Debunking 7 equity crowdfunding misconceptions
by Startacus Admin
The lowdown on equity crowdfunding and some common misconceptions care of upSTART 2018 Major Sponsors, Seedrs.
"Equity crowdfunding can often be a shrewd way to fund a business. Yet there are certain misconceptions that could lead to an entrepreneur mistakenly discounting it as a viable funding option: 1. A capital injection is the sole benefit from equity crowdfunding
Not so. Although funding a business is the main objective of equity crowdfunding, there are other valuable benefits on top:
- It’s an excellent way to engage with existing customers.
- It may help a business to attract new clients.
- Equity crowdfunding may create brand evangelists who could help publicise the company.
- A business may receive crucial feedback on developing their existing service/product, along with opinions from investors on what else they’d like to see the company offer.
2. Managing a lot of investors takes lots of time
This depends on the equity crowdfunding platform you decide to go with. At Seedrs, because of the Seedrs Advantage Nominee structure, a company may 
have many investors but will only need to deal with one: Seedrs. This also means that there won’t be a complicated cap table which may put off VCs from investing in the future.
However, if you opt for an equity crowdfunding platform without a nominee structure, it’s possible to have hundreds or even thousands of investors on the cap table, which can result in a tremendous amount of work and even delays if consents are needed on important decisions.
3. Equity crowdfunding platforms won’t attract investment from angels
Depending on the company that’s raising, angels, venture capitalists (VCs) and general investors may all invest. What’s more, angels and VCs look to equity crowdfunding platforms like Seedrs as it often provides access to deals they would otherwise not be able to participate in.
4. The use of a crowdfunding platform will alienate VCs and institutional investors in future rounds
As long as the capital raised is wisely invested by the company, it may place it in a better position if an institutional round is desired in the future. And VCs may view an equity crowdfunded round as validation for the business.
At Seedrs we’ve witnessed many companies go on to raise further rounds exclusively with a VC or with a VC alongside the crowd. For instance, Landbay received investment from Zoopla and Perkbox raised alongside Draper Espirit.
However, it’s worth noting that without a nominee structure in place to manage shareholders, VCs and institutional investors may not be attracted to investing in a business.
5. Businesses choose to crowdfund as they can’t attract capital from angels or VCs
Equity crowdfunding should not be seen as a last resort. In fact, VCs diversify their portfolios by investing on Seedrs. For example, Beeline had both Seedcamp and Truestart invest in their round. Many entrepreneurs view equity crowdfunding as preferable to taking on debt to fund growth as servicing it may put a 
strain on finances.
6. The platform and the crowd is all that’s needed
Entrepreneurs actually need to put effort into generating stories to create PR and they need to work on an excellent pitch. They need to ensure that their contacts, customers, friends and family are all aware of their campaign.
Your pitch may be superb, but investors who hadn’t heard of your business prior to your pitch may not decide to invest until you’ve already reached a fair amount of the investment target. This is often because they want to believe a company has a decent chance of reaching the target before they’ll commit to investing.
7. Equity crowdfunding is the easy way to get funded
It takes an investment in thought, creativity and team engagement by the entrepreneurs and their teams to reach an investment target. However, at Seedrs we’ve put a lot of effort into making the process as efficient as possible."
Contact Seedrs – and avoid equity crowdfunding misconceptions.
Subscribe to our newsletter
If you would like to receive our startup themed newsletter, full of the latest startup opportunities, events, news, stories, tips and advice, then sign up here.
Workplace discrimination and failure to address social mobility costs UK economy £270bn per year according to research by graduate recruitment platform Debut.
dip is a free to download and free to use shopping companion app that shows users relevant high street deals based on their hyper-location.
The EdTech startup aiming to connect inspirational teachers with those looking for something a little different
Stigma around mental health struggles and burnout is costing the UK economy £1.4bn a year through unexplained sick days.
The UK leads Europe and are fourth in the world for scaleup investment after US, China and India, according to the Tech Nation Report for 2019.
Currently in private beta, Paypal for Instagram Influencers XPO is a payment processing app that is aiming to make it simple and secure to pay influencers!
Weengs is a London based startup that's on a mission to simplify order fulfilment for small ecommerce businesses, helping business owners & e-sellers grow.
The portfolio and assessment platform that facilitates fast feedback and collaboration between teachers, students and parents.
Top technology investors have been named as part of a high calibre judging panel for upSTART, Digital DNA’s 2019 startup competition as the countdown for startups to apply begins.
EDF Energy’s innovation accelerator, Blue Lab are on the hunt for the best new ideas that could spark innovation in the energy sector.
Published on: 16th June 2018
If you would like to enable commenting via your Startacus account, please enable Disqus functionality in your Account Settings.
- Stigma around mental health costs UK economy £1.4bn a year 15th May 2019 Stigma around mental health struggles and burnout is costing the UK economy £1.4bn a year through unexplained sick days.
- UK leads Europe in scaleup investment 13th May 2019 The UK leads Europe and are fourth in the world for scaleup investment after US, China and India, according to the Tech Nation Report for 2019.
- Energy Sector startups sought for EDF Energy’s 2019 Pulse Innovation Challenge 9th May 2019 EDF Energy’s innovation accelerator, Blue Lab are on the hunt for the best new ideas that could spark innovation in the energy sector.
- GovTech workspace to launch in London 30th Apr 2019 Workspace accelerator Huckletree and leading venture firm PUBLIC launches first GovTech workspace in Westminster, London.
