Crowdfunding as a concept is not a new phenomenon. Over the last centuries, the power of the crowd has been employed to finance different public and private ventures, from book publishing to building collective means of production (as part of the Cooperative movement). However,
with the emergence of Internet, the notion of raising funds from the crowd has acquired a whole new dimension.
What is Equity Crowdfunding?
Equity Crowdfunding is a way of funding, provided by a large group of individual investors, who are rewarded in exchange with a stake in the company, facilitated through an intermediary platform.
- Valuation of your business
- Business-model proposition
- Amount of funding that you look for (minimum and maximum)
- Stake of business you are ready to give up
- Use of the collected funds
- Return on investment (exit strategy)
What are the Pros and Cons of Equity Crowdfunding?
Crowdfunding creates an even stronger bond with your customers, turning them into the greatest brand ambassadors.
- Alternative funding solution when not qualifying for other traditional sources
- Debt-free funding, which does not limit future growth
- VC friendly funding – it is an excellent complement to institutional investments (not a replacement)
- Builds a strong network of advocates and potentially loyal customers
- Simplified bureaucracy – platforms enable welcoming 100s or 1000s of investors under a single SPV
- Tool to validate your business proposition
- High visibility and media exposure
- Giving up a stake of shareholders’ equity
- Time consuming process (it’s a full time job) and without a guarantee to attract enough funds at its end
- Risk of public failure, in case the campaign is no successful
- Administration and follow-up work that comes with reporting to a large number of investors
- Some skeptics refer to crowdfunding as “dumb money” given that there are some first-time investors joining just because they love the brand
- Some VCs might be hesitant to invest alongside large pool of crowd investors
- Risk of becoming overreliant on crowdfunding, raising follow-up rounds instead of going for Growth funding through institutional investors
How to succeed in your crowd campaign?
create a compelling and curated campaign, being clear about the problem you solve, your solution and how this connects to your mission.
- Warm-up your following before the campaign is launched – they should be the main target audience to rely on (not the platform members)
- Introduce the founders and as many members of your team as possible to investors
- Use storytelling to create a powerful narrative around your business
- Present a well-structured action plan for business development and how you will use the funds to scale
- Engage everyone in your company (or those in key positions) with the campaign, ask them if possible to share the campaign through their private profiles
- Run webinar(s) where investors can raise questions and hear from you, which you can also record and later post as an update
- Introduce testimonials from happy users/customers/partners as well as existing investors
- Make sure to keep the campaign active and the community engaged, through regular updates (milestones achieved, news, events, etc.)
- Be transparent and honest with your investors
- Overhype, oversell your campaign with flashy messages without any substance
- Aim to raise too much money – set maximum limit from the beginning and be clear about when to stop
- Set too high valuation – this will push back many investors, while also raise the risk of having a down-round in future institutional round.
- Skip any question coming through the platform – a well argued answer can well convince an investor (while the opposite is also true)
Why is it a good fit for Impact businesses?
Given its particular nature and dependence on the crowd, Equity Crowdfunding is specially well suited for purpose-driven impact-making businesses, which are usually attracting large number of followers. Furthermore, companies with impact are highly regarded by the investors crowd, given the growing sentiment towards doing good, alongside making a profit.
Purpose-driven companies usually have a stronger founder-problem fit, are driven by powerful missions and have great stories to tell.
What else makes companies suitable for running a crowd campaign?
- Having a lead investor on board (either a VC or Angel investor(s))
- B2C businesses are usually more attractive than B2B focused ones, given their typically larger pool of followers
- Having some existing traction – while companies in Seed stage are welcome, they need to prove that they have found product-market fit and have attracted early users/customers
Equity Crowdfunding in Europe
Among other reasons – such as the more traditional approach to investing – the lack of regulation in Europe until very recently, has been limiting the potential for growth of this alternative method of funding.
there is a growing sentiment among Equity Crowdfunding platforms towards impact-driven businesses.
Top Equity Crowdfunding Platforms in Europe
- No listing fees
- Success fee: 6% of all funds raised
- Completion fee: £2,500 (excl. VAT)
- Payment processing fee
- Liquidity for your investors (through active Secondary market);
- Seedrs Alumni Club: supports businesses post-crowdfunding by providing opportunities for fundraising, partnerships and perks.
- Seedrs Academy: guides, tools and resources to help founders raise capital and successfully crowdfund
- No listing fees
- Success fee of 7% (exc. VAT) is only charged on the successfully raised amount.
- Completion fee, which is on average 0.75% – 1.5% of all funds raised
- Secondary sales facilitation
- Crowdfunding knowledge hub
- One-off fee, after the contract is signed
- One-off success fee, due if the financing project is successful
- The exact fees depend on various factors and are discussed individually
- €3.500 upon successfully completing a fundraise (€1.000 of this is charged regardless of the outcome and the other €2.500 is only charged after you close a successful round)
- 5% success fee from the raised funds
- Fully functional Secondary Marketplace with immediate liquidity
- Built-in platform tools to simplify investor relation and reporting
- Success fee of 7% – only if fundraising goal is met (+ VAT)
- Legal support for an additional fee of €3,000 (optional)
- Success-based commission of 15% of the investment sum
- Fixed administration fee of 0.65% p.a. on the investment sum.
- Access to the Companisto Angel Club and Germany’s largest investor network
- Without success fees
- They only charge fixed fees: 4,500 Eur (initial setup) and 2,400 Eur (maintenance)
Even though it is still in its early stage, given its singularity, Fintelum deserves a special mention. This is an Equity Crowdfunding platform for high growth businesses in Europe. Unlike its more traditional peers, while compliant with the European KYC/AML laws, Fintelum uses Blockchain technology for issuing the equity participation to its member investors. While by date it is mostly focused on deep tech and blockchain-related solutions, it could well attract more adopters through time, inlcuding in the impact space.
EU Impact Equity Crowdfunding platforms
Founded in 2014 as a Co-Crowdfunding platform where everyday investors invest in innovative start-ups alongside institutional investors (Business Angels, VC ). It is open for Startups based in France. More on the selection criteria here.
Founded in 2013 in Austria, this Crowd Investing platform specializes in sustainable companies in the fields of energy, environment, mobility and health. For the time being, it is only available for startups based in Austria and Germany.
EU Regional Equity Crowdfunding platforms
It is expected that Equity Crowdfunding will only keep growing and new players will emerge, more investors will be attracted, while ever more focus will be placed on the Impact and Sustainability sector.
We will keep following the space and update this page accordingly.