Show
Find out how crowdfunding works, some of the benefits and risks, and our view on this type of investment opportunity.
Crowdfunding is one way that individuals, charities and businesses (including start-ups) can raise money from the public to support a project, campaign or person. There are several types of crowdfunding that are regulated in different ways. We regulate:
These are regulated activities under the Financial Services and Markets Act 2000. We also regulate payment services provided in connection with:
How crowdfunding worksCrowdfunding usually takes place on a website platform that allows businesses or individuals to raise money, and investors to provide that money. The business or individual often explains their project in a pitch to attract loans or investment from as many people as possible. Benefits of crowdfundingCrowdfunding can be a useful way for organisations or individuals to access finance that banks or other lenders are not prepared to offer, or only offer at a high cost. Consumers may also find it rewarding to be involved in a business or project as it develops, or to support a local initiative or other individuals. Crowdfunding platforms may offer higher returns than those available from other financial products, however there are usually greater risks. Risks of crowdfundingDifferent platforms and loans carry different levels of risk. Find out more information about high risk investments and the important questions to ask yourself before you invest. Loan-based crowdfundingConsumers who invest via loan-based crowdfunding platforms need to be aware that:
Investment-based crowdfundingDue to the potential for losses, we regard investment-based crowdfunding as a high-risk investment activity. As well as the risks associated with loan-based crowdfunding, for investment-based crowdfunding it is very likely that you will lose all your money.
For debt security crowdfunding, it is likely that you will lose some or all your money. Most debt securities on offer are issued by start-up companies and can result in capital loss if the businesses fail.
How to protect yourselfBefore investing, make sure you understand:
You should only invest money you can afford to lose. Find out more about how to protect yourself against scams. Or, if you think you have been scammed, find out how to report it. Our view on crowdfundingWe believe that consumers looking to invest in crowdfunding offers should take care. Given the typical risks involved, under our regulations, firms are only allowed to promote crowdfunding offers to certain investors. These include experienced or sophisticated investors, or ordinary investors who confirm that they will not invest more than 10% of their net investable assets. Find out more about our crowdfunding policy, and how you can protect yourself, in our policy statements on crowdfunding:
19/08/2021: Information changed Money Advice Service to MoneyHelper 07/09/2020: Editorial amendment content reviewed and style edits made Crowdfunding is a way of raising money to finance projects and businesses. It enables fundraisers to collect money from a large number of people via online platforms. Crowdfunding is most often used by startup companies or growing businesses as a way of accessing alternative funds. It is an innovative way of sourcing funding for new projects, businesses or ideas. It can also be a way of cultivating a community around your offering. By using the power of the online community, you can also gain useful market insights and access to new customers. This guide is aimed at entrepreneurs, businesspeople and companies, especially small and medium enterprises. If you are thinking about ways of financing a new business or idea, or have heard about crowdfunding and want to learn more, you may find this guide useful. How does crowdfunding work?Crowdfunding platforms are websites that enable interaction between fundraisers and the crowd. Financial pledges can be made and collected through the crowdfunding platform. Fundraisers are usually charged a fee by crowdfunding platforms if the fundraising campaign has been successful. In return, crowdfunding platforms are expected to provide a secure and easy to use service. Many platforms operate an all-or-nothing funding model. This means that if you reach your target you get the money and if you don’t, everybody gets their money back – no hard feelings and no financial loss. There are a number of crowdfunding types which are explained below. This guide provides unbiased advice to help you understand the three most common types of crowdfunding used by profit-making SMEs and startups: peer-to-peer, equity and rewards crowdfunding. |