What is equity crowdfunding? Public vs Private raises

Dec 06, 2023

The crowdfunding market is ever-changing, and during these tough economic times that’s no different. As traditional equity platforms are becoming more and more strict as to businesses they’ll work with and raise size, a new market is opening up to fill the gap for the smaller raises, businesses that want to open the opportunity to their network but may not have lead investment, and want to avoid the risk, the work and the expense of launching the campaign on one of the big 2!

People often think that “equity Crowdfunding” means you have to launch a public campaign on the likes of Crowdcube or Seedrs, but that’s not true! The term "Crowdfunding" simply means the method of raising money from a lot of people. The platform is the mechanism by which you onboard those investments into your business, and that is a different conversation. 

 

So firstly, let’s explore the method, what is crowdfunding and how it works?

 

Opening the gates for all

Crowdfunding is something that not everybody does, but is something that’s becoming more and more mainstream. We take the stance that really, anyone should be able to invest. Investing in businesses shouldn’t just be reserved for sophisticated or more traditional investors.

Previously when you considered raising investment, you might have had something like Dragons’ Den in mind, or pitching to a room full of angel investors, however, crowdfunding allows you to cast your net further than that and to consider inviting everyday people to be part of your journey. 

 

Democratising your investment opportunity

Essentially what you’re doing is democratising your investment opportunity, to allow anyone to invest from a minimum threshold you set, up to the full amount. 

Raising money like this means that your friends and family, your customers or potential customers, your LinkedIn connections, people from your various networks, anyone can own a piece of this pie if they want to. Democratising investment opportunities like this is now very common.

If you think about companies like Facebook. A man called Peter Thiel invested the first $500k in Facebook. Imagine if Mark Zuckerberg had opened the opportunity to his friends and family, giving them the option to decide for themselves if they wanted to take part in that business opportunity? If a family member had invested $5,000 in the company back then, their shares would be worth $9billion today!

 

The power is in your hands

This can be powerful. It allows you to create your own group of brand ambassadors, people who become part of your journey here. These people could go on to become advisors, customers, referees and good friends of the business.

You will hopefully find that you do begin to attract investors who want to invest big tickets, potentially from individuals who can add value to your business, say from an advisory or contacts perspective, but the point is you don’t just need to focus on these people, you can allow small to medium-sized tickets from friends, family or other business contacts to invest alongside these more sophisticated investors. The more the merrier!

 

Going public and accessing platform communities

If your crowdfunding campaign were a cake, then your investors would be the ingredients and the platform would be the food mixer you use to make the dough. Platforms are the mechanism, not the method.

Crowdfunding platforms such as Seedrs and Crowdcube here in the UK are set up to facilitate fast-growing or more established companies to let the crowd invest. The benefit of launching a public crowdfunding campaign means that you get access to their pool of registered investors. This is a great way of topping up your raise with even more unknown investors. However, getting your campaign onto their platforms is not as easy as it used to be, the bars are getting higher, hoops smaller and hurdles more numerous.

So where do the early-stage business turn? The smaller raises with less or no lead investment? The ones without years of demonstrable traction, big teams, big budgets and huge established communities?

That’s where private crowdfunding comes in!

 

So, you don’t want to use Seedrs or Crowdcube?

You don’t need a traditional public crowdfunding platform to let people invest, and that’s where private raise platforms come in. We partner with great private raise services like SeedLegals and Odin, using these you can onboard tickets from as low as around £1K, draw down on funds straight away, and still have the benefit of a tidy cap table with an SPV (An SPV is a "Special Purpose Vehicle"; a legal entity set up for a specific purpose. It’s a fundraising structure that lets you pool investments from a syndicate of multiple investors, allowing them to invest collectively in a single company. The business will have just 1 entity on the cap table, instead of hundreds of individually named investors, so it’s a great way of keeping your cap table clean!)

Want to know more? You need to speak with the experts here at ISQ!

 

ISQ handholds you via whichever path you choose

The ISQ Crowdfunding programme encourages you to broaden your horizons and re-think what an investor might look like. Together we can explore different ways of onboarding those individuals as investors in your business. Apply for a call with us today to discuss options.

 

Summary

  • Anyone can invest
  • Democratise the opportunity for all
  • Crowdfunding can be powerful
  • You don’t need to go public - private crowdfunding is a thing now 
  • We’ll support you down any crowdfunding path

 

Written by Steph Yeates, Operations Director, ISQ

 

 

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