The main advantage of crowdfunding is that startups can get sponsors to make investments without the mediation of banks and venture funds. The five types of crowdfunding that are used in successful campaigns worldwide include:
- Donation crowdfunding
- Debt crowdfunding
- Rewards crowdfunding
- Royalty crowdfunding
- Equity crowdfunding
These days, equity crowdfunding is generating a lot of buzz because it is disrupting the VC industry. An equity crowdfunder is a person who invests money in return for shares, or a small stake in a venture, project, or business.
Until 2012, the pooling of money occurred through a private placement of investment, which avoided the need for the Securities Act of 1933 and securities regulations. After the passage of the JOBS (Jumpstart Our Business Startups) Act, many equity crowdfunding platforms have begun to bring their services into the evolving crowdfunding ecosystem. Each of these platforms operates on a slightly different model, but they all aim to connect both institutional and individual investors with investment opportunities that were previously unavailable to them. The average person (aged 18 or older) can now make equity investments in startups, and those investments from the crowd compete with the professional investor funds since both apply to the same projects.
Generally, investors have to register and verify their identity, assets, and income. Equity crowdfunding companies charge fees to listed entities, and it’s how they typically earn their income. Some platforms also invest their capital in listed entities in order to boost investor confidence. KingsCrowd has reviewed the best crowdfunding sites for non-accredited and accredited investors (such as venture capitalists and angel investors) to invest in early-stage startups.
Founded in 2012, the San Francisco-based WeFunder is a popular crowdfunding platform. It is the most successful platform to use Regulation Crowdfunding (Reg CF or Title III Equity Crowdfunding). In the Regulation Crowdfunding industry, WeFunder comprises 50% of the entire market share (with over $50 million raised so far). Most of the companies that have been successfully funded through WeFunder come out of Y Combinator. And companies that stand the best chance of finding funding through WeFunder are rare startups with exponential growth potential. Through WeFunder, companies could successfully raise anywhere from $20,000 to $1 million.
SeedInvest also contributed to opening up investing to the masses by offering Regulation Crowdfunding. As a matter of fact, James Hand and Ryan Feit (SeedInvest founders) were part of the movement that helped get the JOBS Act passed in the first place. However, SeedInvest is an exclusive equity-based platform that has approved only 1% of the companies that have applied to use its services, and tech companies dominate the list of entities on its website. It also offers various guides for investors looking to invest capital, as well asAuto-Invest options, which allow investors to build a portfolio of startups (for as little as $200 per business startup). When it comes to the average raise per funding campaign, SeedInvest leads with an average of $436,000 per campaign.
Led by Jason Frishman (founder and CEO), Netcapital is an investment crowdfunding company that uses Reg CF (as well as Reg D) to offer investments in startups. The company is out to build the next-generation private marketplace focused on raising funds for both early-stage startups and large companies. In 2018, they partnered with TechStars (one of the top accelerators in the U.S.) to bring forward some of the most innovative startups in need of capital. Netcapital has a great advisory and management team, which includes people like John Fanning – the CEO and founding chairman or Napster and one of the first investors in Uber. On the platform, you are able to offer investments in startups for as little as $99 (in most cases).
One of the largest equity crowdfunding solution providers in the world is StartEngine, an equity crowdfunding site for investors who want to purchase equity in companies that seek to raise up to $50 million. It boasts a broad range of success stories across different industries and business stages. It offers three tiers of services – base, premium, and platinum. Investors get access to their Investor Dashboard that allows them to track their investment. The dedicated support team is ready to provide access to information or assistance when you are prepared to make an investment. It also has several ways in which investors can look into and learn of investment opportunities available on the platform. In 2018, StartEngine began offering ICOs (Initial Coin Offerings), which leverage the emerging cryptocurrency and blockchain ecosystem.
Beyond its many funding options, MicroVentures also offers equity crowdfunding to jumpstart businesses by helping them find investors to invest and even select investors based on more than a mere financial contribution. Some of its deals have investment minimums of as low as $50. It is another excellent example of a Regulation Crowdfunding platform. The areas that MicroVentures focuses on include social, gaming, mobile, green technology, software, media and entertainment, and Internet technology. The sweet spot for its platform is startups that need between $150,000 and $1 million in capital. Since its establishment in 2009, MicroVentures has facilitated raising capital of more than $100 million for high-growth startups.
All of these crowdfunding sites for businesses have excellent reputations and are highly rated by business startups that have used them to facilitate equity raises. Many of them will take a small percentage of an investor’s overall earnings, as well as processing fees from each contribution transaction. They also come with a range of portfolio planning and technical analysis tools and can help capture relevant market insights.
Understanding the world of both non-accredited and accredited investing is imperative if you’re serious about building wealth. Equity crowdfunding is still a work in progress, but if you approach it prepared, investing in a revolutionary startup could bring huge returns on your investment. Remember that the best equity crowdfunding platform for your investments depends on the country where the company raising money is incorporated. As for due diligence, startups are often pre-profit or even pre-revenue with few assets and can be difficult to value. The due diligence in equity typically focuses on the product, management team, sector, and intellectual property.
The first thing to do is to pick the platform you will invest your money through. The next step is finding the most lucrative and interesting startups to invest in. When looking for a crowdfunding campaign, pay attention to:
- Pitch and brand story
- Supporter engagement (team, board members, advisors, existing investors, and partners)
- Crowdfunding marketing plan and outreach
- Data perspective
- Whether a startup business complies with the Securities and Exchange Commission
- Whether some notable investors already invested in a particular startup
KingsCrowd experts can act as your crowdfunding advisors and help you make well-informed investment decisions by educating you on the current startup environment. Subscribe today for more in-depth information!