How to Raise Investor Funds with Equity Crowdfunding
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 you?
Are you a Company?
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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.
Top Equity Crowdfunding Marketplaces
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.
SeedInvest is a leading Equity Crowdfunding Platform that helps raise big bucks for highly vetted startups. In 2018, SeedInvest was featured on Inc.’s annual list as the 4th fastest-growing private financial services company in America. Founded by Ryan Feit and James Han in 2012, SeedInvest has 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. It has 250,000 total investors, $150 M+ total invested, and 150+ startups funded.
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.
AngelList was founded in 2010 and is one of the oldest, most established equity crowdfunding platforms. AngelList is unique in that is the only crowdfunding site that doubles as a job board for those trying to find a position within a startup. On its job board, AngelList connects developers, engineers, marketers, medical professionals and other talented job-seekers who are seeking help. You don’t need to register as an investor to use AngelList’s job board. You must simply sign up with AngelList on the website, complete your profile and launch your crowdfunding campaign—free of charge! This platform will then connect you with accredited investors.
However, in order to actually raise money, AngelList’s syndicates must have interest in you. Companies that use AngelList to raise money are doing so through investment syndicates. Essentially, accredited investors give money to “angel” investors who then invest that money onto companies on the platform. Although there is no cost in running a campaign, arranging a deal with these syndicates may cost money due to paperwork, legalities, etc.
Republic is an investment platform that allows anyone to invest in startup companies. It operates under the supervision of the U.S. Securities and Exchange Commission. Any individual investor is able to invest as little as $10 in private startups and earn a return if the startup succeeds.
In April 2019, Republic expanded and launched the company’s Note reward token program. This program rewarded Republic users for supporting the global startup ecosystem. Since the program launched, millions of Republic Notes have been distributed, thousands of users acquired, more than 300,000 users have participated, and five startups have successfully raised $1 million on Republic’s platform. They include:
- CHRGR —an advertising that powers your brand (New York)
- InnaMed —using smart, at-home blood testing tech to enable personalized medicine (Philadelphia)
- Mealthy —home cooking made easy (Austin)
- Sapient —using machine learning to eliminate energy waste (Philadelphia)
- SimpleShowing —the new way to tour and buy a home (Atlanta)
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.
Dealmaker is the best tech for capital raising. They are the Shopify for capital markets and differs from marketplaces such as Start Engine in that you control the entire experience on your own platform. Meaning, Dealmaker acts as the white label tech provider for your capital raise.
Dealmaker is the definitive leader and the vast majority of the top equity crowdfunding raises uses their technology. This includes Miso Robotics $80 million dollar raise.
Issuance is a marketing platform that acts as a bridge between token issuers and qualified investors. They are a proprietary all-in-one tech stack to manage the largest capital raises in the Reg A+ industry.
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