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Equity CrowdFunding - a real source of Equity capital for High Growth Start-Ups

12 Mar 2018

As part of its “Succeed in Raising Finance” initiative InterTradeIreland guides and supports several hundred High Growth Potential Start-Up and Early Stage businesses each year on the island of Ireland who are planning to raise seed or growth equity capital.

Equity CrowdFunding has established itself as a real complement and alternative to traditional equity funding sources for High Growth Potential Start-Up and Growth Stage businesses in the UK and Ireland in recent years.

In 2017 alone, over £200m was raised in 352 deals through the four main UK based Equity CrowdFunding platforms[1], the average deal size was £584k. UK Start-Ups in 2017 raised more rounds of under £1m from Equity CrowdFunding platforms than from Angel Networks.[2]

Equity CrowdFunding platforms allow early stage High Growth Potential Start-Ups to raise investment for their company over FCA regulated online platforms from private investors. In some instances, the level of investment commitment can be as low as £10. For many smaller investors interested in investing in such early stage businesses, they rarely have the opportunity to access or participate in investment rounds in these high growth potential businesses other than via such Equity CrowdFunding platforms. For early stage companies, accessing capital from the crowd via these platforms expands the sources of potential growth capital beyond the traditional sources such as founders, family, friends, angels and venture capital.

We compiled an Equity CrowdFunding Resource (the “Resource”) which is available here or on to provide some initial indicative information to those businesses about what might be involved in raising equity capital in this way. InterTradeIreland reached out to several businesses who have successfully completed Equity CrowdFunding campaigns to share their experiences, which is the foundation of the information for the Resource. The companies are:

  • HouseMyDog
  • See.Sense
  • ReVana Therapeutics
  • Flender

The main lessons learnt from accessing the Equity CrowdFunding Experience:

  • If you build it, they will come….never that simple:

A fundraising company needs to have reasonable expectations about how much the Platform “brings the crowd” and how much the company itself needs to work and hustle to bring the crowd. The company cannot only rely on the Platform to “bring the crowd”. Promoters need to plan to bring a significant level of committed investors/crowd themselves to an Equity CrowdFunding platform. Whether this is a named lead investor or commitments of a group of angel investors secured offline. Companies may need to bring pre-commitments to the table of upwards of 50% of what they plan to raise. Post launch of an Equity CrowdFunding campaign, considerable planning and effort may be required in online and offline PR and networking to generate investment leads to guide toward the platform campaign and hit the fundraising target.

  • Valuationtoo high, or too low.

If a Company sets a valuation for their fundraise too high – then this may be a lead reason for them not hitting their fundraising target on the platform. Most Equity CrowdFunding platforms will not allow companies to accept investor commitments where they have under-hit their fundraising target.

There is also a risk in setting the valuation too low in advance of really knowing the appetite. One company in particular felt they might have been able to raise their investment at a higher valuation – only appreciating the very high level of investor demand in their equity offering after publicising the valuation.

  • Third party endorsements matter.

Most of the investors who participate on the Equity CrowdFunding platform will never meet the management team of the fundraising company in person. There can be considerable impact from the endorsement of a recognised lead investor or a key opinion leader in the market.

  • Investor Materials and Communicationsquality matters.

Companies need to represent themselves professionally – ideally with a top quality professional video and professional investor materials (business plan, deck etc). A professional PR plan for before and during the campaign will also help.

  • Standardisation and Completiona transparent process and a clear finish line.

When companies raise funds from a large disparate investor base, often simply getting everyone over the line at the same time can be a challenge. Equity CrowdFunding platforms may be useful as every investor accesses the same quality of information from the company, terms and conditions for investors are uniform and clear and there is a clear target date for campaign end. By setting a very public and specific target date for the ending of a campaign, it helps to drive all interested investors to advance funds and commit by that date.

  • Account Management is criticalnot all are equal.

A company fundraising on an Equity CrowdFunding platform will have an account manager allocated to them who will support them through the process of application, due diligence, legals, preparing for the campaign launch, during the campaign and finally deal completion. It is important the company has confidence that the account manager with whom they are working is well experienced, and has supported other companies with several successful campaigns.

[1] Beauhurst report on 2017 UK Start-Up investment activity “The Deal”

[2] Beauhurst report on 2017 UK Start-Up investment activity “The Deal”

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