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Crowdfunding in the UK: perks, pitfalls and how to approach
Crowdfunding has opened company ownership to the masses, but as one investor’s experiences reveal, enthusiasm and perks often outweigh the financial realities of investing in private businesses.
Crowdfunding has moved from quirky hobby projects to a mainstream way for household-name brands to raise money from their fans.
That shift has changed not only who invests but why they invest and what they can reasonably expect back.
In a recent Mouthy Money conversation, investor and business founder Anthony Morrow shared frank experiences from a decade of backing crowdfunded businesses.
His stories provide a useful guide for anyone tempted to join the crowd.
How crowdfunding really works
At its simplest, equity crowdfunding lets you buy small stakes in private companies through platforms rather than a public stock market.
You become a shareholder, but you usually cannot trade freely. Your exit routes (i.e. opportunity to sell) are limited to rare secondary sales, an acquisition, or a public listing (initial public offering or IPO). Many people do not invest for pure financial returns.
As Morrow puts it: “My crowdfunding is generally into companies where I’ve got an interest. I’m already a customer. I rarely look at it as from a financial return point of view.”
In other words, the emotional return and the perks can often matter more than the spreadsheet.
The lure of perks and community
Morrow’s first foray was the craft beer pioneer BrewDog: “BrewDog was my first crowdfund.” Early on, he enjoyed the community and the goodies: “I would get a crate of a range of experimental products…You got a card, you got discount if you bought BrewDog…then you could get discounts in those [bars].”
That community effect is not accidental. Brands run crowdfunds to raise cash, yes, but also to create a loyal army of advocates.
Morrow’s take on this aspect of crowdfunding is blunt: “Crowdfunding is now just used as a tool to build community as opposed to deliver returns.”
Perks, though, can sour. During lockdown, he says the quality of his BrewDog beer boxes “really turned to the point where I think the last few, was getting 12 bottles of fizzy experimental stout.”
The lesson is simple: if perks are your reason to invest, ask how durable and useful they really are.
Why paper valuations can mislead
Crowdfunded updates often trumpet higher ‘valuations’ after a big round of new investing.
Morrow warns against taking those numbers at face value: “Anyone who’s ever been anywhere near venture capital knows that the terms that a normal investor is getting compared to what the venture capital or institutional investor is getting are very different.”
The headline valuation might be the same, but the rights are not.
He jokes that “there will be astral requirements in terms of planet alignment for a crowdfunder to get anything back,” while institutions “will be getting two, three times their money back before anyone gets anything.”
That pecking order means your outcome can be very different from the headline values.
The problem with exits and secondaries
A recurring frustration is the ability to sell. The secondary market for private shares is generally completely opaque. Private investors have very few concrete rights outside of public markets.
Morrow adds: “The question started to murmur… where were the secondaries for the punks? How were the crowd funders going to get their money back?”
Years later, that remains tough: “I still don’t know any punks who’ve managed to get a secondary sale away,” he says.
This illiquidity is not unique to beer. He backed a burrito chain for the weekly-free-burrito perk. Within a year “it gone into some sort of CVA. All the equity holders had been wiped out, in particular the crowdfunders, and my card with free perks became worthless.”
Equity can go to zero, perks can disappear, and you might not get a chance to sell before the music stops.
IPOs are not always the happy ending
Many investors pin hopes on a public listing. Sometimes that works. Often it does not.
Morrow highlights Deliveroo’s float, where it pitched shares to retail customers in-app: “It promoted the float via its app to its customers… and the money raised… a lot of it through the free flow via its retail customers lost large percentages of its value.”
His broader point is that capital markets tend to be honest judges. If a company’s private-market valuation depends on terms and hype that public investors will not accept, listing can be brutal.
The UK context and why it matters
The UK has struggled to attract and retain public equity listings, especially among tech and consumer brands.
That creates a gap between vibrant private markets and thinner public markets. For small investors, the healthiest way to support UK companies is often indirect: through diversified funds and pensions.
Morrow’s view is pragmatic: “Surely it would be better for us to invest in a fund that invested or pension…getting our exposure through pension funds and through investment funds like most people do.”
When, if ever, should you crowdfund?
Crowdfunding is not inherently bad. It is just different and certainly riskier, if your goal is financial. If you approach it like a fan with some fun money, and you prize the utility of the perk, it can be enjoyable.
Morrow still might participate in a new crowdfund if the stars align: “But I’d still apply the same rule in that it’d have to be something I’m interested in and the perks and the benefits are there.”
If you approach it like a traditional investment targeting risk-adjusted returns and liquidity, the mismatch can be painful.
A practical checklist before you crowdfund
1. Clarify your goal
If your aim is fun and belonging, say so. If it is profit, ask if the risk, the rights you are offered and the lack of liquidity make sense.
2. Read the terms, not just the valuation
Look for liquidation preferences, anti-dilution rights and whether new institutional investors have senior claims. As Morrow says, “the terms…are way different.”
3. Stress test the perk
Is the perk something you will genuinely use, and for how long? What happens if the company changes tack or cuts costs?
4. Assume no secondary market
Plan as if you will hold to an acquisition or IPO and that neither may happen.
5. Size it like a hobby
Use money you can afford to lose. A few small tickets can scratch the itch without derailing your long-term plan.
6. Keep your core investing boring
Build wealth through diversified, low-cost funds inside ISAs and pensions. Treat crowdfunds, if any, as a tiny, ring-fenced side pot.
Final take
Crowdfunding can be a feel-good way to back brands you love. It can also be an expensive way to buy a t-shirt.
Morrow’s decade-long tour captures both sides. Early BrewDog perks felt great. Later came the grind of illiquidity and changing business fundamentals.
An IPO that was supposed to liberate value did the opposite for many retail buyers. And a burrito perk card ended up “worthless.”
Go in with your eyes open. Decide whether you want to be a customer-fan or a shareholder seeking returns. If it is the former, enjoy the perks and the community.
If it is the latter, be sure you fully understand what you own, what rights come with it, and how you might one day get your money back.
DISCLAIMER
This guide is produced for general informational purposes only. It should not be construed as investment, legal, tax, mortgage or other forms of financial advice.
If in any doubt about the themes expressed, consider consulting with a regulated financial professional for your own personal situation. Past performance is no guarantee of future results.
Investments can go down as well as up and you may get back less than you started with. Investments are speculative and can be affected by volatility. Never invest more than you can afford to lose. For more information visit www.fca.org.uk/investsmart
