Impact Startups Equity Crowdfunding in Europe

Raising funds in the startup world has long been primarily associated with large institutions and high-net-worth individuals. With the rise of FinTech and empowered by Internet, new alternative ways of funding are emerging. In the era of social media and proliferation of online communities, the power of the crowd has been the catalyst for the emergence of a impactful fundraising instruments.

Crowdfunding as a concept is not a new phenomenon. Over the last centuries, the power of the crowd has been employed to finance different public and private ventures, from book publishing to building collective means of production (as part of the Cooperative movement). However,

with the emergence of Internet, the notion of raising funds from the crowd has acquired a whole new dimension.

As we already highlighted in a previous?article about impact funding,?crowdfunding?can adopt many different shapes and forms, being the most popular: Equity, Rewards-, Donations- and Debt-based.?In this particular piece, we will focus on the Equity Crowdfunding.

What is Equity Crowdfunding?

To put it simply, when it comes to startups funding,

Equity Crowdfunding is a way of funding, provided by a large group of individual investors, who are rewarded in exchange with a stake in the company, facilitated through an intermediary platform.?

Unlike other Crowdfunding types, the launch of an Equity crowdfunding campaign needs to take into account a wide range of factors, being among others:

• Valuation of your business
• Business-model proposition
• Amount of funding that you look for (minimum and maximum)
• Stake of business you are ready to give up
• Use of the collected funds
• Return on investment (exit strategy)

Given the above higher complexity, Equity Crowdfunding campaigns take longer (compared to other Crowdfunding types), which is usually?anywhere between 3-9 months from the moment you take the first step towards it to when you actually receive the funds.

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What are the Pros and Cons of Equity Crowdfunding?

Crowdfunding creates an even stronger bond with your customers, turning them into the greatest brand ambassadors.

Pros:?

• Alternative funding solution when not qualifying for other traditional sources
• Debt-free funding, which does not limit future growth
• VC friendly funding – it is an excellent complement to institutional investments (not a replacement)
• Builds a strong network of advocates and potentially loyal customers
• Simplified bureaucracy – platforms enable welcoming 100s or 1000s of investors under a single?SPV
• Tool to validate your business proposition
• High visibility and media exposure

Cons:?

• Giving up a stake of shareholders’ equity
• Time consuming process (it’s a full time job) and without a guarantee to attract enough funds at its end
• Risk of public failure, in case the campaign is no successful
• Administration and follow-up work that comes with reporting to a large number of investors
• Some skeptics refer to crowdfunding as “dumb money” given that there are some first-time investors joining just because they love the brand
• Some VCs might be hesitant to invest alongside large pool of crowd investors
• Risk of becoming overreliant on crowdfunding, raising follow-up rounds instead of going for Growth funding through institutional investors

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How to succeed in your crowd campaign?

Above all, make sure you

create a compelling and curated campaign, being clear about the problem you solve, your solution and how this connects to your mission.

DOs:

• Warm-up your following before the campaign is launched – they should be the main target audience to rely on (not the platform members)
• Introduce the founders and as many members of your team as possible to investors
• Use storytelling to create a powerful narrative around your business
• Present a well-structured action plan for business development and how you will use the funds to scale
• Engage everyone in your company (or those in key positions) with the campaign, ask them if possible to share the campaign through their private profiles
• Run webinar(s) where investors can raise questions and hear from you, which you can also record and later post as an update
• Introduce testimonials from happy users/customers/partners as well as existing investors
• Make sure to keep the campaign active and the community engaged, through regular updates (milestones achieved, news, events, etc.)
• Be transparent and honest with your investors

DONT’s:

• Overhype, oversell your campaign?with flashy messages without any substance
• Aim to raise too much money – set maximum limit from the beginning and be clear about when to stop
• Set too high valuation – this will push back many investors, while also raise the risk of having a down-round in future institutional round.
• Skip any question coming through the platform – a well argued answer can well convince an investor (while the opposite is also true)

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Why is it a good fit for Impact businesses?

Given its particular nature and dependence on the crowd, Equity Crowdfunding is specially well suited for purpose-driven impact-making businesses, which are usually attracting large number of followers.?Furthermore,?companies with impact are highly regarded by the investors crowd, given the growing sentiment towards doing good, alongside making a profit.

Purpose-driven companies usually have a stronger founder-problem fit, are driven by powerful missions and have great stories to tell.

What else makes companies suitable for running a crowd campaign?

• Having a lead investor on board (either a VC or Angel investor(s))
• B2C businesses are usually more attractive than B2B focused ones, given their typically larger pool of followers
• Having some existing traction – while companies in Seed stage are welcome, they need to prove that they have found product-market fit and have attracted early users/customers

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Equity Crowdfunding in Europe

Europe has traditionally been more conservative when it comes to innovations in the Finance and Investment sector, compared for example to the US, where most of crowdfunding endeavors were pioneered.

Among other reasons – such as the more traditional approach to investing – the lack of regulation in Europe until very recently, has been limiting the potential for growth of this alternative method of funding.

Given the more complex nature of its rewards system – where funders become shareholders – Equity Crowdfunding is subject to a specific regulation. When it comes to the EU, on 10 November 2020, the?Regulation on European Crowdfunding Service Providers (ECSP) for business?entered into force. This regulation, while making crowdinvesting more secure though the adoption of a stricter risk management, is also contributing to its wider spread and higher adoption.

At this point, there are hundreds of Equity Crowdfunding platforms in Europe. In fact, according to the,?Current State of Crowdfunding in Europe 2021 report?– issued by the?CrowdfundingHub?in 2021 – there were 78 of them operating in Germany alone.?Many of those are however entirely focused on their national or regional markets.?

While there are still no major platforms in Europe specialized entirely on impact and sustainability startups,

there is a growing sentiment among Equity Crowdfunding platforms towards impact-driven businesses.

Hereby, we are going to explore some of the most popular equity crowdfunding platforms in the continent, highlighting the sectors and verticals they are focused in, their impact considerations, fees and eligibility criteria. Consequently, we will highlight some platforms, which – even though smaller in size – have impact and sustainability as a focal point. Lastly, we will mention relevant platforms for specific EU national/regional markets.

Top Equity Crowdfunding Platforms in Europe

Seedrs

Platform origin: UK?|?Founded: 2009 (launched in 2012)

Raised so far:?￡2.1B+?|?Total funded deals: 1700+

Sectors: Impact related companies are highly regarded by R Europe (formerly Seedrs) and are among the platform's fastest growing segments. Among the most popular sectors and categories, the platform distinguishes Sustainability, Social Impact, B-Corp and Female Founders- led companies.

Eligibility: Businesses based in the UK, EU, EEA or Switzerland. Check the selection key criteria?here.

Fundraising fees:

• No listing fees
• Success fee: 6% of all funds raised
• Completion fee: ￡2,500 (excl. VAT)
• Payment processing fee

Additional benefits:

• Liquidity for your investors (through active Secondary market);
• Seedrs Alumni Club:?supports businesses post-crowdfunding by providing opportunities for fundraising, partnerships and perks.
• Seedrs Academy:?guides, tools and resources to help founders raise capital and successfully crowdfund

Crowdcube

Platform origin: UK?|?Founded: 2010

Raised so far: €1,2bn+?|?Total funded businesses: 1000+?|?Active investors: 300,000+

Sectors: Crowdcube focuses on 9 key innovation areas, being cleantech and other impact-related sectors on the rise (Note: there have been 29% more investors into green pitches than non-green ones over the past year, with 16% of investors having a sustainable company in their portfolio).

Eligibility: Companies based in Europe and looking to raise a minimum of €200k. Check out the full requirements?here.

Fundraising fees:

• No listing fees
• Success fee of 7% (exc. VAT) is only charged on the successfully raised amount.
• Completion fee, which is on average 0.75% – 1.5% of all funds raised

Additional benefits:

• Secondary sales facilitation
• Crowdfunding knowledge hub

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Invesdor

Platform origin: Finland?|?Founded: 2012

Raised so far: €320M+?|?Total funded deals: 500+?|?Number of investors: 120,000+

Sectors: Initially generalist, Invesdor is shifting its focus primarily to Sustainability and Impact startups.

Eligibility: European based companies with yearly turnover of at least €0,5M. More information on the selection criteria can be found?here.

Fundraising fees:

• One-off fee, after the contract is signed
• One-off success fee, due if the financing project is successful
• The exact fees depend on various factors and are discussed individually

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Funderbeam

Platform origin: Estonia?|?Founded: 2013

Sectors: Companies from wide range of sectors are welcome to apply for raising funds through Venturebeam , while Impact and Sustainability businesses frequently raise funds in the platform.

Eligibility: They brand themselves as a Global Marketplace, where founders can raise capital without borders. Check the full pre-requisites?here.

Fundraising fees:

• €3.500 upon successfully completing a fundraise (€1.000 of this is charged regardless of the outcome and the other €2.500 is only charged after you close a successful round)
• 5% success fee from the raised funds

Additional benefits:

• Fully functional Secondary Marketplace with immediate liquidity
• Built-in platform tools to simplify investor relation and reporting

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Seedblink

Platform origin: Romania?|?Launched: January 2020

Raised so far: €55M+?|?Portfolio companies: 250+?|?Number of investors: 62,000+

Sectors: The most active verticals for SeedBlink so far have been enterprise SaaS, FinTech, HealthTech, EdTech, while Impact and Sustainability has been regarded by the platform through its reports.

Eligibility: Innovative tech startups from Europe with proven traction, market fit, and a well-defined business model, searching for a financing round of a minimum of EUR 100,000.

Fundraising fees:

• Success fee of 7% – only if fundraising goal is met (+ VAT)
• Legal support for an additional fee of €3,000 (optional)

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Companisto

Platform origin: Germany?|?Founded: 2012

Raised so far: €150M+?|?Total funded deals: 230+?|?Number of investors: 125,000+

Sectors: Companisto 's platform welcomes innovative companies across all industries. Judging from their success stories and current investment opportunities, there is a strong focus on green and social impact startups.

Eligibility: Startups and growth companies headquartered in Germany, Austria or Switzerland, looking for financing rounds between EUR 500,000 and EUR 8 million. Check the relevant selection criteria?here.

Fundraising fees:

• Success-based commission of 15% of the investment sum
• Fixed administration fee of 0.65% p.a. on the investment sum.

Additional benefits:

• Access to the Companisto Angel Club and Germany’s largest investor network

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StartupXplore

Platform origin: Spain?|?Founded: 2014

Raised so far: €15M+?|?Total funded deals: 65+?|?Number of investors: 100,000+

Sectors: Startupxplore is sector-agnostic in its selection, while there are some Sustainability and Impact companies in their portfolio.

Eligibility: Seed, early stage and scaleups are welcome to apply for funding. Check out their selection criteria?here.

Fundraising fees:

• Without success fees
• They only charge fixed fees: 4,500 Eur (initial setup) and 2,400 Eur (maintenance)

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Fintelum

Even though it is still in its early stage, given its singularity, Fintelum deserves a special mention. This is an Equity Crowdfunding platform for high growth businesses in Europe. Unlike its more traditional peers, while compliant with the European KYC/AML laws, Fintelum uses Blockchain technology for issuing the equity participation to its member investors. While by date it is mostly focused on deep tech and blockchain-related solutions, it could well attract more adopters through time, inlcuding in the impact space.

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EU Impact Equity Crowdfunding platforms

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Sowefund

Founded in 2014 as a Co-Crowdfunding platform where everyday investors invest in innovative start-ups alongside institutional investors (Business Angels, VC ), Sowefund is open for Startups based in France. More on the selection criteria?here.

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Green Rocket

Founded in 2013 in Austria, ROCKETS specializes in sustainable companies in the fields of energy, environment, mobility and health. For the time being, it is only available for startups based in Austria and Germany.

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SeedTribe

Powered by Angel Investment Network – the world’s largest network of angel investors and entrepreneurs – SeedTribe was launched in 2017 with the mission to?help impact-driven entrepreneurs to meet the people and institutions who can teach, support and fund their venture. They select profit-driven businesses that fit the United Nations’ ‘Sustainable Development Goals’ (SDGs) and aim to produce positive and lasting social change.

For now, SeedTribe is only suitable for UK registered companies. Check their selection criteria?here.

EU Regional Equity Crowdfunding platforms?

Seedmatch – eine Marke der OneCrowd-Gruppe (Germany)

WiSEED (France)

CrowdFundMe (Italy)

Leapfunder (The Netherlands)

Crowdway (Poland)

Beesfund.com (Poland)

Bolero Crowdfunding (Belgium)

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It is expected that Equity Crowdfunding will only keep growing and new players will emerge, more investors will be attracted, while ever more focus will be placed on the Impact and Sustainability sector.

We will keep following the space and update this page accordingly.

Originally posted in Impact Prosper Blog.