Equity crowdfunding: raise share capital from many investors through a platform

Equity crowdfunding lets a business raise money from multiple investors through an online platform in exchange for shares. It can combine financing with customer engagement, but the company must publish enough information for investors to assess the opportunity and must be ready for a larger shareholder base.

Investors buy shares rather than lend money

British Business Bank explains that equity crowdfunding gives multiple investors shares in the business through an online platform. It is different from P2P lending because there is no fixed debt repayment schedule; investors participate in the company's future value.

The company should therefore think about dilution and governance, not only how quickly the campaign can reach its cash target.

Choose the platform based on investor base, fees and shareholder administration

British Business Bank recommends comparing fees, success history, investor audience, overfunding rules and how the platform manages shareholders after the campaign.

A platform that uses a nominee structure can simplify shareholder administration, while direct individual shareholders can create more company-secretarial work. Understand the structure before launch.

The campaign exposes the business to public scrutiny

Equity crowdfunding is public. The business publishes a pitch, forecasts and investment proposition to a broad audience. Competitors, customers and employees can also see the material.

Prepare disclosure carefully and make sure claims can be evidenced. Optimistic projections can damage trust or create legal issues if they are presented without a reasonable basis.

Campaign valuation controls investor ownership

A £500,000 raise at a £4.5 million pre-money valuation creates a £5 million post-money value, meaning the new investors collectively receive 10 percent before other structural adjustments.

Model overfunding too. If the campaign allows the company to accept £1 million rather than £500,000, the dilution can change materially unless the valuation or terms also change.

Keep platform settlement and share allotment connected

Investor money can be held by the platform or its payment provider until campaign conditions are met, then transferred to the company. Finance should reconcile the gross amount raised, platform fees and net bank receipt.

The company secretary should then ensure share allotment records, investor schedule and Companies House filings agree with the legal completion of the campaign.

Plan investor communications after the campaign

Crowdfunding can create hundreds or thousands of beneficial investors. Decide how updates, annual information and future consents will be handled before the raise.

A successful campaign is not complete when cash reaches the bank. Investor relations, future dilution and exit mechanics become part of the company's ongoing governance.

Worked example: a company targets £750,000 at a £6.75 million pre-money valuation. Reaching the target creates a £7.5 million post-money valuation and approximately 10 percent new ownership before fees or option-pool changes. If the campaign overfunds to £1.5 million at the same price, new investors can take roughly 18.2 percent. Founders should understand the cap-table effect before celebrating overfunding.

Campaign cash can arrive net of platform fees while the legal share subscription is based on the gross amount invested. Finance should reconcile investor subscriptions, platform deductions and net bank settlement separately. Posting only the net amount to share capital can make the accounting disagree with the shareholder register.

Plan future corporate actions as well. A nominee structure can simplify voting and future consents, but investors can still expect updates and economic rights. The next VC or acquirer will review how the crowd is represented, so the structure chosen for the first campaign can affect later financing flexibility.

Budget for campaign costs before setting the funding target. Platform success fees, legal work, financial promotion review, video production and marketing can reduce the net cash left for the company. If the business needs £700,000 of usable growth capital, a £700,000 gross target may be too low.

Prepare for refunds or failed investor payments around closing. The platform should provide a final investor and cash reconciliation, but finance should not issue or record shares for money that never successfully settled. Use the final completed round schedule as the source of truth.

Prepare for future dividends and exits under the platform structure. If investors sit behind a nominee, the nominee can receive and distribute proceeds. If investors hold shares directly, company administration can be more fragmented. The fundraising team should understand that choice before launching, not after the first dividend or acquisition offer arrives.

Use a communications plan if the campaign misses its target. Management should know whether the platform refunds investors automatically, whether the round can extend and what happens to expenses already incurred. The company should not count campaign pledges as available cash until the platform's completion conditions have been satisfied.