If you’re an entrepreneur kicking off with your startup or an ‘investor’ in startups you must be aware of different ways companies raise funds to scale the business.
As an entrepreneur your first order of business is money. Some of the most common ways to raise capital today are through Bootstrapping, approaching angel investors, proposing to Venture Capitalists, and/ or assistance from Business Incubators. However, there is one effective & fastest growing way that goes unnoticed by the majority of entrepreneurs today when it comes to funding, termed as ‘Equity-based Crowdfunding.’
Let us start with what is ‘Equity-based crowdfunding’ & how it came into being:
Equity-based crowdfunding allows the general public to get behind you and your brand in trade for certain equity of the company. This model of crowdfunding was approved and initiated after the ‘SEC’ enacted “Regulation A+ in June 2015, to facilitate the creation of ‘equity-based crowdfunding system.’
Prior to Reg A+, only a few ‘High Net Worth Individuals’ would have the capacity to invest in a startup and reap the benefits of future increases in valuations. Thanks to Reg A+, today, virtually anyone can invest up to 10% of their income in a startup. Not only this proves beneficial to those who wish to invest, but it also allows startups to have a brand new avenue to raise $50 million from the public, and non-accredited investors – not just friends and family.
Why Equity-based Crowdfunding is better & most effective?
A) Crowdfunding creates public interest: When a large number of individuals from all over the world invest in your business, they become the ‘walking- talking’ brand ambassadors of your company thereby spreading awareness of your brand globally.
B) Capitalizing on your investor’s network for funding: Crowdfunding provides a platform for startups to capitalize on the network of their investors for funding, thereby making it comparatively easier as ‘personal recommendations’ are known to be most effective in the business world.
C) Your investors are your customers: Unlike with angel investments or venture capitalists, equity-based crowdfunding gives your company an established customer base who will happily use your product or service.
D) An ‘equal’ opportunity to everyone: The approval of ‘REG A +’ by SEC with regards to ‘equity-based’ crowdfunding, allows every individual to invest with minimum risk and a huge profit potential; thereby leaving no room for discrimination.
Key stats on Equity-based Crowdfunding
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The crowdfunding industry is projected to grow over $300 billion by 2025.
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Crowdfunding has added over 65 Billion to the global economy.
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There are over 191 U.S. based crowdfunding platforms for every type of cause, event, and situation.
Want to raise capital or invest in startups? Listed below are major equity-based crowdfunding platforms:
- Angel List: Founded in 2010, it is one of the oldest and most established equity crowdfunding platforms. It was originally conceived to broker connections between cash-strapped technology entrepreneurs and angel investors – high-net-worth, tech-savvy funders, many of whom earned their fortunes by selling out of their own successful startups.
- CircleUp: The platform connects investors with consumer-facing startups, mostly in the technology, fitness, and food and beverage sectors. Most companies have at least $1 million in revenue, and all “have a tangible product or retail outlet that you can touch, taste, use, or visit.” CircleUp’s machine learning engine, Helio, evaluates more than 1 million companies on billions of individual data points to pick the most promising startups from the pack.
- Eureeca: Eureeca is the first global equity crowdfunding platform. It enables members of its investor network, who range from casual and angel investors to institutional firms, to buy shares in growth-oriented businesses while providing operational businesses with crucial access to capital.
- Crowdcube: Crowdcube is a well renowned British based crowdfunding platform, they have helped over 700 ambitious entrepreneurs fund their business’ growth.
- Crowdfunder: Though it doesn’t formally restrict admission, its listed companies and funds skew heavily toward innovative consumer products, consumables, and social/nontraditional niches (such as green energy startups and African real estate funds).
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Best,
Jai A
