Crowdfunded businesses give up 12% equity stake on average

Businesses looking to secure funding from the crowd will typically have to give away 12.4% of their equity to investors, according to research from equity crowdfunding platform Growthdeck.

The research of 114 businesses on six UK crowdfunding platforms found that the average valuation for companies was £3.2m.

A significant number (8%) of these companies were found to be seeking £1m or more, while the average investment target was found to be £311,490.

The analysis claimed that “most [crowdfunding] platforms allow business owners to value their own companies and they have a tendency to overvalue” and said that “as so few crowdfunded businesses make profit and provide limited financial information, it can be difficult for investors to know if a valuation is realistic”.

Gary Robbins, co-founder of Growthdeck, commented: “Crowdfunding platforms have an important role to play here to ensure that the deals they offer are good value for both investors and investee companies and that the interests of each are well-balanced.

“If crowdfunders don’t start putting sensible valuations on companies then there are going to be thousands of disgruntled investors in the future – something which would be very damaging for what is really a hugely exciting concept with great potential.”