You probably heard about equity when your friends talk about the value of their shares issued by a company, or something related to bonds, shares, and stocks. What about crowdfunding? You might think of GoFundMe’s brand of charitable and medical crowdfunding. You may also think of rewards-based crowdfunding platforms like Patreon and Kickstarter in which business people and artists, and with the help of marketing agencies like Crowdcreate, solicit funds from sponsors in return for a physical product or exclusive and limited offer.
What if I told you that there’s a totally different form of crowdfunding — one in which business people and startups receive money from backers in exchange, not for products or gifts, but for an equity stake in the company? A crowdfunding campaign in which the backers are the ones you funded?
What is Equity-based Crowdfunding?
Equity-based crowdfunding got its start later than rewards crowdfunding because crowdfunding itself was illegal in the US until about 3 years ago. This is where the Jumpstart Our Business Startups Act (known as JOBS Act) enters. The JOBS Act changed government securities to legalize equity crowdfunding. The thinking was that enabling new businesses to openly request venture by means of crowdfunding would help spur the economy when all is said in done and startup arrangement specifically.
StartEngine is one of the biggest venture crowdfunding platforms, utilizing Reg CF and Reg A+ to offer interests in new companies to anybody, for as low as $100 in some cases. The choice is expansive and spans a wide scope of enterprises from clothing to electric vehicles to health care, however, speculators should realize that curation is exceptionally limited, so venture quality can differ generally among accessible contributions.
StartEngine also began offering “Initial Coin Offerings”, known as ICOs recently, which leverage the emerging blockchain and cryptocurrency ecosystem. In addition to and ICOs and startups, StartEngine currently offers investors the chance to invest in StartEngine itself using a Reg A+ offering.
Usually, investors receive common stock or a convertible note, but the specific security types differ by investment. Instead of through a special-purpose vehicle like a Limited Liability Company (LLC), all of the offerings on the crowdfunding platform appear to be direct investments.
Editor’s Note: Hacker Noon raised its first funding on StartEngine.
SeedInvest was founded by Ryan Feit and James Han in 2012. They have been part of the development to change U.S. securities laws take equity crowdfunding into consideration.
SeedInvest was the first equity crowdfunding platform to permit regular investors who don’t qualify as accredited investors to invest in companies on their platform, thus giving campaigners a more extensive potential investor base. In the meantime, SeedInvest connects you to other accredited investors as well.
SeedInvest is adaptable as far as who can invest in companies on its site, but it is decidedly more exclusive with regards to the organizations that can conduct campaigns on their platform. SeedInvest is for business fundraising only, with consumer-facing and tech businesses comprising most of the platform’s successful campaigns. SeedInvest does broad due diligence on the organizations that apply to utilize their platform, and by their very own estimation, have endorsed only 1% of startups that have applied thus far.
Indiegogo is a crowdfunding platform in which clients can raise assets from an individual sponsor for creative projects, as well as launch equity crowdfunding ventures for their business ventures. When launching a fundraising campaign, they can choose from between creative works, community projects, and Tech and Innovation.
With equity crowdfunding, your benefactors are actual investors buying a stake in your venture. You can raise up to $1,000,000, but only companies incorporated in the U.S. can use First Democracy VC unlike with Indiegogo’s other funding options. And though you will be cutting your investors in on the activity, you get the chance to monitor and maintain organization control.
InDemand is a service Indiegogo now offers where you enroll in after you complete your initial rewards crowdfunding campaign, whether your campaign was on Indiegogo or another site. With InDemand, you keep fund-raising for an inconclusive period — and without fixed fundraising goals — after your initial campaign closes. In the event that your initial campaign was an Indiegogo campaign, your unique fundraising page is left up and utilized as a validating factor for your project. Last but not least, Indiegogo offers a service called Marketplace, in which you sell your products online.
Founded in 2009 by Bill Clark and based in Austin, MicroVentures is an equity crowdfunding platform that offers accredited and non-accredited investors the opportunity to put in early-stage organizations. MicroVentures specializes in Regulation Crowdfunding, which is a term that refers to a form of equity crowdfunding that enables everyone to contribute, not just accredited investors.
Companies on this platform can also launch Regulation D Rule 506 raises, though these are constrained to accredited investors only. Moreover, MicroVentures is one of the few equity crowdfunding sites to be an intermediary merchant enrolled by the Financial Industry Regulatory Authority (FINRA).
MicroVentures has a reputation as a powerhouse in the equity crowdfunding field since they are regarded as one of the industry’s pioneers. It offered investments in Twitter and Facebook before they opened up to the public. It is a trusted platform it has seen over $100 million in venture sent to an extremely select gathering of organizations.
Equity crowdfunding is a new kind of business approach, and few companies are ready to fully take advantage of it. Ever since the JOBS Act was passed into law in 2012, Wefunder is one of the few equity crowdfunding platforms that truly opens up the world of investing to everybody.
Wefunder gives US corporations and LLCs an equity crowdfunding platform that associates them to almost 150,000 registered investors (as of November 2017). An organization can make a profile with Wefunder for nothing, however when it comes time to begin raising money, a $195 charge must be paid.
People presumably relate crowdfunding with destinations like Kickstarter, GoFundMe, and Patreon — services by which campaigners request assets from the community in exchange for rewards and gifts with the attention that crowdfunding has been getting lately. I can say that there is a whole lot more to it. That’s our list, but you still have to do your own research and remember, never invest if you can’t afford to lose.
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