Equity Crowdfunding

Equity crowdfunding provides a regulated way for businesses to raise funds from multiple investors. By listing your company on an online platform, both individual investors and the public can purchase shares in your business.

How does Equity crowdfunding work?

A business interested in equity crowdfunding will sign up to an online platform that is FCA-regulated and licensed. Before listing, the platform will review your business and the accompanying documentation to ensure it meets their requirements. 

Likely next steps when enlisting on an equity crowdfunding platform include:

• building a campaign page to describe your business, the investment opportunity, and how much you’re looking to raise
• due diligence and preparing legal documentation, as well as paying any fees that are due to the platform once funding is delivered. 

Remember each equity crowdfunding platform offers different services. It’s important to research the platform’s services and expertise before committing to a listing.

What are the benefits?

There are several potential benefits of equity crowdfunding for a business, including:

• access to funding: equity crowdfunding may be an option for businesses that haven’t been able to secure funding elsewhere
• retain control: the shares sold will represent minority stakes, so you will retain control of the business
• regulated environment: equity crowdfunding platforms are required to comply with regulations, creating a controlled and secure environment where businesses and investors can engage with confidence
• complimentary funding: equity crowdfunding can work well with other types of funding such as grants or debt finance.

What are the potential drawbacks?

Like all finance types, there may be drawbacks to using equity crowdfunding for your business:

• platform fees: some platforms will charge a business a fee to list with them
• no guarantee: as with all equity finance, there is no guarantee you will successfully attract investment or that your business will grow successfully as a result
• due diligence: crowdfunding platforms will conduct due diligence on all businesses. This could have an impact on both business and personal credit report 
• less control: entrepreneurs will have to part with an equity stake in their business, in return for the investment.

How do I access equity crowdfunding?

Selecting the most suitable platform requires careful research, so take the time to evaluate your options thoroughly. It's also important that you take on professional advice, and fully understand your legal and regulatory obligations in relation to any proposed equity crowdfunding.

Keep in mind that the crowdfunding process involves extensive due diligence and a significant amount of effort, so it’s essential to be well-prepared.

The UK Crowdfunding Association (UKCFA) offers a list of member platforms, which can be a great starting point for finding the right crowdfunding option for your business.