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Equity crowdfunding refers to when investors, including the general public, invest in an unlisted company in exchange for shares.
It’s usually facilitated through a digital platform. Recently, we’ve seen a number of fintechs leverage equity crowdfunding platforms for funding rounds — and investor interest is growing. UK fintechs GoHenry , Mondo , and Tandem all raised over £1 million ($1.3 million) using equity crowdfunding earlier this year. Revolut received £13 million ($17 million) in pledges this week before its round even opened, while Crowdcube attracted an astounding £39 million ($52 million) on its preregistration site .
So far, it’s mostly UK fintechs that have used equity crowdfunding, but recent changes in US law mean it could be about to take off there as well. Here’s why fintechs are turning to equity crowdfunding: Brand awareness and customer acquisition. Fintechs’ crowdfunding rounds have attracted significant attention in the media, raising awareness of their products. Most have also required potential investors to sign up for their products in order to invest — a practice that could result in a significant increase in active customers.
Differentiation. For many fintechs, it’s becoming difficult to stand out in an increasingly crowded market — this is particularly true of UK digital-only banks. By allowing customers to become shareholders, like Mondo and Tandem did, firms could drive customer engagement and loyalty to their products.
More control. Equity crowdfunding can result in startups getting higher valuations than they would with more traditional fundraising methods. That’s because direct investors seem willing to accept lower equity stakes for the same investment than VCs or Angels, according to research by Beauhurst. This means that these startups can retain more shares, […]
