Last week, startup accelerator Seedcamp visited Bristol in partnership with monthly meetup for entrepreneurs, South-West Founders, who we’re very proud to sponsor.

After a series of informative and inspiring talks – from Tech City’s Katy Turner, Seedcamp winners Basekit, local VC firm Eden Ventures, and Seedcamp’s very own Carlos Espinal – the audience got their turn to ask some questions.

The conversation soon turned to crowdfunding. More and more startups are turning towards crowdfunding as an alternative to traditional VC and Angel investors, but there’s clearly still some confusion around it…

What is crowdfunding?

According to the UK Crowdfunding Association

“Crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money. Until recently, financing a business, project or venture involved asking a few people for large sums of money. Crowdfunding switches this idea around, using the internet to talk to thousands – if not millions – of potential funders.”

There are several types of crowdfunding, the main types being donation/reward-based, equity based and debt-based.

Donation-based crowdfunding

Donation-based crowdfunding is pretty self explanatory. Entrepreneurs post their idea on a relevant crowdfunding platform and ask for donations to help make it happen, often (but not always) in exchange for “goodies” of some kind (e.g. a pre-release version of the product being crowdfunded).

With donation-based crowdfunding platforms like Kickstarter and IndieGoGo, equity is not offered in return for donations and founders retain 100% of their business.

Equity-based crowdfunding

Equity-based crowdfunding means people who invest in your idea get a stake in your company, and the chance for financial return.

There are 3 types of equity based crowdfunding…

  • Equity I – An unlimited number of accredited investors can view investment opportunities through a private, password protected website.
  • Equity II – Entrepreneurs can publicly advertise investment opportunities and raise funding from an unlimited number of accredited investors.
  • Equity III – Anyone, accredited investor or not, can invest money in return for equity.

Debt-based crowdfunding

Debt-based crowdfunding means that investors receive their money back, usually with interest. This is sometimes referred to as ‘peer-to-peer lending’.

What’s all the fuss about?

It’s always been tough to secure funding for your startup, but in the current economic climate, getting bank loans or VC funding is especially tough. While early stage startups are risky for investors, it’s nearly impossible for most entrepreneurs to create their product, and establish a place in the market without funding. It’s a vicious circle.

Tanya Prive, co-founder of the Rock The Post crowdfunding platform, argues that crowdfunding brings access to capital to entrepreneurs who may otherwise have been unable to find it…

“At an early stage, an entrepreneur may think that outside of their own network they can only raise capital from accredited investors, venture capitalists, and banks. This isn’t true.

Crowdfunding is a great alternative way to fund a venture, and it can be done without giving up equity or accumulating debt. Rewards-based crowdfunding platforms allow entrepreneurs to raise funds from the community in exchange for simply giving their tangible products or other relative gifts.”

Not only does crowdfunding help entrepreneurs raise money, but it can be a great marketing tool and can help you test your idea and market.

Portishead based CEL used Kickstarter to fund and raise awareness for their Robox 3D printer. CEO Chris Elsworthy found that crowdfunding was a great way to reach potential customers…

“I have never had the opportunity to talk to so many potential customers before the project is finished and I’m enjoying the process, certain that ultimately it will make the product better.”

Kirsty Ranger, founder of IdeaSquares, a platform for entrepreneurs to share their ideas, has raised 2 rounds of funding using crowdsourcing platform Seedrs. Kirsty also found crowdfunding to be a great way of validating her business idea and building a support network, but, she says you’d better be prepared to put in a lot of hard work….

“Ensure your pitch is well thought out and clearly and concisely give information about a) your idea, b) your team and c) your monetisation strategy. Don’t think of crowdfunding as ‘easy money’, you will need a good marketing plan in place in order to keep up the momentum and complete your round. You will need to be prepared to work hard.”

Are there any risks?

As with all forms of fundraising, there’s always going to be risk involved.

Firstly, crowdfunding doesn’t necessarily bring the benefits of knowledge and networks that VC or Angel investors do. Bill Morrow, founder of Angels Den warns…

“You could end up with hundreds of shareholders who provide the money you need, but offer no additional value to your business and helping you succeed. And if you don’t have a decent sized database of contacts you might struggle to get that initial traction to get the momentum going, and there’s nothing worse than watching your online pitch stuck on zero.”

While receiving crowdfunding could be what you need to get started now, bear in mind that this could have a negative impact on further investment in the future says Rohit Arora, CEO of Biz2Credit…

“Companies that issue shares through crowdsourcing ultimately are beholden to large numbers of unsophisticated investors who own tiny stakes in the business. This structure could deter venture capitalists or angel investors leery of investing in a firm that is owned by thousands of inexperienced shareholders.”

Bear in mind that while some crowdfunding platforms will split shares between investors, others (Seedrs for example) will act as the sole legal shareholder, which may be less problematic for future investors.


While crowdfunding is a great opportunity for entrepreneurs to raise money they might be struggling to get from VCs or through bank loans, it is not for everyone.

Consider what you are willing to give in return for investment and the effect this could have on your business, and chances for further funding in the future.

All crowdfunding platforms are different, with different terms and based on different investment models. Make sure you research the opportunities available to you in depth before making any decisions and seek legal advice if in doubt.

Check out this article from Forbes on the top 10 crowdfunding websites and the differences between them.


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