Crowdcube – A review of the equity crowdfunding website

This is our honest Crowdcube review. Crowdcube is an investment platform where start-ups and growing businesses pitch to investors, a bit like Dragons’ Den online.

Investing in early-stage companies used to be a game for the wealthy. Get in early on the right business and the rewards can be huge, as early investors in companies like Google and Facebook found. Crowdfunding platforms such as Crowdcube now let ordinary investors back small private companies too.

Risk warning: investing in start-ups and early-stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution. Only invest money you can afford to lose, and only as part of a diversified portfolio.

What is Crowdcube?

Crowdcube is an equity crowdfunding platform that lets everyday investors buy shares in private companies. Companies set out their business on the platform, and investors decide whether to back them. You can invest from as little as £10.

When you invest, you become a part-owner of the business. If it pays dividends or is sold or floated on the stock market, you share in the proceeds. It’s like buying shares on the stock market, but without a daily share price, and your shares are much harder to sell.

Crowdcube is authorised and regulated by the Financial Conduct Authority (FCA).

Equity and bonds

Crowdcube offers two main types of investment:

• Equity: you own shares in the business. You benefit from any dividends and from any rise in value when the business is sold or listed.
• Bonds (mini-bonds): you lend money to a company in return for a fixed rate of interest. You get income from the start, but your return is capped. Mini-bonds are not usually covered by the Financial Services Compensation Scheme (FSCS), and you can lose all your money if the company fails.

This review focuses on equity investments.

How investing on Crowdcube works

Each business seeking funding has a pitch page with an overview of the business, its finances, its market and what the money will be used for. Most include a video from the founders, which can show how passionate and capable they are. There’s also a discussion forum where investors can ask the founders questions.

Before you can invest, Crowdcube must classify you as a type of investor under FCA rules, for example a restricted investor, who agrees to put no more than 10% of their net assets into these investments, a high-net-worth investor or a sophisticated investor. You’ll also answer questions to check you understand the risks.

Once you find a business you like, you choose how much to invest and pay by card. Money is only collected if the company reaches its funding target. After the round closes, you get a short cooling-off period in which you can change your mind.

Crowdcube then handles the paperwork. In most cases, your shares are held by Crowdcube’s nominee company on your behalf, along with those of other investors. You still own the economic interest in the shares and receive any dividends or sale proceeds.

You can’t usually sell your shares whenever you like. You typically make money only if the company pays dividends, is bought by another company or lists on a stock exchange, which can take many years, if it happens at all.

Tax relief: EIS and SEIS

Many companies on Crowdcube qualify for generous government tax reliefs. Only UK taxpayers can claim them, and you need to check whether each company qualifies.

Enterprise Investment Scheme (EIS)

• Income tax relief: 30% of what you invest, up to £1 million a year (£2 million if the extra is in knowledge-intensive companies). You must hold the shares for at least three years.
• Capital Gains Tax: gains are tax-free if you’ve held the shares for three years and claimed income tax relief.
• Loss relief: if the company fails, you can offset your loss (after the income tax relief) against your income.

Seed Enterprise Investment Scheme (SEIS)

SEIS is for very early-stage companies. You get 50% income tax relief on up to £200,000 a year, plus similar Capital Gains Tax benefits.

The government has extended both schemes until April 2035.

Example: you invest £1,000 in an EIS-qualifying company. You can claim £300 off your income tax. If the company fails, your effective loss is £700, and loss relief can reduce it further, to £385 for a higher-rate taxpayer.

To claim, the company gives you an EIS or SEIS certificate. You claim the relief on your Self Assessment tax return, or by sending the certificate to HMRC if you don’t file a return.

Can you make money on Crowdcube?

It’s possible, but most start-ups fail or never return money to investors. Research for Nesta found that UK angel investors made an average of 2.2 times their money across a diversified portfolio, but that average was driven by a small number of big successes. Most individual investments lost money.

To have a chance of success, spread your money across many companies and be prepared to wait a long time.

Who is Crowdcube good for?

• Investors who want to add private companies to a diversified portfolio
• People who want to back businesses they believe in
• Taxpayers who can use EIS and SEIS reliefs, especially higher and additional-rate taxpayers

Who is Crowdcube not good for?

• Anyone who might need their money back soon: your shares are hard to sell and you may wait many years for a return.
• Anyone who can’t afford to lose the money: many start-ups fail.

Alternatives to Crowdcube

The main UK alternative is Seedrs, which is now part of US crowdfunding platform Republic.

Is Crowdcube safe?

Crowdcube is authorised and regulated by the FCA. It checks the businesses that pitch on its platform, including verifying factual claims, reviewing their legal structure and running checks on directors.

But FCA authorisation doesn’t protect you from investment losses. If a company you invest in fails, you won’t get your money back, and the FSCS doesn’t cover start-up investments that simply perform badly.

Our experience with Crowdcube

We invested £500 across four companies: JustPark, Cauli Rice, Mindflood and Pavegen.

Signing up and investing was simple and all online. We browsed the pitches, used the forums to ask questions and paid by debit card. The money was taken about 10 days after the pitches closed, after the cooling-off period. We received our share certificates about 10 days later.

The EIS certificates took longer, between three and seven months for the three companies that offered EIS. JustPark didn’t offer EIS relief.

All four companies sent regular updates on their progress. We invested with a long-term mindset and didn’t expect a quick exit. We spread our money across four companies to reduce the risk of any single failure.

Conclusion

Crowdcube is easy to use and offers a wide range of businesses. It can be a good way to add a small amount of private-company exposure to your portfolio, especially if you can use EIS or SEIS tax relief.

But the risks are high. Most start-ups don’t succeed, and your money can be locked up for years. Only invest what you can afford to lose, and keep it to a small part of your overall portfolio.

Disclaimer: This review is for information only and is not financial advice. Tax treatment depends on your circumstances and may change.