Equity crowdfunding is a new type of investment banking for businesses, startups, and new enterprises that have been made possible by technological advancements. If you’re on an entrepreneurial journey, the best crowdfunding sites for startups may help you raise funds without much hassle.
Entrepreneurs set their own offer terms, retain their company culture, attract multiple shareholders and gain the promotional benefits that come with a ‘crowd’. This fundraising system has helped companies worldwide raise funds by generating billions of dollars in revenue for businesses.
In this post, we’re going to discuss the best crowdfunding platforms for startup capital and answer the most common questions asked by entrepreneurs.
10 Best Equity Crowdfunding platforms
The list of the 10 best equity crowdfunding websites for startups is as follows:
Wefunder is the largest equity crowdfunding platform that provides access to startup investing.
The site has a community of over 470,000 investors and has funded over 1,400 companies. Wefunder calls themselves the “Robinhood for pre-IPO startups.” Notable companies that have used Wefunder are Zenefits, Checkr, Meow Wolf, Gingko Bioworks, Freight Farms, Everipedia, and Goldbelly. Many are alumni of Y Combinator.
Republic is an investment platform that helps connect startups with individual investors.
The site has a community of over 1.5 million members and has funded over 600 companies. Like Wefunder, Republic is one of the few crowdfunding platforms that allow non-accredited investors to invest in companies.
StartEngine is one of the leading equity crowdfunding platforms with over 50,000 registered investors.
StartEngine has raised over $450M across 500 company offerings to date. StartEngine also offers an Initial Public Offering (IPO) as a way for companies to go public through a Reg A+ offering.
SeedInvest was one of the first equity crowdfunding platforms, having launched in 2012.
The site has a community of over 620,000 investors and has funded over 250 startups. SeedInvest hosts pitch competitions for historically underrepresented founders.
MicroVentures offers private, highly vetted investment opportunities to both accredited and non-accredited investors.
The site has a community of over 200,000 members and has transacted over $450 million. Notable companies that have used MicroVentures include Airbnb, Uber, Lyft, Spotify, and Slack.
EquityNet offers unique entrepreneur capabilities that allow you to analyze and improve your company’s plan before approaching investors.
1,000+ companies have raised over $600 million in investment capital on the EquityNet platform.
Fundable is a crowdfunding platform that allows startups to raise capital by offering either rewards or equity to investors.
They’ve helped startups raise over $568 million in funding commitments.
Kickstarter is a rewards-based crowdfunding platform that allows startups to raise capital by offering rewards to investors.
The site has a community of over 10 million members and funds over $2 million per day. Notable companies that have used Kickstarter include Pebble, Oculus Rift, and Exploding Kittens.
IndieGoGo is a rewards-based crowdfunding platform that allows startups to raise capital by offering rewards to investors.
IndieGoGo has raised over $1 billion across 223 countries and territories. IndieGoGo offers pitch competitions and an education center.
Is Equity Crowdfunding a Good Idea?
Equity crowdfunding is aimed to raise funds by transferring equity to other investors.
Benefits of Equity Crowdfunding
- Companies may pool all their investment money in one investment, allowing for streamlined accounting reporting. There is no need to repay any credit card debts.
- It provides more control over the company. If the startup fails, the investors will lose their money, but they will not be able to take legal action against the company or its founders.
Disadvantages of Equity Crowdfunding
- The biggest disadvantage is that it dilutes the ownership of the company among a large number of people. This can make it difficult to make decisions about the direction of the company.
- It can be difficult to raise a large amount of money through crowdfunding. Crowdfunding platforms typically have a maximum limit on how much money can be raised.
Crowdfunding is a good idea for companies that are looking to raise a small amount of money and do not want to give up a lot of control over their company. It is also a good option for companies that are not able to get traditional funding from venture capitalists or wealthy investors.
Equity crowdfunding has some advantages and disadvantages that should be considered before deciding if it is the right option for your company.
How the Jobs Act Changed Crowdfunding for Early-Stage Companies
In 2012, the JOBS Act was passed, which changed the rules around crowdfunding. The most significant change was that it allowed startups to raise money from non-accredited investors. Non-accredited investors are individuals who do not meet the SEC’s income or net worth requirements for accredited investors.
The JOBS Act also created two new types of crowdfunding:
- Equity crowdfunding
- Debt crowdfunding
Equity crowdfunding allows startups to raise money by selling equity in their company to investors. Debt crowdfunding allows startups to raise money by borrowing money from investors and then repaying the loan with interest.
The JOBS Act has made it easier for startups to raise money from a larger pool of potential investors. However, it is important to note that the JOBS Act has not changed the rules around how much money can be raised from crowdfunding. The maximum amount that can be raised is still $1 million.
What is Regulation Crowdfunding
Regulation Crowdfunding is a set of SEC rules that were created in response to the JOBS Act. These rules govern how companies can raise money through equity crowdfunding.
Some of the key provisions of Regulation Crowdfunding include:
- Companies must disclose certain information to investors, including financial statements and risk factors.
- Companies can only raise a maximum of $1 million through equity crowdfunding in a 12-month period.
- Investors are subject to certain investment limits based on their income and net worth.
- Companies must use an intermediary, such as a broker-dealer or funding portal, to conduct their crowdfunding campaign.
Regulation Crowdfunding has made equity crowdfunding a more viable option for startups that are looking to raise money from non-accredited investors.
What is Debt Crowdfunding
Debt crowdfunding is a type of crowdfunding where startups borrow money from investors and then repay the loan with interest. Debt crowdfunding is similar to traditional loans, but there are a few key differences.
One difference is that debt crowdfunding platforms typically allow investors to choose the interest rate they want to charge the borrower. Another difference is that debt crowdfunding campaigns are not subject to the same disclosure requirements as equity crowdfunding campaigns.
Benefits of Debt Crowdfunding
There are a few key benefits of debt crowdfunding for startups. One benefit is that it allows startups to raise money without giving up equity in their company. This can be helpful for companies that want to maintain control over their business.
Another benefit is that debt crowdfunding is not subject to the same disclosure requirements as equity crowdfunding. This means that startups do not have to disclose as much financial information to potential investors.
Disadvantages of Debt Crowdfunding
One disadvantage of debt crowdfunding is that it can be difficult to find investors who are willing to lend money to early-stage companies. This is because there is a higher risk that the borrower will default on the loan.
Another disadvantage is that debt crowdfunding platforms typically charge higher fees than equity crowdfunding platforms. This is because they are taking on more risk by lending money to startups.
Examples of Some of the Most Notable Equity Crowdfunding Deals
- PebbleTime raised $20 million on Kickstarter
- NowRX raised $20 million on SeedInvest
- Oculus Rift raised $2.4 million on Kickstarter
- Bitvore raised $4.5 million on Fundable
- Exploding kittens raised $8 million on Kickstarter
Here you can read more about notable equity crowdfunding deals.
FAQs About Equity Crowdfunding
- Tell me the difference between equity and traditional crowdfunding.
Equity crowdfunding differs from reward-oriented crowdfunding. In equity crowdfunding, investors invest in your company for monetary returns. Rewards-based crowdfunding does not require giving up equity but provides a non-monetary reward that investors may receive.
- How should I choose between equity crowdfunding and rewards-based crowdfunding?
Equity crowdfunding is a better option for startup entrepreneurs who seek more funding — generally 50k+. Compared to crowdfunding with cash-back incentives, rewards might work better for less expensive investments.
- What are the benefits of equity crowdfunding?
Some benefits of equity crowdfunding include: getting investment from a larger pool of people, more control over the company, and no need to repay debts.
- What are some disadvantages of equity crowdfunding?
Some disadvantages of equity crowdfunding include diluted ownership, difficulty to raise a large amount of money, and may be difficult to make decisions about the direction of the company.
- Does crowdfunding give up equity?
Crowdfunding can give up equity in the company if the crowd funders are given equity shares in exchange for their investment. If a company is looking to raise money through crowdfunding, it may offer rewards to investors instead of giving up equity. Rewards-based crowdfunding does not give up any equity in the company.
- Will I need to give up control if I use equity crowdfunding?
No, you do not have to give up control of your company if you use equity crowdfunding. However, it is important to note that if the startup fails, the investors will lose their money but will not be able to take legal action against the company or its founders.
- What’s the difference between equity crowdfunding and venture capital?
Venture capitalists (VCs) are professional investors that provide startup companies with capital in exchange for an ownership stake in the company. Regulation equity crowdfunding can allow non-accredited investors to invest in startups in exchange for equity.
Unlike VCs, equity crowdfunding platforms generally have no minimum investment amount.
- What’s the difference between equity crowdfunding and angel investors?
Angel investors are wealthy individuals who invest in startups in exchange for equity. Angels typically have a higher investment minimum than equity crowdfunding platforms. Additionally, they often provide more than just funding — they also offer mentorship and guidance to startup entrepreneurs. Read How Angel Investors Work.
- How can I learn more about equity crowdfunding?
If you want to learn more about equity crowdfunding, we suggest reading our blog post, “What is Equity Crowdfunding?” This post covers everything you need to know about equity crowdfunding, from how it works to the pros and cons of using this method of funding.
- Does someone need to be an accredited investor to invest in my crowdfunding campaign?
No. Thanks to the JOBS act, non-accredited investors are able to invest in crowdfunding campaigns. This is one of the main advantages of equity crowdfunding — it allows startups to raise money from a larger pool of people.
- Are there investment minimums on crowdfunding sites?
Yes, most crowdfunding platforms have investment minimums. These minimums are typically lower than the minimums for angel investors or venture capitalists.
- Can I offer rewards on crowdfunding sites?
Yes, you can offer rewards on crowdfunding sites. However, if you are looking to raise money through equity crowdfunding, you will need to give up equity in your company in exchange for investments.
- Do I need to use a crowdfunding platform to raise money?
No, you are not required to use an equity crowdfunding platform to raise money. However, these platforms can be helpful in connecting you with potential investors and providing support throughout the process.
- How much money can I raise through crowdfunding?
You can typically raise between $50,000 and $1 million through equity crowdfunding. The U.S. Securities and Exchange Commission allows private companies to raise up to $5 million in a 12-month period through equity crowdfunding.
- Do I need to pay taxes on money raised through crowdfunding?
Yes, you will need to pay taxes on any money that you raise through equity crowdfunding. Be sure to speak with an accountant or tax attorney to ensure that you are complying with all applicable tax laws.
- What happens if we don’t hit our minimum investment goal?
With equity crowdfunding, if the startup doesn’t reach the minimum funding goal before the campaign ends, the campaign is considered unsuccessful, and all investments are refunded to investors.
But on other sites like Kickstarter, for example, creators will still receive the balance of collected funds, and fewer fees, even if the final amount falls below their funding goal.
- What happens if we exceed our maximum investment goal?
This also depends on the site that you’re using. Sometimes If you exceed your maximum investment goal, you will still only be able to accept the amount of money that was specified in your campaign.
For example, if you’re looking to raise $1 million and you receive $2 million in pledges, you can only accept $1 million. Sites like Kickstarter allow projects to be overfunded.
- What are the risks of equity crowdfunding for startup founders?
The main risks for startup founders when using equity crowdfunding include: giving up equity in the company and being liable for the debts of the company.
Check this to learn about the 15 Pre-Seed Venture Capital Firms Who Invest in Early Stage Startups.
- What are the risks of crowdfunding for investors?
The main risks for investors when using equity crowdfunding include: investing in a startup that fails and losing all of their money, investing in a company that is not transparent about its finances, and being unable to sell their shares in the company.
- Where can I find potential investors for my crowdfunding campaign?
You can find potential investors for your crowdfunding campaign by using an equity crowdfunding platform, such as the ones in our list, but don’t count on the crowdfunding site to get all of your investors for you.
Equity crowdfunding takes a lot of preparation and promotion, just like any other way of raising money
- What should I include in my crowdfunding pitch?
Your crowdfunding pitch should include an overview of your company, your business model, information about your team, your financial projections, and the amount of money that you are looking to raise.
- Do I need a business plan to crowdfund my startup?
While a business plan is not required to crowdfund your startup, it can be helpful in convincing potential investors to invest in your company. If you do not have a business plan yet, you should at least have a pitch deck that you can show to potential investors.
- What fees do startups pay when raising funds through crowdfunding sites?
The fees that startups pay when raising funds through crowdfunding sites vary depending on the platform that they use.
Some platforms, such as Kickstarter, charge a fee of 5% of the total amount raised, while others, such as equity crowdfunding site Wefunder, charge a flat fee of $100 per month.
- Do I need to have a minimum viable product (MVP) to crowdfund my startup?
No, you do not need to have an MVP to crowdfund your startup. However, having an MVP can make it easier to convince potential investors to invest in your company.
- What are some tips for running a successful crowdfunding campaign?
Some tips for running a successful equity crowdfunding campaign include: having a well-thought-out business plan, setting a realistic funding goal, building a strong team of advisers, and creating engaging marketing materials.
- What are other ways to raise money for early-stage startups?
Crowdfunding is a great way to raise money for early-stage startups, but it’s not the only way. There are a number of other options available, such as traditional loans, SBA loans, raising friends and family round, venture capital, angel investors, startup business lines of credit, and incubators/accelerators.
Each option has its own set of pros and cons, so it’s important to do your research before deciding which one is right for your company.
23 Equity Crowdfunding Secrets to Raising Capital: JOBS Act Marketing by Craig Huey (free with Kindle Unlimited)
Conclusion: Crowdfunding TLDR
So there you have it – the top 10 crowdfunding sites for you to choose from, including 8 equity crowdfunding sites and 2 rewards-based crowdfunding sites.
If you’re thinking about using equity crowdfunding to finance your startup, be sure to read our blog post, “What is Equity Crowdfunding?” This post covers everything you need to know about equity crowdfunding, from how it works to the pros and cons of using this method of funding.
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