Here at MBM Commercial, we often see crowdfunding used for seed equity funding deals of c£100k to £500k - often to plug a gap in a round. In the last five years or so, it has now become more mainstream and deal sizes can go from c£1m to as high as £5m+. But there are some considerations you should be aware of before jumping on the the crowdfunding bandwagon.

• With crowdfunding, there is a lot of ‘smoke and mirrors’ in play because companies that launch their crowdfund will typically have already raised (but not closed) at least 1/3rd or more of the round separately in the background and this miraculously then adds towards a ‘ta da’ moment from launch to try and create momentum. So don’t be fooled that the investor interest in the first day or so of the launch is from the crowd - it often isn’t!
• If you can’t raise enough in the background for your own ‘ta da’ launch then crowdfunding is unlikely to work for you;
• Until you raise about 3/4 of the target raise the platforms may not look at progressing the legals (i.e. not until there is some certainty that the round might proceed) - so bear this in mind for timings if you need bespoke changes to the legal documents;
• The main equity crowdfund platforms in the UK for equity funding are Seedrs (SRS) and Crowdcube (CC) - they are different in terms of their processes, charges and legal process, each with pros and cons;
• If you have angel investors in the US interested in taking part then most UK platforms will want you take take those investors onboard ‘off-platform’ and directly because of the added requirements of US securities laws compliance
• You will have to sign up to a legal subscription agreement with warranties and a shareholder agreement with SRS 😯 but you don’t with CC 🙂 (albeit there is still a short form online warranty process to work through with CC) - do consider the practicalities of this before you choose which platform to go with;

• Don’t also be fooled into thinking you can say whatever you want on the video pitch and get away with it - there are strict UK financial service laws that regulate the content of financial promotions (that’s your pitch video and supporting business plan documents);
• As a rule of thumb don’t take this funding unless it is channelled through a nominee structure. If you take investment on directly you are taking on an admin headache and future investors will run for the hills;
• VC’s generally don’t like companies with crowdfunding - in particular they fear the collapse of the nominee structure with your share register being flooded with thousands of micro investors - so bear this in mind if you have big future plans to raise VC funding in a larger series A or B deal;
• This last point should also worry you given many of these platforms are loss making (n.b. there are some protections you can work in to try and mitigate this);
• Make sure you understand upfront how the completion cash drawdown process works - it includes a 7 day cooling off period and the process can be clunky with a few surprises which means you don’t end up raising all of the ‘commitments’ showing on the platform;

The most important piece of advice we can give you is to please take advice from someone who is familiar with these deals! We have experts here at MBM Commercial who can help.