing and Venture Capital.
  4. Myth 4: It’s easy money The Crowd is not necessarily easier to secure money from than an investment fund, for example. The complexities of the due diligence process mean that they involve similar cost and time commitments.

Equity Crowdfuding Considerations

  • Public and open forum Any failure you have is firmly in view of the public
  • Due diligence There’s lots of due diligence to do – Crowdfunding platforms will expect you to have your company financial information and Companies House filings in good order, as well as doing background checks on members of your team
  • Managing investors You will have to answer questions from potential investors, as well as managing their expectations once they have invested
  • Charges Platforms often charge a success fee (usually a percentage of the amount raised) with a listing fee. Others will charge a percentage of profit

How do you apply for Equity Crowdfunding?

  • Business owners need to spend time looking for the right platform for them
  • The journey involves lots of due diligence and hard work, so owners need to be prepared

“Platforms will ask questions about why you’re raising money and what you want to achieve. You need to spend time planning your answers out at the start of the process.”

Bruce Davis Founding Director @ UKCFA

What's your next step?

In partnership with, UKCFA

Other finance options

Start Up Loan
Debt
A government-backed loan that helps people who are starting their own business.
Is this suitable for your business?
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Asset-Based Lending
Debt
A business secures finance against its existing assets; these can include invoices and also machinery, property and even intangible assets such as IP.
Is this suitable for your business?
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Invoice finance
Debt
Businesses sell or borrow against their unpaid invoices, giving them access to the money before the invoices are paid.
Is this suitable for your business?
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