How To Fund a FinTech: A Closer Look at Crowdfunding

Is Crowdfunding a viable financing option to fund FinTech growth?

At any stage of a business, knowing the options to fund growth is essential. Many businesses, especially SMEs, have a limited understanding of their current financing options. Coupled with stringent bank lending criteria, this has created an opportunity for alternative funding options for FinTechs.


Funding generally falls into two categories; equity funding, (where a business gives up a stake in the company to investors who are then entitled to a share of any profits) and debt funding (where funding is typically secured from a lender and bears interest repayments). The graphic below shows the different funding options, their availability to a business and potential investment size.

Financing options available


Early phase start-ups have few options for financing. Bank overdrafts are typically too small to develop a business and business angels are few and far between. From this space, crowdfunding has emerged as one of the few viable early stage funding options. With this in mind, emerging FinTechs have turned their sights to crowdfunding to expand their funding pools.


Alternative funding: turning to the crowd

Crowdfunding has been a rapidly growing trend across the start-up space; global investment in crowdfunding has been predicted to hit US$93BN by 2025. Start-ups can attract investors with different incentives. Donation crowdfunding enables individuals to invest purely because they believe in the product or for non-monetary gains such as merchandise and tickets to events, as well as mentions. Debt crowdfunding enables investors to receive their money back with interest whilst equity crowdfunding exchanges stocks for investment.

Crowdfunding comes with an array of advantages. It enables an initial online marketing campaign utilising the user base of large crowdfunding websites and can build a loyal,  financially engaged customer base. Further, the initial funding round can give an indication of public interest in a start-up’s products enabling further product and business development. Crowdfunding can also permit FinTechs to harbour more control of their business by limiting the involvement and ownership of third parties.


So where does crowdfunding fall short?

Counter to this, crowdfunding has its own risks; a single crowdfunding campaign does not represent a long-term investment or scaling fund and comes without the knowledge and guidance that an equity partner may bring.

A FinTech undertaking a crowdfunding round must also attract a large range of investors, essentially to create hype for a product or service that may not be relevant to consumers, and often is not actually available (either in the physical or digital worlds). Building a loyal customer base could be successful for consumer facing projects, but many FinTechs offer solutions for banks and commercial enterprises that are unlikely to excite the general consumer.

Finally, crowdfunding comes with little possibility of being able to raise large investments; on Kickstarter (a well-known crowdfunding platform) the majority of successful campaigns fall within the US$1K to US$10K bracket. Under EU regulations, equity crowdfunding campaigns can raise a maximum of only €5M (US$5.5M) per 12-month-period, unless a full prospectus is issued. Country-level regulation often imposes further limitations which can complicate securing sufficient funding.


Mixing the two: Building the case for crowdfunding

In the most successful FinTech cases, crowdfunding is used to diversify funding in conjunction with VC funding. In the past Monzo, the UK based digital bank, has offered crowdfunding opportunities exclusively to users, successfully building a league of loyal and enthusiastic customers. Monzo has then continued to build on this relationship with interactive forums and product launches. In the last week of October 2017, the insurance tech Wrisk raised £500K from 300 investors in just five days. In July 2017, Revolut, another mobile-only bank, used crowdfunding to promote its premium products with premium service members obtaining first priority to invest and with an investment threshold double that of its ordinary users. The campaign was intended to add an additional £4M to funding. Instead 40,000 customers raised interest in the investment opportunity totalling to £18M. Despite Revolut not being able to accept the sum above UK crowdfunding limits, customer appetite for investing in FinTechs is clearly apparent.


Closing thoughts

As FinTech continues to evolve, so do the emerging routes of financing these start-ups. Crowdfunding provides an exciting funding route with the potential to raise large public interest although it doesn’t currently allow start-ups to raise amounts that challenge traditional funding options. Mixing crowdfunding with VC funds may facilitate the perfect medium, engaging customers whilst seeking advice and industry contacts from VCs, which in many cases can be as valuable as funding.

If you enjoyed reading this blog post and/or you are a FinTech company keen to share your own funding story, please reach out to Josie and the rest of the team at