Crowdfunding vs angel investors in the UK: which suits your raise?

Two routes to equity

Both routes sell shares in your company to outside investors. An angel round usually involves a handful of people, often with a lead who sets terms. Investment crowdfunding puts an offer on an FCA-authorised platform and invites many people to invest smaller amounts.

They are different jobs. An angel round is about a small number of conversations, and a crowdfunding campaign is closer to a marketing project.

This is general information, not tax or legal advice. Check HMRC and FCA guidance, or speak to a qualified adviser, before you choose.

What the FCA says about crowdfunding

The FCA describes investment-based crowdfunding as investing in a business by buying shares or business-backed loans. It targets small and medium-sized unlisted businesses, often technology-led challenger brands.

The regulator calls it high risk. Investors have no access to the Financial Services Compensation Scheme and can lose everything if the company fails. It also tells consumers to check that the platform is FCA-authorised.

Who can see your offer

FCA rules limit who a platform can make a direct offer to. Its 2019 policy statement on crowdfunding platforms describes the categories: sophisticated or high net worth investors, people receiving regulated advice, and restricted investors who certify that they will put no more than 10% of their net investible assets into this kind of investment over 12 months. The FCA has revised its promotion rules since then, so ask the platform how it classifies investors today.

The same statement covers appropriateness assessments and says a tick box approach would not be adequate. Expect the platform to ask your would-be investors about their knowledge and experience.

Tax relief works on both routes

SEIS and EIS can apply to either. HMRC's advance assurance guidance asks for details of prospective investors, unless the company is AIM-listed or raising through a fund manager, business promoter or crowdfunding platform.

Investor relief on HMRC's guidance is 50% for SEIS on up to £200,000 a year, and 30% for EIS on up to £1 million, or £2 million where at least £1 million goes into knowledge-intensive companies. For a campaign, run advance assurance first so the platform page can say so.

What an angel round asks of you

Angels back founders they have met. Expect several one-to-one conversations, questions about the team and the market, and negotiation over terms with a lead investor.

That can be slow if you start without a list. The upside is that a good angel brings introductions, advice and a follow-on cheque. In my view, that mix of money and help is the main thing a crowd cannot easily replace.

What a campaign asks of you

A campaign needs a public pitch, a video, financial information and regular updates. You need an audience before you launch, such as customers or users who already like what you do.

Many shareholders at once means more people to keep informed. Plan for investor updates and think about how you will handle a large, small-stake shareholder base at your next round.

How I would choose

If you have a community of customers and want to raise from them, a campaign can make sense. If your product serves businesses, or you need experienced people around the table, angels fit better.

Many companies do both in one round, with a lead angel alongside a campaign. Whatever you pick, the SEIS and EIS paperwork starts early, and so does your investor list.

Next steps

List 20 angels and funds who have backed companies like yours in the last year, then check which of them would lead. InvestorUniverse ranks UK investors by stage, sector, cheque size and recent deals.

If you go the crowd route, check the platform's FCA authorisation first using the FCA's Firm Checker.