Insights into equity crowdfunding

Equity crowdfunding has become a big thing over the last decade. While investments into tech startups used to be an option for wealthy persons only, it is now possible to invest as little as 100 dollars into startups. 

There is a wealth of platforms offering tech startups to raise money on their platforms. Startups typically raise a few hundred thousand dollars via equity crowdfunding, at best a few million. There is usually a success fee of 3-8% of the money raised (paid either by the startup and/or investors).

The pros of equity crowdfunding

Equity crowdfunding can make fundraising much more efficient. If uploaded documents are great it is in principle possible to fill the round without any further work. An automated process with predefined timelines is able to manage the entire diligence process up to closing. Plus, you will get hundreds or even thousands of ambassadors – people who directly or indirectly (behind a legal construct) become shareholders of your company.

The cons of equity crowdfunding

“Fundraising at the push of a button” sounds fantastic. Unfortunately things are a bit more complicated. 

First, you will need to pass due diligence of the crowd equity platform. While this is easy on some platforms, others are as selective as VCs. 

If you make it to the platform you will need to work out great documents and marketing assets, bring in your own investors to get initial traction, and execute a great campaign throughout the duration of the fundraising to make it happen. 

Once the money is on your account you will need to keep investors updated and happy, which is easy if things go well but not so easy in challenging phases. 

Last but not least, be aware that you will become a “semi-public” company – with chances being that your quarterly reports will arrive directly or indirectly at anyone interested, including competitors.

Most important crowdfunding platforms

Global scope, headquartered in Israel, USD 1.4bn raised for startups so far.

US focused, USD 1bn+ raised for startups via syndicates so far. Have started to pivot into startup recruiting.

UK focused, GBP 900m+ raised for startups so far.

UK focused, GBP 800m+ raised for startups since 2011.

US focused, USD 600m+ raised for startups so far.

US focused, USD 200m+ raised for startups, work on making investments tradable.

US-focused, USD 130m+ raised for startups since 2012.

US focused, USD 140m+ raised for startups so far.

Focused on Nordics / Europe, EUR 60m+ raised for startups so far.

Focused on Switzerland, USD 30m+ raised for startups so far.

Have offices in Europe and Singapore, EUR 25m+ raised for startups so far.

US-focused, investments as low as USD 10 possible, also via crypto currencies.

Recommendation: Should you go for equity crowdfunding?

If you are doing a seed-round – and especially if you are in the consumer space – you should have crowd equity platforms on your radar. Especially in the US, Israel and a few European countries there are established platforms that can be attractive for startups. 

Make sure that you already have commitments of 20-50% of your funding target to create traction and buzz within the first 24 hours after the case is launched.

And of course, compare equity crowdfunding with other potential financing sources. Phase 6c describes the different options in detail.