Advantages and disadvantages of crowdfunding for startups

Crowdfunding has changed the way startups and small businesses raise funds. In the UK alone, over 1.8 billion USD flowed through crowdfunding platforms in 2023,¹ offering an alternative path to bank loans.

If you’re considering crowdfunding for your startup, it helps to know the pros and cons before deciding. This guide weighs the benefits of crowdfunding against its risks, while also showing how Wise Business can simplify international business payments when your backers are spread across borders.

Disclaimer: The information in this article is for informational purposes only. Wise does not offer any investment or financial advice and you may be liable to pay taxes on any capital gains. All financial decisions including any savings strategies should be made after thorough research and consultation with a qualified financial advisor. Remember that investments, even in low-risk funds, are never guaranteed and your capital is at risk.

What is Crowdfunding?

Crowdfunding is the process of raising funds by asking a huge number of people to finance your business. Rather than visiting a bank or selling your project to investors, you post your idea online and invite people to support. Most of this happens on crowdfunding platforms, which provide startups with a space to securely collect funds from backers.

This type of fundraising took off after the 2008 financial crisis, when smaller businesses struggled to access credit.² Today, it’s a recognised part of UK startup finance. From 2014 to 2024, more than 2,500 UK companies raised money through equity crowdfunding campaigns,³ showing how firmly it has taken root.

What makes it attractive is the mix of funding and feedback. You can raise capital and at the same time demonstrate that what you’re building is in demand.

Types of Crowdfunding

There are 4 main types of crowdfunding. Each one works in its own way, and knowing the difference helps you choose which suits your business.

Reward-based crowdfunding

In this approach, people contribute money and get something back that’s linked to your project. It could be early access to a product, a special edition, or even a small perk like branded merchandise. It’s popular with new product launches because supporters feel like they are part of the journey.

Equity crowdfunding

Equity crowdfunding is similar to traditional investment. People invest and get stocks in your business. They turn into part-owners, and this implies that they will need updates and an opportunity to participate in future growth. This type of crowdfunding is regulated by the Financial Conduct Authority (FCA) in the UK, and provides some level of regulation to both parties.²

Debt crowdfunding

Debt crowdfunding works more like a loan. A group of people lend you money, and you pay them back with interest. Instead of dealing with a single bank, you borrow from many individual lenders through an online platform.

Donation-based crowdfunding

This type of crowdfunding is the most straightforward. People give money without expecting anything in return. The model is common with charities and community projects, though small businesses with a social focus occasionally resort to it as well.

Crowdfunding platforms such as Crowdfunder UK are popular in this area. In 2023, people donated more than £300,000 on Crowdfunder to Reprezent, a youth broadcasting station to support its activities with young people.⁴

At the end of the day, the type you choose comes down to what you’re trying to achieve. A charity raising money for a cause will look very different from a startup launching a new product. The important thing is matching it to your goals so the campaign works for both you and your backers.

💡 See the top funding platforms for startups

Pros of crowdfunding

For startups in the UK, online crowdfunding has become a practical way to raise money and build momentum at the same time. These benefits of crowdfunding explain why it has become so common.

Tap into a wider funding pool

You’re not limited to one investor or a single bank. A campaign can bring in support from hundreds of people, giving you a much wider pool of potential backers than traditional funding routes.

Proof of demand

Supporters are willing to pay before your product even exists. That kind of validation is hard to get anywhere else. Campaigns often act like a test market, giving you a clear signal about what works and what does not.

Build a loyal community early

A campaign doubles as publicity. Every update, share, and media mention spreads awareness of your idea. Even people who do not pledge may remember your brand and return later as customers.

Direct connection with customers

Backers are not just giving you money, because they are part of your process.. Many of them turn into loyal customers and advocates. That sense of community is one of the strongest crowdfunding rewards founders mention.

Choose how you raise money

Different models give you choices. With crowdfunding rewards or donation campaigns you raise money without giving away equity. With equity crowdfunding you can tap into a pool of investors who would not normally be accessible. With debt crowdfunding you borrow on terms set by many lenders instead of one bank.

Quick funding windows

Campaigns on crowdfunding platforms have fixed windows, usually a month or two. That time frame is often faster than applying for a loan or pitching investors round after round.

Signals for future investors

A strong campaign can make you more attractive to traditional investors. If hundreds of people back you online, it is easier to convince a venture firm or angel that your idea has legs.

Global reach

Backers can come from anywhere. That means a bigger pool of potential supporters and, for some businesses, early international customers. That also means juggling payments in different currencies. Wise makes this easier by helping you receive international paymentsand manage multiple currencies without high fees cutting into your raise.

The benefits of crowdfunding goes beyond financial gains. The visibility and energy from supporters matters just as much as the funds raised.

Cons of crowdfunding

Online crowdfunding can work, but it is not all upside. If you’re thinking about it, here are some of the drawbacks of crowdfunding you should be ready for.

Your results are public

Once your campaign goes live, your failure or success will be public. If you smash your target, great. It will also be in public if you fail. This is one crowdfunding risk to strongly consider as this might make it more difficult to convince future investors about the viability of your idea.

High competition and marketing demands

There are plenty of campaigns running at the same time. A simple post will not cut it. You need to push it on social media and find ways to grab attention. Many founders underestimate how much effort that takes.

Regulatory compliance

Equity crowdfunding in the UK sits under FCA rules. That protects backers, but for you it means paperwork, checks, and sometimes legal costs. It can slow the process and eat into the funds you raise.

It's like running another business

Running a campaign feels like another job. Updates, emails, planning fulfilment, it adds up fast. Founders often say it pulled them away from building the actual business.

When people talk about crowdfunding pros and cons, these are the parts that do not always get enough airtime. Knowing them upfront helps you decide if the trade-offs make sense for you.

Key factors for a successful crowdfunding campaign

Launching a campaign takes more than putting a page online. The teams that raise money usually prepare well and keep supporters close.

Tell a clear story

People back ideas they understand. Explain what you are building, why it matters, and how the money will help. A story-led presentation, short video or some photos help plead you case better than long text.

Warm up your network

Strong campaigns often have support lined up before launch. Friends, customers, or online groups can give that first push. When new backers see early momentum, they are more likely to join in.

Stay in touch with supporters

Backers want to know what is happening. Short updates, even when plans change, help keep trust. Regular posts or quick emails make people feel involved.

Set a target you can reach

Think carefully about the number you ask for. Aim too high and you might miss it. Aim too low and you risk not having enough to deliver. Choose a target that feels realistic but still covers your costs.

A campaign that tells a clear story, builds early support, keeps people updated, and handles money carefully has a far better chance of reaching its goal.

Is crowdfunding right for you?

Crowdfunding can be a good option if you want to raise capital and at the same time gauge the interest in your product or service. It is particularly effective with founders who need to establish an initial customer base or generate awareness about their brand.

At the same time, it’s not the solution for all businesses. Other types of funding can be more appropriate to you if you need large amounts of money in a short time or want to work with investors.

For most startups, crowdfunding does not replace other funding sources but complements them. A successful campaign demonstrating demand can get banks, grant providers, or venture capital firms to be more willing to support you.

You should also consider how you will spend the money when it arrives, as the supporters can be located in the UK or abroad, which implies that you would receive money in other currencies. With Wise, you can easily handle this to keep a bigger portion of what you raise and concentrate on growing your business.

Manage funds globally with Wise Business

Running a crowdfunding campaign means your backers can come from anywhere. That’s great for reach, but it also means you may need to receive, hold, and spend money in multiple currencies. Wise Business makes that simple.

With Wise, you can:

• Open 8+ account details in major currencies (only with Wise Business Advanced), so backers in different countries can pay you with low-cost business transfers.
• Hold and manage 40+ currencies in one account and keep campaign funds in the same currency you raised them, without unnecessary conversions.
• Send money to 140+ countries worldwide, if you need to pay overseas suppliers, freelancers, or manufacturers after your campaign.
• Save on fees because there are no monthly charges, and opening a Wise Business account in the UK costs just £50 (Advanced plan) or for free (Essentials plan).
• Keep campaign funds transparent by syncing your Wise account with your accounting software.

Disclaimer: The UK Wise Business pricing structure is changing with effect from 26/11/2025 date. Receiving money, direct debits and getting paid features are not available with the Essential Plan which you can open for free. Pay a one-time set up fee of £50 to unlock Advanced features including account details to receive payments in 22+ currencies or 8+ currencies for non-swift payments. You’ll also get access to our invoice generating tool, payment links, QuickPay QR codes and the ability to set up direct debits all within one account. Please check our website for the latest pricing information.

Crowdfunding should help you grow, not get eaten up by hidden costs. Open a Wise Business account to keep more of what you raise, and easily send money across borders when your campaign takes off.

FAQs

Can I try more than one campaign?

You can. Some founders start small, then come back with a bigger crowdfunding goal. If the first one fails though, it can make the second harder.

Can people get refunds if my project fails?

Usually no. Once the campaign succeeds, the money is yours to deliver the project. The exception would be fraud or misrepresentation, which carries legal risks.

What are the legal implications of crowdfunding?

In the UK, equity and debt crowdfunding are regulated by the FCA, so you’ll need to meet disclosure rules and investor protections.² Reward and donation campaigns are less strict, but you’re still legally responsible for delivering what you promise.

Sources used:

1. Crowdfunding statistics – Coin Law
2. Crowdfunding: an opportunity to increase access to finance for MSMEs in ACP countries – ICR
3. The state of UK equity crowdfunding – Beauhurst
4. What is crowdfunding and how is it helping small businesses in the UK – Economics Observatory

Sources last checked: 27-Oct-2025