Definition of equity crowdfunding
“Equity crowdfunding is a means of raising a small amount of business funding from lots of investors. The investment is exchanged for equity in a company.”
Equity crowdfunding saw the biggest growth of all kinds of crowdfunding finance last year, with the market doubling to £50m in the UK. For businesses who are successful in their pitch, sites such as Seedrs, Crowdcube or Syndicate Room can be a great route to finance – the average deal size on Seedrs last year, for example, was almost £164,000. (Goodfellow, Christopher, Business Zone, 30th January 2015).
Equity crowdfunding is definitely not an easy way to obtain funding though. Competition is fierce, and getting more so each year, so to stand a chance of winning investment you need to package your proposition, and pitch it just as professionally as you would for any other type of business finance.
How equity crowdfunding works
Companies pitch their proposition via crowdfunding finance sites like Seedrs, Crowdcube or Syndicate Room to try and attract lots of small sums of investment that will add up to a target amount of finance. In exchange for their investment – the minimum can be anything from £10 to £1000 – depending on the crowdfunding site, would-be backers receive shares in your company. The amount of equity that you are offering and the type and structure of the shares, depends on the deal that you are striking and the type of crowdfunding site you are using, which is something that we can advise on using our extensive expertise.
Why you need advice on your proposition
Equity crowdfunding is becoming more complex and competitive every year – there has been a massive increase in investors recently – many who are classed as serial entrepreneurs – Seedrs saw its amount of registered investors almost double in 2014. Equity crowdfunding sites have also seen a sharp rise in growth-stage businesses competing for cash, rather than just pre-revenue ventures which is making it an even more serious game.
At Access we can draw upon our experience – as both financiers and investors ourselves – to ensure that your proposition is pitched perfectly, and that your story is compelling enough to stand a chance on equity crowdfunding sites. We can also advise on which type of site is best to use – with equity based crowdfunding you need to consider the structure of the shareholding on the platforms, whether they offer pre-emption rights to would-be investors, and the quality of the due diligence.
We can help you navigate through the minefield to choose the right site, and ensure that you get what you’re worth.
Equity crowdfunding is a great way of raising finance for companies with a strong brand or compelling story, who are happy to give away some equity in exchange for investment.