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Alternative Finance blog

Five things you should know about UK Equity Crowdfunding before deciding if it is right for your business

3 years ago


  1. The process takes longer than you think

Researching which crowdfunding platform to target and what they want to see from you, pulling together marketing materials, scripting and rehearsing your pitch video, networking with potential lead and professional investors… the process of preparing for and undertaking a successful fund raise through an equity crowdfunding platform is time intensive and takes longer than most businesses and entrepreneurs expect. It is worth remembering that if equity crowdfunding is right for you then you get one shot at it, to not put in the time would be a mistake.


  1. It isn’t cheap

Much like buying or selling a house there are costs involved and they aren’t cheap. It is worthwhile paying to have a slick video created, bringing in designers to make your prospectus and one page marketing document visually engaging and networking business and investor events to engage investors ahead of the ‘go live date’ of your fundraising period. There are also costs to be paid with the platforms; most charge an arrangement fee and take a cut of money raised if you are successful. Many platforms also hide additional charges like transfer fees that also have to be paid.


  1. You do need to find your own investors

Some businesses and entrepreneurs believe that the platforms do all of the work for them, that the crowd will deliver. This isn’t usually the case. Lead investors make a big impact, some platforms require it in order to be featured. As a general rule you should expect to bring in 40% to 60% of the funding yourself and let the crowd fund the rest.


  1. Very few crowd investors pledge more than £25,000

Some platforms boast more institutional investors or their own expert panel with more money to play with, but most platforms have a crowd of small investors. You need to adjust your thinking accordingly – it isn’t about appealing to one investor with £250,000, it is about appealing to 20 or more with £12,500 or less. Be likable, have strong marketing materials, make sure it is clear what’s in it for them, do not expect them to fill in the gaps – engage the crowd, what is it that they want?


  1. If your fund raising is successful you will need to keep your new shareholders regularly updated

Lots of small investors rather than a few large investors equals more shareholders to update on how you are doing. Some businesses have a communication structure in place that can deal with that, some do not. If your business is the latter consider a platform with nominee shareholding services as they take on the administration of shareholders. However, note that when you do so the platform can also advocate for the shareholder.

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