5 Equity based crowdfunding platforms and how they can help different start-ups in fund raising

Equity crowd funding is a mechanism which enables entrepreneurs to raise capital from a broad group of people in exchange of some equity in their unlisted Start-ups. The entrepreneurs generally list their Start-ups on online platforms commonly referred to as Equity based crowdfunding platforms. The requirements for listing on these platforms are very light compared to the ones involved with traditional public capital markets (NYSE, DOW, NASDAQ and others). This channel of funding is nonetheless regulated by the SEC (security and exchange commission) in the United States of America. It falls under Title III of the JOBS and is also referred to as “Regulation Crowdfunding”.

Main Implications of “Regulation Crowdfunding” to Start-ups:

· start-ups issuing equity are allowed to raise capital up to an amount of $1 million in a set period of 12-month via a crowdfunding campaign

· Contrary to other crowd funding campaigns which pre- sell a service or product, equity in this case can be sold.

· In some cases there is a limitations on the kind of investors from whom the start-up can raise funds.

· Start-ups can only carry out equity offering campaigns on registered online platforms and intermediary platforms that have been approved by the SEC.

· Start-ups are nevertheless required by the law to make some level of disclosure as well as to have some on-going reporting for investors. Start-ups resorting to Equity based crowdfunding are required by the law to publish information regarding the company`s financial situation for investors to make informed decisions. Financial information specifically required for this matter are the ones patterning to the company`s liquidity and capital resources. (See p75 of the document).

· Start-ups issuing their equity via equity based crowdfunding platforms will also have to provide financial statements for investors to make the most informed decisions.

In the case where the start-up is raising more for an amount greater than $ 100,000, it will have to get an independent public accountant to review its financial statements before publishing them to the crowd. (See p91 of the document).

In the situation where-by a start-up which had previously raised money using Regulation Crowdfunding is raising more than $500,000 in new money, it is required by law to have its financial statements audited.

In any case, when it comes to Equity crowdfunding, financial statements must be prepared in strict accordance with the US generally accepted accounting principles (GAAP).

The start-ups are also required to file their annual reports with the SEC and also post them on their companies` website. (see p119 of the document)

The start-up companies are also required to provide Cap table information most specifically information of individuals who own 20% or more equity in the company.

The start-ups are also required to disclose information about the current number of employees that it does have at the time of issuance filling. (see p68 of the document)

Advertisement of offering is very limited and specific. There is no support for broad media or email campaigns by the company.

The equity based crowdfunding business counts several well established platforms amongst which are Seedinest, Fundable, Profounder, Microventure and CircleUp. These equity based crowd funding platforms share similarities and differences in terms of the industries and sectors that they target or serve, their registration processes and setups, their pricing models and fees, shortfalls, level of reliability or success rate, average amount of funds raised and the provision of free versions of their services.

SeedInvest

SeedInvest is a New York based crowd funding business which leverages technology to bring enable individuals who are not venture capitalists nor angel investors to get the opportunity to act as one via their equity based crowdfunding platform.

How it works: SeedInvest as an equity based crowdfunding platform operates on the bases of “all or nothing. This means that, for equity issuing Start-ups to get the chance of collecting any funds their crowd funding campaign most be successfully carried out. For a crowdfund funding campaign to be considered successful in this terms it must have collected the target amount of funding indicated in the campaign and by a set deadline. This means a failure to succeed in the campaign will imply the return of all called funds to the investors and the entrepreneur returning home empty handed. The fund raising duration is typically between 30–60 days. The maximum amount that a single campaign can raise is 30 million of US dollars.

Target industries or sectors: SeedInvest predominantly focuses on funding technology related start-ups. From their list of start-ups is 99–100% constituted of tech related start-ups. This means that entrepreneurs in the tech space will stand a higher chance of getting approved on this platform.

Pricing and fees structure: In contrast with most competitors who charge a fixed rate on every offering, SeedInvest instead charges a variable rate based on the nature of the start-ups’ offering. The cost of offering with SeedInvest is as follows:

A 7.5% placement fee; this is charged by the company on every successful round and applied to the total amount of money raised.

A 5% warrant coverage or equity which is based on the amount raised in the round.

Up to $0- $10,000 is been charged by the company to recover due diligence, marketing, escrow and legal expenses.

There is no free version available for entrepreneurs.

Fundable

Fundable is an equity based crowdfunding platform which allows Start-ups to raise capital by issuing equity. Before raising any more, the Start-ups will first set up their company profile and share it with their, family, friends and customers and this will enable the businesses to get some feedback and traction before their official offering. This will help in finalizing the fund raise lunch details and make a significant impression.

Target industry or sector: Fundable is more diversified in terms of the types of Start-ups that it serves which brushes across sectors such as; Entertainment, software, healthcare, technology, commercial, foodservice, automobile, sports.

Pricing and fees structure: Fundable charges a flat fee of $179 per month to Start-ups to host their offerings. This fee covers the creation and management of the campaign.

Most important, the company doesn’t change a success fee on the amount of funds raised. This implying, that the Start-ups get to keep everything that is raised.

There is no free versions available for fundable as all their revenue comes from subscription fee.

Microventures

Microventures is an online broker dealer which uses an Equity based crowdfunding platform to match more than 1000 Angel investors as well as institutional investors from all over the country with start-ups seeking investments in exchange of some equity. Launched in 2010, Microventures investors generally make equity investments between $1000 and $50,000 in start-ups.

How It Works: Like all other equity based platforms, it starts with an application by the start-ups apply for equity offerings. Microventures generally takes 5–7 days to review the start-ups’ business plan and reach out to them in case of any question or clarifications. Less than 5% of start-ups that apply end up on the platform.

Start-ups typically raise $100,000 to $500,000 on the platform and it also operates on the principle of all or nothing when it comes to campaigns. This means start-ups most hit their targets if they want to access their funds.

Main areas of investment: Microventures focuses predominantly on technology start-ups that are in the quest of smart money (experienced angel investors). This includes: internet technology, media and entertainment, software, green technology, mobile, social and gaming.

Pricing and fees structure: Their pricing structure can be considered aggressive given the fact that they charge you a fee at very single level of the offering process. Start-ups pay $100 to submit a project and an additional $250 to cover the due diligence cost and in the event of a successful campaign, they will pay 5% to 10% of the total amount of money raised.

Average amount raised: A start-up will typically raise $150,000 on average on the platform.

Unfortunately, there is no free version for the service.

CircleUp

CircleUp is a San Francisco based Equity based crowdfunding platform which allows Start-up to raise investments from private investors in exchange of equity.

How It Works: Start-ups interested in raising funds via the company`s platform will register and provide all necessary financial details after which CircleUp will then carry out some due diligence. CircleUp then goes a long way to assess the revenue, profitability and growth prospects. A company is only allow to offer on CircleUp`s platform if it proves to be a sound investment.

Main Area of Focus: CircleUp is more diversified compared to other competitors. Most of its Start-ups are from the food, beauty, and other consumer-focus businesses.

Pricing and/or Fees Structure: CircleUp is very generous compared to some competitors as it charges a single fee of 5% to its Start-ups on successfully raised funds in a round.

Average amount raised: Some Start-ups have successfully raised over $3 million in a round on the CircleUp.

EquityNet

EquityNet is a non-registered broker-dealer which leverages it equity based crowdfunding platform to match entrepreneurs with investors willing to invest in their Start-ups in exchange of a piece of the business. EquityNet doesn’t charge a fee on funds successfully raised as it is not registered.

How It Works: Entrepreneurs typically setup a profile and EquityNet will help them in the creation of their of their business plan which helps entrepreneurs to get greater a chance of securing funds.

Pricing and/or Fees Structure: EquityNet is a commission free service. It only charges a monthly subscription fee of $199.

Average amount Raised: Start-ups typically raise funds ranging from $10,000-$10million on the platform.

Summary Comparison

REGISTRATION DEMO (Fundable)

VIDEO EXPLAINING EQUITY BASED CROWDFUNDING

Conclusion

When it comes to equity based crowdfunding no single platform will be ideal for every single start-up. Start-ups should make their decision based on the platform`s area of funding, the availability of financial resources required to launch a campaign, the amount of money they want to raise, the nature of the money(smart money) and how much of that money they will like to keep. A table similar to the one above could be very useful in making such a decision.