Crowdfunding for a project in its basest terms means raising the funds required from a number of people. Usually, a group of investors combine as a collective, make individual investments of varying amounts, to reach the minimum amount required by the fundraiser.   With equity crowdfunding, a fundraiser launches a fundraising campaign, outlining how much they are trying to raise, and showcasing the details of the project. As the entry level for investment can often start from as little as £100 this opens the opportunity up to individuals who may not have had access to enter into a crowdfunding opportunity previously.  

However, there are several problems that fundraisers could run into on their property journey.  Running out of funding but not running out of deals, unable to source investors, difficulties with compliance and so on.  Encompassing all of these issues is another more serious factor and that is the ability to raise funds legally.  So, when faced with all these issues, what’s a fundraiser to do?  

Learn the 6 steps of how to raise funding legally of course!  Understanding each of these steps, in conjunction with the necessary regulations, is an important factor for success in equity crowdfunding. They could truly help you on your way to successfully (and legally!) raising funds.   Whether you’re a property crowdfunding expert or new to the crowdfunding community, these steps could set you on your way to funds in no time.

Presenting Your Deal

An important stage when raising funds legally through equity crowdfunding is presenting your deal to investors. It is important that you think like an investor and assess the situation from their perspective. The first step is preparing your raise.  This involves assessing your raise to see if the numbers stack up, what the advantages/disadvantages are, how much equity you are prepared to offer and so on.  This part of the process also involves the collation of all necessary supporting documentation. There are various forms of documentation that you will require when presenting your deal for equity crowdfunding:

●     An Equity Offer Document – this will be the main document to provide to investors and should include details of the project, the intention for the use of the money and financial projections amongst other things.
●     DD Documentation – Every fundraiser will have to supply due diligence documentation including ID docs and proof of address.
●     Financial Breakdown – You will need a detailed overview of the financials for the project.
●     Project Documentation – Depending on the type of project, a fundraiser may be asked to provide valuations, proof of planning application, proof of rental income/lettings etc.  These documents are required to back up material statements made within the Equity Offer Documentation and the Financials.

Compliance

Another important stage in the equity crowdfunding process is compliance. It is imperative that you ensure all your Company’s documentation is correct and above board. There are many rules and regulations around financial promotions and collective investment schemes which fundraisers must be aware of and there are often updates to these regulations which must be adhered to – as they say, Ignorantia juris non excusat (ignorance of the law is no excuse)! Equity crowdfunding is a regulated activity in the UK and the promotion of investment opportunities is a regulated activity under the Financial Services and Markets Act 2000.   Retail clients of crowdfunding platforms may only invest in opportunities on the platform in the following circumstances:
●     They have passed the on-platform Appropriateness Test
●     They have completed their KYC/AML checks
●     They have confirmed that they will invest less than 10% of their net assets in the relevant investment.
Some of these criteria also apply to High Net Worth and Sophisticated Investors, who have self-designated as such.  

Regulated platforms such as LEOcrowdfunding are also required to assess and ensure that ALL clients understand the risks involved with investing – this is emphasised  during the online registration process but also included in all promotional material made available to/viewable by any prospective investors, with prominent risk warnings such as, “Capital at risk and returns not guaranteed” or, “Past performance is not indicative of future results”, being used as and when required.   However, these rules do not just apply to crowdfunding platforms but to anyone who is seeking to raise finance from multiple investors. Therefore, it is important for Fundraisers to be aware of the regulations regarding marketing, promotions, deal structuring and many other areas.  Remember: ignorance is no defence!  

If you are interested in learning more about the full extent of the suggested steps for raising funds legally, then get in touch to find out when our next 3-day event is running which will completely cover how successful property developers and landlords raise funds legally? Get in touch with a member of our team for more information or sign up here!   Please note, LEOcrowdfunding do not give legal or financial advice. 

https://raising-funding.com/class