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What is equity crowdfunding?

Thursday, 10 December 2015

In a previous article we discussed some of the different ways you can raise investment for your business and one of these methods is equity crowdfunding. You have probably seen the more common form of crowdfunding where a business sets up a campaign and offers people products or gifts in return for money. Equity crowdfunding works in a similar way but instead of offering gifts the crowd can invest in equity shares instead.

If your business decides to go down the equity crowdfunding route you need to be aware that tens or even hundreds of people will own very small portions of equity shares in your business. The total sum of equity owned by the crowd may only be 10% but that is a lot of people hoping your business does well, and if it fails they are likely to lose some if not all of their investment. A potential downside is that having so many shareholders may deter larger investors, such as venture capitalists, from investing at a later stage.

As with a lot of new advancements these days, this form of raising investment has been made possible by the internet. There are many online platforms to choose from if you wish to raise capital for your business through equity crowdfunding. The campaigns will be familiar to people who have seen kickstarter projects. With this, you have the opportunity to pitch your business with a video and text, outlining how much equity is on offer and how much money you want to raise. However, if you fail to reach your investment target you may not receive any investment at all.

If you are thinking of running an equity crowdfunding campaign to raise capital for your business you must seek legal advice first as it can be complicated. Rollingsons specialist investment team can offer impartial advice on the legal implications of raising capital through equity crowdfunding. We do not give generic investment advice, but instead give legal advice on the rights and responsibilities or investors and investees. For more information or to arrange an initial consultation, please contact us on 0207 7611 4848.

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