Deal Flowcrowdfunding

Crowdfunding

Also known as Equity Crowdfunding, Securities Crowdfunding, Investment Crowdfunding

Mikael Andersson
Mikael Andersson
VC Analyst · Updated

Crowdfunding is a fundraising method that pools small individual investments from a large number of people, typically through a regulated online platform. In an equity crowdfunding round, those investors receive shares or share-like securities, in contrast to rewards or donation crowdfunding where backers receive a product, perk, or nothing in return.

In depth

Equity crowdfunding exists because most securities laws historically restricted private company shares to professional or wealthy investors. Starting in the early 2010s, jurisdictions began carving out a regulated path for the general public to buy small amounts of private company stock through licensed platforms. The mechanics rhyme across regions: a registered intermediary, a public disclosure document, ongoing reports, and per-investor caps that limit how much a retail buyer can concentrate in any single startup.

The trade for issuers is reach versus burden. Equity crowdfunding gives founders access to thousands of small investors who would never qualify under a private placement regime, including their own customers and community. In exchange, the issuer accepts a wider cap table than a traditional priced round, public-facing financial disclosure, and platform fees that typically run in the mid single digits as a percentage of capital raised.

Why it matters

For a consumer-brand founder with an engaged audience, equity crowdfunding can convert customers into shareholders and produce a marketing flywheel. For a deep-tech or B2B founder, the burden tends to outweigh the benefit and the same capital is more efficiently raised from professional investors through a conventional private placement. Founders should also model how a crowdfunded round affects the next institutional raise: experienced seed investors look closely at the structure used, the rights granted to the crowd, and whether holders are pooled behind a nominee.

Worked example

A direct-to-consumer brand raises 2.5M on a regulated crowdfunding platform at a 20M pre-money cap on a convertible instrument:

ItemValue
Total raised2.5M
Investors3,400
Median check size250
Platform fee (approx 7%)175k
Net to company2.325M

The founder elects to use a nominee or custodian structure so all 3,400 investors appear as a single line on the cap table. A year later, a Series A lead diligences the round, reviews the instrument's terms and the nominee setup, and proceeds. The same lead would likely have walked away from a cap table showing 3,400 direct holders without a nominee. Where nominee structures are permitted varies by jurisdiction; in some regimes the platform itself plays this role by default.

Frequently asked

How much can a company raise through equity crowdfunding?

Caps are set by each jurisdiction's securities regulator and change over time. As broad orders of magnitude: the US (Regulation Crowdfunding) and the EU (European Crowdfunding Service Provider Regulation) both currently sit in the low single-digit millions per 12-month window, while the UK's FCA regime has no fixed cap but requires a regulated platform and an approved prospectus above certain thresholds. Always check the current limit in the relevant jurisdiction before structuring a round.

Who can invest in an equity crowdfunding round?

Most modern regimes allow both professional and non-professional investors, which is the core distinction from private placements limited to accredited or qualified investors. Non-professional investors are usually subject to per-issuer caps tied to their income or net worth, mandatory risk warnings, and a reflection or cooling-off period.

What are the downsides of equity crowdfunding?

A wide cap table with hundreds or thousands of holders, public-facing disclosure obligations that resemble small-scale public reporting, and signaling risk if the round fails publicly. Many institutional investors view a prior crowdfunding round as a yellow flag during due diligence unless the holders are pooled through a nominee or custodian structure.

Is rewards crowdfunding the same as equity crowdfunding?

No. Platforms like Kickstarter and Indiegogo run rewards-based crowdfunding, where backers pre-order a product or receive a perk rather than securities. Equity crowdfunding sells regulated securities through a licensed platform and is the only form that produces real shareholders.

Sources & further reading