Crowd Funding Investment: What is it? How does it work?
Updated: Jul 3
This crowd funding overview completes our series on Equity Funding. Scroll down to read our other articles in this series.
What is the definition of Crowd Funding?
Crowd funding is where businesses raise investment from the 'crowd', i.e. investors on platforms such as Seedrs and Crowdcube. In order to crowd fund, you must apply to one of these platforms. If your business is a good fit for their investor base, they will promote the opportunity on their platform.
Consumer-facing businesses benefit most from crowdfunding. It's easier for the investor base to understand their offering and also allows the crowd funding to double as a marketing opportunity. Even as a consumer-facing business, don't expect too much from the crowd. Most platforms will expect you to have a chunk of your fundraise already committed (around 1/3 as a rule of thumb) and it's sensible to have angels or friends and family lined up to get the ball rolling when you first launch on a platform.
Crowd Funding Investment Amount Range (roughly)
How Long Does it Take to Raise Investemt Funds from Crowd Funding?
1-2 months depending on how much you already have committed.
Angels Den - Use a hybrid syndicate and crowd-funding platform. They can connect startups to a lead angel so don’t necessarily need a lead investor like the others.
Crowd Funding: Pros
Transaction administration and investor relations handled by crowd funder
Extra exposure to the ‘crowd’ meaning you don’t have to drum up all your own support
Great marketing opportunity
Tend to get a favourable valuation
Crowd Funding: Cons
The crowd only invests the last chunk - meaning you need to have substantial commitments outside the platform, and the platforms normally still take their fees for your investors
Relatively high fees - for Seedrs, a £250k fundraise will incur £15k in fees
That favourable valuation can hurt you in further rounds