After writing quite a few articles on the topic, I realised I’ve never given a definition of equity crowdfunding! I have even written about alternatives to it! Well, I did give a brief definition in the article Crowdfunding: benefits, history and types, but I thought this deserved a
Definition of Equity Crowdfunding: it’s the funding of companies by a large
amountof people with relatively small individual investments via the Internet.
Breaking down the definition of Equity Crowdfunding
Let’s take a look at each one of the elements of this definition:
- Companies: they’re typically early-stage and unlisted companies. As we discussed in the article When not to do a crowdfunding campaign, these companies should tick some boxes. The most important ones: they should ideally have an MVP and some traction in the market to be appealing to the investors.
Largeamount of people: in a typical equity crowdfunding campaign the number of investors ranges from around 100 up to 500. Many more people than your average Business Angel round. There is really no upper limit. For example, Brewdog, a craft brewery that was an early adopter of this method of funding, has managed to get investment from over 96,000 people over 5 rounds of crowdfunding!
- Relatively small individual investments: depending on the platform, the minimum investment could be as low as £10. As a startup founder, you might be thinking now that having hundreds of investors with a very small amount of shares could be quite tricky to manage. That’s why some platforms offer the figure of the nominee, that holds the shares on behalf of the investor.
- Via the Internet: this could be through one of the established platforms (like Seedrs or Crowdcube) or even in your own platform using third-party services like
The democratisation of startup investment
Taking into account all these elements, I truly believe that Equity Crowdfunding has democratised investing into startups. Previously, this has been an exclusive territory for VCs and business angels. Now everybody can invest, bringing plenty of benefits for both sides of the equation.
Do you have any comments or additions to my definition of equity crowdfunding? Do let me know in the comments below or by contacting me.