Every entrepreneur knows that investment is vital for the survival and growth of any startup and early-stage business. The good news is that there are various ways to secure funding for your business. You can try bank funding or opt for a more modern method like crowdfunding.
Crowdfunding is a way to secure funding, as well as raise awareness, open debate and build social media capital. With numerous crowdfunding platforms available, entrepreneurs are spoilt for choice.
The UK’s biggest equity crowdfunding platforms are no other than Seedrs and Crowdcube. The most common questions we get are ‘what is the difference between the two platforms?’ and ‘is one of them better than the other?’. We’ll break it down for you. Please keep in mind that whilst we are partners of Crowdcube, we are giving unbiased details of both platforms.
Seedrs vs Crowdcube - The Showdown
According to a report called The Deal, Seedrs enabled 134 deals while Crowdcube enabled 124 deals in 2016. These figures make both platforms responsible for over 86% of all equity crowdfunding activity between January and December 2016 in the UK.
While this does provide an insight into how successful both platforms are, we’re here to break down their main differences.
Investors pay 7.5% of their profits to the platform only when the campaign is successful.
Investors do not pay management and administration fees.
Seedrs charges campaigners a 6% success fee plus a 0.5% payment processing fee. There is also a £2,500 completion fee (excluding VAT).
The platform does not offer class A shares.
Seedrs’ Private Live round lasts for 14 days and there are no extension options available. The platform’s Public Live round lasts 40 days with extension options.
A 1.5% investment fee is applied to every investment amount.
Crowdcube charges a 7% success fee on the successfully raised funds only.
There’s a completion fee ranging from 0.75% to 1.25% of all raised funds. Crowdcube’s payment processing fee also ranges from 0.47% to 2.9%.
The platform offers class A shares.
Crowdcube offers a 30-day Private Live round which can be extended, and a 30-day Public Live round, which is typically not extended.
Financial Conduct Authority (FCA) Approval
In the UK, companies providing financial services of any kind have to be authorised by the FCA. It is independent of the Government and its main objectives include:
- to protect the integrity of the UK financial system;
- to secure an appropriate level of protection for consumers; and
- to encourage effective competition in consumers’ interest.
Both Seedrs and Crowdcube are FCA authorised. What is more, Seedrs lead the way by creating an FCA-approved test that potential investors need to pass before investing on the platform. Crowdcube has adopted this idea, developing a questionnaire to assess whether a potential investor realises the high risk associated with investing in start-ups and early-stage businesses.
Seedrs vs Crowdcube - Overseas Operation Model
Both platforms are making efforts to expand internationally. Crowdcube teams up with local partners in the countries where it wants to operate. Seedrs, on the other hand, manages all international investments from its UK platform, ensuring that all transactions happen on UK soil.
Seedrs vs Crowdcube - Deal Structure
Arguably, the biggest difference between Seedrs and Crowdcube is their deal structure. Crowdcube uses a direct ownership model whereas Seedrs has adopted a nominee structure model.
Under the direct ownership model, when you invest in a business, you become a direct shareholder. The amount you invest in the company and the equity it offers in exchange for investment affect your ownership percentage. As a result, you receive a Share Certificate and your name turns up in the company’s share register.
The nominee structure model adopted by Seedrs means the platform holds the legal title to shares in a given business for the benefit of individuals who invested in that business. In effect, while investors do not have voting or direction power over the shares, they hold the full economic interest in them.
Seedrs vs Crowdcube - Conclusion
Overall, the UK’s biggest equity crowdfunding platforms operate in two very different models. Both Crowdcube and Seedrs offer a great platform for your fundraise, hopefully, this has given you some valuable insight into which will be best for your campaign.
Considering a fundraising campaign on Crowdcube or Seedrs? We can help.