Equity crowdfunding is raising money by selling shares in your company to a large number of investors through an online platform. Each investor puts in a small amount, often alongside a few larger ones, and together they make up the round. In the equity crowdfunding UK market, the biggest platforms are Crowdcube and Republic Europe, which was Seedrs until Republic bought it.
The platform does the regulated part of the job: it checks the business, approves the pitch, takes the money and, usually, holds the shares for the investors. The founder still has to bring the first investors. A crowd raise works like a marketing campaign that raises money, so it suits a business that already has customers and followers who want to own a piece of it.
I’ve raised £250m+ for my own companies from investors in over 50 countries, and funded more than 750 businesses with over £1bn, so I’ve seen raises as a founder, as an investor and as a lender.
How Equity Crowdfunding Works in the UK
The company issues new shares and sells them through the platform at a price set by the valuation. The money goes into the business, and the investors become shareholders. It’s the same transaction as any other equity raise, such as a seed round from angels. What changes is how the investors are reached.
Promoting shares in a private company to the public is regulated in the UK, so the platform, an FCA-authorised firm, approves the pitch before anyone sees it. The FCA’s own guidance tells investors that if the company fails they might lose all the money they’ve invested, and that they won’t have access to the Financial Services Compensation Scheme. Platforms have to check that each new investor understands those risks before they can invest.
A raise on Crowdcube runs in this order:
- Application and checks. The platform reviews the business, the valuation and the pitch before accepting it.
- Preparation. The founder settles the valuation, the amount, the share class on offer and the articles of association the round needs, and prepares the pitch page, video and financial information.
- The private phase. The pitch is shown only to the founder’s own network until it reaches an initial investment target agreed with the platform.
- The public phase. On a Full Access raise, the pitch then opens to the platform’s wider investor base.
- Closing and cooling off. Once the offer closes, investors have a cooling-off period, typically 4 days on Crowdcube, during which they can cancel.
- Completion. The legal paperwork is finished, anti-money laundering checks are done, the shares are issued and the money is paid to the company.
Platforms and What They Charge
Platform fees are paid by the company out of the money raised, so they come off the top of the round. Crowdcube publishes its fees for raising, and the structure depends on whether the pitch is marketed to the founder’s network only or to Crowdcube’s investors as well.
| Crowdcube fee | Focus Raise (your network only) | Full Access (your network and Crowdcube’s investors) |
|---|---|---|
| Listing fee | £4,995 | £9,995 |
| Success fee on money raised | 5% | Up to 8% |
| Platform fee on money raised, plus VAT | 2.5% | 2.5% |
| Annual nominee fee, from the second year | £750 | £1,000 |
The 2.5% platform fee covers payment processing, anti-money laundering checks and paying the money out. The first 12 months of the nominee service are included.
Say a company raises £500,000 through Full Access and pays the full 8% success fee. The listing fee is £9,995, the success fee is £40,000 and the platform fee is £12,500, plus £2,500 VAT at 20%. That’s £64,995, about 13% of the round, before legal, accounting and marketing costs, and the company receives £435,005.
Crowdcube’s minimum raise is £150,000. It says the average raise on the platform is £670,000 and the largest was BrewDog’s £10m.
For Republic Europe, the founder gets the fee schedule from the platform before signing up and compares it line by line with Crowdcube’s. Republic also uses a nominee, and it runs a secondary market where investors can sell shares to other investors on the platform.
The Audience You Need Before Launch
Crowdcube keeps a pitch private until it reaches an initial target agreed with the founder’s campaign manager, and that money has to come from people the founder brings: existing investors, customers, followers, suppliers and contacts. A Focus Raise is marketed to the founder’s network only.
That’s why equity crowdfunding suits consumer brands with a following. People who already buy the product, follow the brand or read its emails are the people a founder can reach first, and they can back it for reasons beyond the return, such as liking the product and wanting it to do well.
The audience has to exist before the pitch goes live. A mailing list, a social following and a customer base take time to build, which is why building an audience first is part of preparing for the raise.
A lead or cornerstone investor helps too. A larger cheque committed early, from an angel, a fund or an existing investor, shows the rest of the crowd that someone has looked closely at the business and backed it.
Nominee Structures and the Cap Table
A cap table, short for capitalisation table, is the list of everyone who owns shares in the company and how many they hold. A crowd raise can add hundreds of new shareholders to it at once, and a nominee is how platforms keep that manageable.
On Crowdcube, the shares are usually issued to a nominee company, Crowdcube Nominees Limited, which holds them on trust for the investors. The nominee is the legal shareholder, named once on the company’s register of members, and the investors are the beneficial owners, entitled to the economic value of the shares.
| Direct shareholding | Nominee shareholding | |
|---|---|---|
| Who is on the share register | Every investor, by name | One nominee company |
| Who signs shareholder documents | Every investor | The nominee, on the investors’ behalf |
| How investors vote | Individually | Crowdcube polls the investors and instructs the nominee to vote with the majority of those who respond, weighted by shares |
| Who handles the administration | The company | The platform, for an annual fee |
The nominee matters most when the company raises again or is sold. A new investor or a buyer deals with one registered shareholder for those shares rather than hundreds, and documents that need shareholders’ signatures don’t have to be chased from every crowd investor.
Crowdcube also offers direct holdings, and some larger investors want their shares in their own name. A round can mix the two.
Crowd investors still have the rights of shareholders. They’re entitled to company updates and, depending on the articles, to pre-emption rights, the first chance to buy new shares in later rounds. A founder who raises from a crowd takes on investor relations with all of them, through the platform.
Costs Founders Forget
The platform fees are the visible cost. These come on top:
- Legal. The articles of association often need updating before the round, and the founder may want their own lawyer to review the platform’s documents and any shareholders’ agreement.
- Accounting and valuation work. Up-to-date management accounts, forecasts and the reasoning behind the valuation, which investors will question in the comments on the pitch.
- Marketing. The pitch video, ads, email campaigns and PR that drive the founder’s own audience to the pitch.
- Investor perks. Some campaigns offer investors discounts or products, and those cost money to deliver long after the raise closes.
- Time. Preparing the pitch, answering investor questions publicly during the campaign and managing completion all take the founder away from running the business.
- Ongoing administration. Updates to investors, the annual nominee fee and, if the round used SEIS or EIS, the paperwork for investors’ tax relief.
SEIS and EIS give UK investors income tax relief for backing qualifying companies, and crowd investors can claim it in the same way as angels. Under EIS, most companies can raise up to £10m in any 12 months and £24m in total from the venture capital schemes, and SEIS allows up to £250,000 for the youngest, smallest companies.
When It’s the Wrong Route
Equity crowdfunding is one route to investors among several, and the documents and the valuation are the same whichever route the founder takes. It tends to be the wrong one when:
- the business has no customers, followers or network to bring to the private phase
- the business sells to other businesses and has no public following, so its likely investors are angels and funds who back its sector
- the amount needed is below the platform’s minimum, £150,000 on Crowdcube
- the founder isn’t willing to publish the plan, the valuation and the financial information the pitch needs, or to answer questions about them in public
- the money is for a defined purpose the business could repay from its own cash flow, where borrowing keeps all the shares with the founder; there’s more on that choice in debt vs equity
For a business at an earlier stage, a pre-seed round from angels or friends and family can come first, with a crowd raise later once there’s a product and a following to build it on.
FAQs
What is equity crowdfunding?
Equity crowdfunding is selling shares in a private company to many investors through an online platform. Investors put in anything from small sums to larger cheques, and become shareholders in the business.
How much does it cost to raise on Crowdcube?
On Crowdcube, a Full Access raise costs a £9,995 listing fee, a success fee of up to 8% and a 2.5% platform fee plus VAT. A Focus Raise to the founder’s own network costs £4,995 to list and a 5% success fee, plus the same platform fee.
Do crowdfunding investors get shares in my company?
Yes. Crowd investors become shareholders, but on Crowdcube the shares are usually held for them by a nominee company, which is the legal shareholder on the register. The investors keep the economic rights and vote through the platform.
Can you use SEIS or EIS for an equity crowdfunding raise?
Yes. A company that qualifies for SEIS or EIS can raise under them through a platform in the same way as from angels, and the crowd investors can claim the tax relief.
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