2 Crowdfunding Sites That May Be Useful To You
Crowdfunding sites and the concept of crowdfunding have been around for a long time. It is only in recent years, though, that they have become more user-friendly and a viable funding source for startups.
First, let’s talk a bit about what crowdfunding is.
At its most basic, crowdfunding is raising money, usually relatively small amounts, from a large number of individuals – the crowd. This can be contrasted with raising a relatively large amount of money from just a few investors, usually “institutions” of one sort or another – banks, venture capitalists, government entities, etc.
Crowdfunding can be used to raise money for a variety of purposes, with the two broadest categories being charitable donations, both to individuals and organizations, and business investments (funding).
Until the passage of the Jumpstart Our Business Startups Act (“JOBS Act”) in 2012, although some of the crowdfunds raised were used for product and startup launches, the vast majority fell more into the charitable category. Since 2012, though, and particularly since key JOBS Act implementation and regulation mechanisms were put into place in 2016, while there is still a long way to go in the growth of this funding approach, significant business capital has been raised via crowdfunding. If you’d like to read further details on the JOBS Act legislation, start here.
Title III of Regulation CF (Crowdfunding) of the 2012 JOBS Act, which went into effect in May of 2016, allows equity crowdfunding (aka “Regulation Crowdfunding” or “Reg CF”) from investors regardless (to some extent) of their net worth or income. Though they’re not the same as the previous Reg D “accredited investor” requirements, there are still regulations regarding both the investors and the companies receiving the investment, of course. Further details from the SEC regarding those regulations can be found here.
Per the SEC crowdfunding requirements detailed at the link above:
c. Transactions Conducted Through an Intermediary
Each Regulation Crowdfunding offering must be exclusively conducted through one online platform. The intermediary operating the platform must be a broker-dealer or a funding portal that is registered with the SEC and FINRA.
Issuers may rely on the efforts of the intermediary to determine that the aggregate amount of securities purchased by an investor does not cause the investor to exceed the investment limits, so long as the issuer does not have knowledge that the investor would exceed the investment limits as a result of purchasing securities in the issuer’s offering.
The required use of an “online platform” for Regulation Crowdfunding offerings has given rise to a number of new crowdfunding sites and the revamping of some existing sites. As of July 17, 2017, twenty-nine (29) “crowdfunding intermediaries are registered with the SEC as funding portals and are funding portal members of FINRA”.
Here we will highlight two of the most popular crowdfunding sites you may want to consider if you’re looking at this approach to raising capital. These two were selected because, as of the writing of this article, according to Crowdfund Capital Advisors (a great site for data on Regulation Crowdfunding), they are the two portals with the most Reg CF offerings.
According to Wefunder’s stats, as of July 17, 2017, of the total of roughly $41 million that has been raised through Reg CF offerings, about $23 million, or 56% has been raised on Wefunder. So, at this early juncture of the game, one could say that Wefunder is the portal to be reckoned with in the Reg CF funding space.
According to the same stats, 70 of the 129 successful Reg CF offerings of $50k or more have been done on Wefunder, and of those 70, ten percent, or 7 offerings, raised over $1 million.
The 129 successful offerings raised just under $41 million. The categories of companies that raised the most total money were: Tech ($12.6M), Software ($7.4M), Food ($7.3M), and Alcohol ($6.6M).
According to Wefunder’s stats, as of July 17, 2017, of the total of roughly $41 million that has been raised through Reg CF offerings, about $9.5 million, or 23% has been raised on Start Engine. At this early juncture of Reg CF offerings, this makes Start Engine the second largest portal, having done about 40% of the raise volume of Wefunder.
The Reg CF funding space is relatively new and dynamic. Don’t limit yourself to these two crowdfunding sites, but they should serve as a good starting point for your research.
Put a plan together. Do your research. Then, go out and raise some capital to build your business. You will now have crowdfunding as another potential tool in your arsenal.
I look forward to your thoughts and questions.