Crowdfundamentals- Equity Crowdfunding
As our network in the startup community deepens, we are noticing a trend within most of the companies- the difficulties of crowdfunding. From choosing which type fits your company, to creating and executing an effective campaign, it can quickly become overwhelming. In this blog series, we will explore how to run a successful crowdfunding campaign, starting with the basics.
What is Equity crowdfunding?
Today, there are four types of crowdfunding options available. First there is donation. This is the most popular form, where individuals will donate money to a specific cause or non-profit. GoFundMe is a popular donation based platform. Then there is rewards based. This style gives a reward in exchange for a monetary investment. It is most commonly used by companies who are selling a product, which they use as the “reward”. Debt crowdfunding is another option. This is similar to getting a loan from a bank in where you are loaned the money with the expectation of a return plus interest. Unlike a bank, most companies will choose to get small amounts from a number of people. Finally there is equity crowdfunding. Equity crowdfunding differs from the other forms in that the company raising the capital offers the investor equity in the company in exchange for money.
In 2012, former President Obama signed into law the Jumpstart Our Business Startups Act (JOBS) which allowed investment crowdfunding in the United States. Prior to 2012 only Accredited Investors (those individuals making more than $200,000 year and net worth of more than $1 million) could invest in a company for an equity stake. The JOBS Act allows non-accredited investors to invest money, sometimes as little as $50, in a start-up and receive an equity stake in the company without selling stock on an exchange.
For you to know what type is right for your company, you must ask yourself what your goal is. Equity crowdfunding is generally used when a start-up or young company is trying to fund the launch or growth of the company, whereas the other forms focus more on funding a specific project.
Popularity has brought an uptick in equity crowdfunding platforms over the past years. While each has its own uniqueness, their main purpose is to connect young companies with potential investors. Below is a list of 5 popular platforms:
Since the passing of the JOBS act we have seen positive gains on both ends. Young companies have had much more success in securing needed capital. Investor’s who previously didn’t have any investment opportunities, now have a chance to own a piece of something.
So, you’ve realized equity crowdfunding is right for your company and you’ve selected your platform. The tricky part comes next. How do you create an engaging campaign to attract investors and keep them coming back for additional rounds of investment? Stay tuned as we dive into what goes into an effective equity crowdfunding campaign.
Ready to raise capital but don’t know how? Contact us to help you start your journey to funding.