How would you like to raise £1 million in 96 seconds? This was the incredible result when fintech start-up Monzo crashed equity crowdfunding platform Crowdcube in 2016. Since then, crowdfunding has gone from being a novel way to finance a pipe dream to a popular source of funding for hordes of entrepreneurs, non-profits and growing businesses.

Is crowdfunding right for you? What are the pros and cons? Our handy guide to crowdfunding for small business owners explores these questions and much more.

What is crowdfunding?

Crowdfunding is a method of funding for a business, social or personal venture where you can share your growth goals with the public, connecting with thousands or even millions of people willing to contribute and provide investment.

This bypasses traditional sources of finance, such as bank loans or venture capitalists. Instead, by seeking contributions openly through an online platform, it’s the 'crowd' of individuals, groups and investors who fund the venture. In return, you can provide tiered rewards for different levels of investment or shares in your venture can turn into profit if you go public or you enter a merger or takeover.

What are the main types of crowdfunding?

Crowdfunding has earned its place as a serious alternative funding option for small businesses, entrepreneurship and social change. There are four main types of crowdfunding:

• Equity crowdfunding – providing capital for start-ups and new ventures in return for a stake in the business.
• Reward crowdfunding – offering perks in return for investment in the business idea, growth plans or creative venture.
• Donation crowdfunding – channelling money from people who support a cause or want to fund a social, ecological or humanitarian project.
• Debt crowdfunding – offering an alternative to mainstream lending for individuals and businesses, also known as peer-to-peer lending.

How does crowdfunding work?

In short, you pitch your idea through a dedicated crowdfunding platform, which brings your idea to the attention of potential funders, who could be anyone from individuals to institutional investors. If people like your idea enough to support it, they can pledge to back it with their own cash. 

Crowdfunding enables you to gauge interest in your venture before committing the resources to making it happen. And if the interest is strong, chances are, demand will be too. The amount pledged can be as little as £5 to £50,000, or more, and you could have a few hundred backers or hundreds of thousands.

Every contributor is part of the crowd that's getting behind your venture to help you raise enough money to reach your funding target. Crowdfunding platforms automate much of the process for funders and fundraisers.

Do you have to pay taxes on crowdfunding in the UK?

It depends on the type of crowdfunding. With reward-based crowdfunding, any money received is treated as income. Whereas, donation crowdfunding for charitable causes or community projects is typically tax-exempt. Funds raised from equity crowdfunding are treated as capital and not subject to income tax or corporation tax.

Then there is VAT to consider. Contributions made in exchange for a product or service are typically subject to VAT, but equity and loan-based crowdfunding are generally outside the scope of VAT.

Also, when raising cash through equity crowdfunding, you could benefit from a tax break. The government offers a number of venture capital schemes, including the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). You need to send a proposal to HMRC ahead of launching a campaign.

Check your potential tax liabilities when crowdfunding by speaking to your accountant or tax adviser.

Crowdfunding advantages and disadvantages

Crowdfunding might seem like manna from heaven if you're a business looking to raise cash for a new idea or to fuel growth. But it's important to be aware of the pitfalls and understand that not every project is right for crowdfunding.

Here are the main pros and cons of crowdfunding for business owners:

Key benefits of crowdfunding for small businesses

• No formal presentations or meetings are required – all you need is a winning idea and a compelling pitch.
• Low-risk funding option – it’s a way to validate an idea or venture, and if investors want your project to work, they'll promote it to their network.
• Investor feedback can help you fine-tune your thinking or design.
• You call the shots on equity and rewards – give away as much as you choose and shape your offers for maximum impact and take-up.
• Many investors are customers-in-waiting, and your communications can build brand engagement and loyalty.
• Get in front of a large audience – aside from the networking power of private investors through social media, venture capitalists monitor crowdfunding platforms for ideas with big growth and profit potential.

Main crowdfunding downsides to consider

• You're competing for attention – your pitch will be one of hundreds in the moment, all chasing the same money.
• If you use all-or-nothing crowdfunding platforms, you could end up with nothing if you don't hit your target.
• Miscalculating equity or rewards can see you giving too much of your business and future profits away.
• There are platform fees to consider (usually 5%–12% of funds raised, plus other charges for payment processing and other administration), so factor these into your business/project planning.
• Letting your idea out of the bag, without the protection of a patent or copyright, or while you're still in prototype, opens you up to competition.

If you’re not sure if crowdfunding is right for your business, you can explore other lending options, like business loans, government grants, merchant cash advances, lines of credit or equity finance alternatives, like angel investors or VC firms. 

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Best crowdfunding sites available to small businesses 

If you’re interested in the potential of crowdfunding, you need to determine which platforms to use. Here is an overview of the best crowdfunding sites to consider:

1. Kickstarter

As one of the best-known reward crowdfunding sites, Kickstarter continues to be a go-to option for entrepreneurs. As of April 2025, Kickstarter has received US$8.71 billion in pledges from 24.1 million backers to fund 277,302 projects. The platform has produced some massive hits over the years, including the famous Pebble smartwatch.

With Kickstarter, you set a funding goal. It's worth setting this fairly low, as if you fail to reach your target, none of the cash pledged during your campaign will be made available. This kind of platform model is known as 'all or nothing'. On the plus side, you only pay fees if your campaign is a success. Kickstarter campaign times can run up to 60 days, but 30 days or fewer is often recommended.

Plan your reward options carefully, as having too many rewards can be confusing. However, don't overlook the potential of low-value regards, as this can be a way to gather a large number of backers, with a view to converting them into loyal customers with nurturing over time.

2. Indiegogo

As another huge reward crowdfunding platform, Indiegogo is often seen as a rival to Kickstarter. Targeted directly at entrepreneurs, including non-profit organisations, Indiegogo’s projects generally fall in the tech, innovation and creative works categories, while its partner platform, GoFundMe, is a leading donation crowdfunding site, offering no-fee charity fundraising for individuals, groups and organisations.

With Indiegogo, fees apply whether or not funding hits your target. This is because the Indiegogo platform follows the flexible finance model, which means, whatever money is pledged, you'll have access to it, even if the total is short of your goal. 

Carefully craft your profile so it creates real impact, and include relevant keywords and a clear call to action to stand out against other campaigns in your category. The platform supports projects with daily newsletters to their followers, featuring current and breaking campaigns. 

3. Crowdcube

Crowdcube is another big equity crowdfunding platform focusing on start-ups and fast-growing businesses. It has raised millions of pounds in investment capital and offers funders buy-in from as little as £10. The platform's investors have helped fund the growth of some of today's most exciting new ventures, including craft brewer BrewDog and fintech disruptor Revolut.

Crowdcube offers numerous support services to help you get your campaign primed for success, including pre-launch guidance, crafting a winning pitch, setting realistic funding targets and creating a communications strategy. 

Once your campaign hits its targets, you're invited to join Crowdcube’s Funded Club, which gives access to exclusive benefits from several partners.

4. Republic Europe

Republic Europe is one of Europe’s leading private investing platforms, enabling individuals and institutions to invest in early-stage and growth-focused businesses across a range of sectors. It is the result of Republic’s acquisition of Seedrs, which was Europe’s largest equity crowdfunding platform, after a merger between Seedrs and Crowdcube fell through.

The platform also attracts both novice and experienced investors, plus high-net-worth individuals. Campaigns have raised millions for high-growth companies, such as leading money transfer provider TransferGo and sustainable infrastructure innovator MacRebur.

Republic Europe simplifies investor management by holding shares on behalf of investors, reducing administration for entrepreneurs and business owners while helping to manage follow-on funding as you scale.

Other crowdfunding platforms worth considering

• Crowdfunder: One of the UK’s leading crowdfunding platforms, focused on community initiatives, charities, social enterprises and local projects. You can access extra funding from corporate partners, local councils and charitable foundations through Crowdfunder’s matched funding model.
• Fundsurfer: A hybrid crowdfunding and investment platform offering both reward- and equity-based funding. Fundsurfer is ideal for commercial projects that seek to make a social or environmental impact.
• Funding Circle: A UK marketplace that matches SMEs with a large pool of individual and institutional investors. Funding Circle is primarily focused on peer-to-peer lending.

How to promote crowdfunding campaigns

If your pitch doesn't hit the right note, you may not reach your funding target with crowdfunding. But with the right approach, you can get the backing you need to reach your growth ambitions.

Here are our top tips for how to promote a crowdfunding campaign effectively:

1. Create a solid plan: Take time to research your market, evaluate your funding needs and develop a business growth plan. Make sure you’ve done everything possible to make your campaign a winner.
2. Time it right: Crowdfunding platforms aren’t going anywhere, so ask yourself if now’s the right moment to raise capital. Are you prepared to manage the attention your campaign could generate and act fast if you hit your funding target?
3. Set out a timeline: The pitch is just the start. Are you ready to respond to investor questions and fulfil promises made? Be clear about your action plan beyond the campaign and have a contingency plan for if you fall short.
4. Choose the right crowdfunding platform: Decide what’s in it for your backers (equity, rewards, or both) and research platforms carefully, comparing their features and benefits and checking their rules, fees and track records. Some suit certain industries and projects better than others.
5. Tell your story: Why does the world need your idea? What problem will it solve or opportunity will it unlock? It’s your job to win hearts and minds. Those who connect with your passion and vision are more likely to invest.
6. Be professional about marketing: Serious ventures get serious backing. Unless you’re a marketing pro, get expert help. Beyond your crowdfunding page, use social media, PR, ads, events, partnerships and influencers to build a buzz around your campaign. Also, consider using specialist publicity sites like Crowdreach, Gadget Flow or Funded Today.
7. Listen to feedback: It’s tough hearing your idea isn’t perfect, but investor insights are vital for understanding sentiment, which can help you finesse your design, tweak your messaging or rethink your plans.
8. Make supporters feel valued: Investment is emotional as well as financial. Design a thoughtful rewards structure, offer exclusives and provide clear and honest communication. Thank your backers, update them on progress, and be transparent about challenges. You earned their trust, so it’s your responsibility to keep it and repay their faith.

Is crowdfunding right for your business?

Crowdfunding certainly presents an exciting prospect for anyone looking to finance a new business venture or fund expansion. But it's worth remembering it's only one way to raise the cash you need and doesn’t guarantee success.

Whether crowdfunding is suitable for your business depends on your growth ambitions, the level of control you want to retain in exchange for capital, flexibility requirements and how quickly you need the funds.

If you need fast and flexible financing for various operational needs and growth plans, you may want to consider a business loan from a digital lender like iwoca. Our Flexi-Loans are designed specifically for the needs of SMEs, and we’ve helped over 150,000 UK businesses to reach their growth potential. 

Apply for a loan online in minutes and enjoy tailored repayments, flexible terms and access to up to £1 million, without using business assets as collateral, as our solutions are unsecured loans. Get a funding decision within 24 hours.

More business funding alternatives

• Peer-to-peer (P2P) lending
• Asset finance
• Short-term loans
• Equity financing
• Business lines of credit

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