What Is Equity Crowdfunding and How Does It Work

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When fundraising for your startup, there are plenty of options to choose. However, in this blog we will be discussing the advantages equity crowdfunding may bring to help your business raise funds. 

So let’s start with what equity crowdfunding is…

Equity crowdfunding is a process whereby startups raise funds from a range of investors i.e ‘the crowd’. In return of the investment, the investors will own a percentage of that company in shares. A startup can only use crowdfunding if it is not listed on a stock market. 

So what are the benefits of equity crowdfunding?

This may be a suitable choice for your business as not only is it effective for gaining capital for your startup to enable it to grow, but it also has the benefit of raising awareness of your brand in the market. When creating a successful crowdfunding campaign, you need to promote it to investors and ‘the crowd’ to create awareness, naturally increasing your brand awareness and therefore you will be open to reaching more audiences. 

When you get investors on board with your startup they also will automatically have an increased interest in the success of your business because they have shares in it. Therefore, they are more likely to actively spread awareness around your brand and bring in more customers. 

How does equity crowdfunding work and how do I get started?

You will need to get set up on a crowdfunding platform, we can recommend Seedrs and Crowdcube, as well as ISQ Crowdfunding who will work closely with you and your platform of choice to take you from thinking about crowdfunding to having a successfully overfunded campaign. 

Once you have got set up on your platform of choice, you will then decide upon both the amount of capital you are required to raise in order to take you to the next stage of growth, and the percentage of equity they are willing to hand over to investors. It is good to be aware that if you do not reach your desired funding target, the crowdfunding platform may not let you receive any of your funds. 

You will then be able to create your pitch for the funding round. It is essential that this includes the following: 

  • Your business’ story 
  • The valuation of your startup
  • How much you would like to raise and where this will be used within the business
  • Any shareholdings in the company 

After you have created your pitch, it will be assessed through due diligence checks by your chosen platform, and then if all is ok it will be launched! You can expect your campaign to run for 60 days, so this is the amount of time you will have to reach your fundraising target. 

After 60 days, if you have reached your target, you will receive your funds and your shareholders will receive their share certificates!

For more content on crowdfunding, click here.

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