These top Equity Crowdfunding Platforms allow you to search for startup companies raising capital, and make a small investment in return for equity in the company.
The world of politics and regulations has never been able to stay up to speed with the fast paced world of technology, but these days it seems to be making an effort.
Since the passage of the JOBS Act, non accredited investors can now invest in startups and early stage companies that are raising capital in return for equity and those same companies can now raise capital through crowdfunding offerings. For investors, mainly non accredited investors, this is not just great news but in a sense, it levels the playing field.
You see, investing in startups was something only high net worth individuals, accredited investors and venture capitalists had access to for a very long time. The only other way for anyone else to invest in a startup was if he or she was a friend or a family member of the founder or he or she was actually a part of the company in its' early stages and in that case, would receive equity for their role in the company.
Now, anyone can invest in startups and early stage companies through equity crowdfunding platforms and reap some of the benefits of early investing, if the company gets acquired, goes public and in some cases becomes profitable and decides to profit share. While many startups fail, loosing the money of their early investors, some make it out and go on to become successful.
One great thing about this type of investing from a entrepreneur or startup perspective is that it allows young companies to easily raise funds to bring their ideas to life. This alone promotes technological advancement and innovation in many areas of the world.
How? Just think of all the people who really have great and solid ideas and businesses that can now introduce their product or service to the world because they can raise enough money to come up with a minimum viable product.
These equity crowdfunding platforms falls under the new Securities and Exchange Commission equity crowdfunding regulations, or Title III of the JOBS (Jumpstart Our Businesses Startups) Act, which took effect in May 2016. The new rules permits companies to offer and sell securities through crowdfunding and also allows average members of the public to invest in early-stage companies for the first time.
There are limitations, however. If an investor has an annual salary of less than $100,000, they're only permitted to invest up to $2,000, or five percent of their net worth (whichever is greater). Meanwhile, startups are limited to a maximum of $1 million in investor capital per year. Read more about the SEC new regulations.
Before we go any further, lets learn a little more about equity crowdfunding and some of the terms you may need to know.
What is a Accredited Investor
According to Investopedia, an accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience.
A person in the U.S. is accredited if she meets either of these two criteria:
- $200k in income for each of the past 2 years (or $300k with a spouse), with the expectation of similar earnings this year
- $1m in net assets (assets minus debts)
What is a Non Accredited Investor
According to Investopedia, a non accredited investor is an investor who does not meet the net worth requirements for an accredited investor under the Securities & Exchange Commission's Regulation D. A non-accredited individual investor is one
- who has a net worth of less than $1 million (including spouse) and
- who earned less than $200,000 annually ($300,000 with spouse) in the last two years.
Equity Crowdfunding is a funding source that allows entrepreneurs, startups, and early stage companies to raise capital from a large pool of investors in return for equity stake in the company.
Unlike donation and rewards based crowdfunding platforms such as Kickstarter, Indiegogo and GoFundMe, when you commit money to a company on one of these equity crowdfunding platforms, you will receive a security in return for the amount you invested.
How Does Equity Crowdfunding Works
As an investor, the process of Equity Crowdfunding is quite simple. Companies create their profiles and funding application. Once the platform approves it, as an investor, you are now able to view and decide which company you want to invest in. Once you, along with a pool of other investors decide invest and the company is successfully funded, all transactions occur (company receives funding and investors receive their shares).
Here is a infograph that gives you a basic example of How Equity Crowdfunding Works-
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| Source: CrowdFunder |
The companies that you invest in are usually required by the platform to provide them along with investors updates sometimes on a quarterly basis or annual basis. Those updates typically include company progress on: sales, partnerships, product changes, revenue and growth metrics, team expansion, follow-on funding, and recent press releases.
How Do I Earn a Return on my Investment
You earn a return if the company you invested in is acquired or becomes a publicly traded company (a process called an IPO) at a higher price than you paid. Some offerings may include additional ways of getting a return, such as profit-sharing, but it varies between the different platforms.
If the company is successfully funded through equity crowdfunding, the value of the stock can increase with each subsequent round of financing, usually through venture capital financing until the company is acquired or goes public. At this point, you can sell your stock.
This can usually take up to 10 years, sometimes less, sometimes more, and maybe even never. It is possible to lose your entire investment so you should understand the risks of investing in startups before you begin.
Quality of Companies using Equity Crowdfunding Platforms
Many people speculate that companies that consider crowdfunding, yet alone equity crowdfunding as a way to fund their business may not be as of quality to those companies that goes through the standard pipelines of raising capital.
Going through a typical funding process, especially with Venture Capital funding includes a vetting process unlike any other. Many startups that go that route usually already have their foot in the game already and sometimes are already established businesses with revenue and customers.
While this may be partially true, many of the ECP's have strict standards and guidelines that must be met in order to raise funds on their platforms. Additionally, these companies that are raising funds and the marketplaces or platforms being used to raise the funds have strict SEC guidelines that they must follow.
That being said, there's been many success stories of companies that started out raising funds in a equity marketplace investing platform, even with the process being fairly new in terms of popularity. Overall, there's some diamonds in the ruff and equity crowdfunding may just be the route the diamond may take to get get to its ultimate worth.
As an investor, anyone can question the quality and legitimacy of a startup that is raising capital, but at the end of the day, it's really up to you to do your own research and scrutinize each investment you make.
Risks Involved with Equity Crowdfunding Investing
Before you start investing in startup companies, you may want to understand some of the key risks involved. These risks can include-
- Crowdfunding Investments are risky and speculative
- Possibility of losing entire investment
- It's a long term game
- There's no market to sell your equity shares
Crowdfunding investments are highly risky and speculative. You should do your own research and scrutinize all disclosed risk factors before making an investment decision. It is important for you to familiarize yourself with our process and become comfortable with risk prior to investing.
Unlike an investment in a mature business where there is a track record of revenue and income, the success of a startup or early-stage venture often relies on the development of a new product or service that may or may not find a market. You should be prepared to lose your entire investment.
Those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest. Most startups fail and many of their early investors loose their entire investment so it could be a very long time before you ever see a return on your investment and maybe never! Basically, you are usually waiting until the company goes public or is acquired.
Read More - Risks, Rewards & Tips for Equity Crowdfunding Investing
Remember, it took Facebook 8 years before they became a public company trading on the stock market, Twitter was 7 years and SnapChat, which took 6 years before they filed for an IPO. You might get lucky and find a company like Insatgram, which was only around for 2 years before they were acquired by Facebook.
Also another major risk of investing in startups for equity is that your ability to resell your investment in the first year will be restricted with narrow exceptions and most of times not possible.
You may need to hold your investment for an indefinite period of time. Unlike investing in companies listed on a stock exchange where you can quickly and easily trade securities, you may have to locate an interested private buyer when you do seek to resell your crowdfunded investment.
Equity Crowdfunding Platforms
AngelList
AngelList is a platform for startups to raise money online, recruit employees, and apply for funding. It was started in Jan 2010 by Babak Nivi and Naval Ravikant, who also wrote Venture Hacks.
This platform is popular among many of the top venture capitalists, angel investors and entrepreneurs like Michael Arrington of TechCrunch, Tim Ferriss, author of the bestselling books, The 4-Hour Workweek and Tools of Titans, Gary Vaynerchuk of the #AskGaryVee Show and author of Crush It and Jab, Jab, Jab, Right Hook and many others.
Accredited Investors Only
Minimum Investment - The minimum investment amount is $1000
Republic
Republic is an investment platform where everyone can invest as little as $10 in innovative startups curated by our team. Republic was founded and built by AngelList alumni who believe angel investors are the catalysts to change in the world.
Accredited and Non Accredited Investors
Minimum Investment - The minimum investment amount is $10
Indiegogo (Indiegogo & MicroVentures presents First Democracy VC)
Indiegogo and MicroVentures, two leaders in the crowdfunding and investing space, created an equity crowdfunding platform, First Democracy VC, that allows anyone to make a financial investment in innovative startups. While Indiegogo was launched in 2008 and MicroVentures being launched in 2011, both have raised a combined $1 Billion+ through perks based crowdfunding and accredited investors respectively.
Accredited and Non Accredited Investors
Minimum Investment - The minimum investment amount starts at $100, but startups set the minimum they will accept. Investors will have investment maximums based on a few factors, including earnings, net worth, etc.
SeedInvest
SeedInvest is a leading equity crowdfunding platform opening up access to venture capital and angel investing to everyone. The platform was founded in 2012 and since then, the SeedInvest team has grown to over twenty team members, helped over 120 companies raise capital, and built a rapidly growing network of over 154,609 investors with an average investment per company of $500,000.
Accredited and Non Accredited Investors
Minimum Investment - The minimum and maximum investments for a given round are determined by the company raising capital.
Seedrs
Seedrs is Europe’s largest equity crowdfunding platform. We allow investors from a variety of backgrounds to invest with ease into innovative startups and other growth-focused businesses. From as little as £10 investors can own shares in, and become part of, the ‘next big thing’, whilst receiving the same world-class shareholder as professional investors.
Accredited and Non Accredited Investors
Minimum Investment - Usually, the minimum investment is £10, although this may be higher or lower, depending on the specific campaign. The maximum investment is the amount the business will accept, less the amount already invested by other investors.
WeFunder
Wefunder is a crowdfunding platform connecting investors with startup founders. Founded in 2012, the platform currently has over 90,000 registered investors and has received regulatory approval to operate as a Title III (Reg CF) funding portal. Over 153 companies, including Zenefits, Checkr, CaseText, Gingko Bioworks, Freight Farms, and Goldbely, many of which are alumni of Y Combinator have raised funding on WeFunder.
Accredited and Non Accredited Investors
Minimum Investment - The minimum investment amount is $100
Crowdfunder
Crowdfunder is the equity crowdfunding leader for sourcing and funding high-growth ventures with a network of over 130,000 entrepreneurs and investors. Crowdfunder and its VC Index Fund provide the opportunity for direct online investment into single ventures, as well as diversification into a broad VC-led portfolio (Index Fund) of early-stage startups – backed by many of the world’s leading Venture Capital firms and private investors.
- $160,000,000 investment commitments on the platform
- 12,000 individual & institutional investors
- 36,000 companies
- Funded 100+ deals at an average deal size of $1.8M
Minimum Investment - The recommended minimum investment amount is $5K - $25K
MicroVentures
MicroVentures is an equity crowdfunding investment platform, combining the best of venture capital with equity crowdfunding. Founded in 2009, MicroVentures built a platform that gives both accredited and non-accredited investors access to invest in startups.
MicroVenture Marketplace is a FINRA registered broker-dealer, offering both primary and secondary investment opportunities. Over $85M has been raised on our platform to date.
Accredited and Non Accredited Investors
Minimum Investment - The minimum investment amount is $100
DreamFunded
DreamFunded is a world-class equity crowdfunding platform providing exclusive insider access to some of the most sought after seed and late stage private companies in the world.The platform is one of the leading pioneers of equity crowdfunding, targeting early stage investments alongside of some of the most successful VC-Firms, Angel Groups and Incubators in Silicon Valley.
Accredited and Non Accredited Investors
Minimum Investment - The minimum investment amount is $60
Fundable
Fundable is a powerful fundraising platform that enables Startups to quickly engage a large network of Backers to raise capital. Startups can offer potential backers Rewards or Equity in exchange for funding (but not both simultaneously).
Accredited and Non Accredited Investors
Minimum Investment - The minimum investment amount is $1,000 and there is no maximum
CircleUp
CircleUp is an equity crowdfunding site based in San Francisco that was Founded in 2011 as an investment marketplace providing capital to innovative, early-stage consumer brands. Since 2012, CircleUp has helped 233 companies raise $315 million in capital by accredited investors.
Accredited Investors Only
Minimum Investment - The minimum investment amount is different for each investment and is set by the Company, based in part on how much capital is being raised.
EquityNet
EquityNet is a U.S.-based business crowdfunding platform for startups and mature businesses to raise equity capital from more than 12,000 investors that has funded more than $217 million in capital. The platform is used by thousands of individual entrepreneurs and investors, incubators, government entities, and other members of the entrepreneurial community to plan, analyze, and capitalize privately held businesses.
Accredited and Non Accredited Investors
Minimum Investment - No Specified Amount
Gust
Founded in 2004, Gust is a global SaaS (Software as a Service) funding platform for the sourcing and management of early-stage investments. Gust enables skilled entrepreneurs to collaborate with the smartest investors and angel investor networks by virtually supporting all aspects of the investment relationship, from initial pitch to successful exit.
The SaaS funding platform is endorsed by the world's leading business angel and venture capital associations, and powers over 1,000 investment organizations in 80+ countries. More than 200,000 startups have already used the funding platform to connect and collaborate with over 45,000 investors and $1 Billion invested in startups.
Accredited Investors Only
Minimum Investment - No Specified Amount
Conclusion
There's so many benefits of being able to invest in startups and early stage companies. We all know the big payouts that investing in startups van reap its' investors, especially those who invested early in the companies beginnings.
It is best that you understand that investing in any startup company means that because you own a piece of the company, you are now along for the ride, whether up or down. It can have a have a major payout, or in can become a complete flop.
Here are some Tips on Equity Crowdfunding Investing
- Don't just Invest for the Money, Invest Because You Care
- Do your Due Diligence on both the Platform and Company
- Limit your Exposure
- Diversify your Portfolio
- Invest only What you can afford to lose
- Understand the Investment Terms
- Learn How The Company Makes Money
The best thing to do is to make sure that you are investing in companies that you really believe in, and companies that you want to see become successful, not just make you a lot of money. It helps you choose companies more wisely while promoting a startup that you actually want to flourish. It's always great to something that you believe in win!
Do your Due Diligence on both the Platform and Company
Another thing is to imagine yourself as one of the top VC's and do your due diligence as they would, research and scrutinize each company that you are thinking about making an investment in.
Limit your Exposure
Investing in startups can be lucrative but you don't want to overdue yourself. Invest only what you can afford to possibly lose. While it can be sometime tempting to put all your chips into a company that you feel is going to make big one day, it will be best to play the safe route and invest only money you can 100% completely lose while not disrupting your current lifestyle.
Diversify your Portfolio
Another way of limiting your exposure is to not invest it all into one company. Diversify a little and build a portfolio. Invest in a broad selection of companies in different industries like many of the top venture firms and investors do. This way your risks are spread throughout multiple companies while increasing your chances of having that one startup that goes on to either be acquired or goes public. If your a steady investor, after several years, your portfolio will contain 20, 30, or even over 100 companies and with those amounts, the odds increase.
Understand the Investment Terms
Before investing, you need to get familiar with the terms of your investment. Carefully read through any documents the company provides, like their term sheets, pre money valuations, post money valuations, the type of stocks you own, like if its a convertible note or some other form of securities.
Lots of information you will be provided to you before and after your investment and it is up to you to thoroughly familiarize yourself with everything that is going on. If you do not understand something in the documents, send a email to the company or if its a common question, your answers are usually just a google search away.
Learn How The Company Makes Money
One thing every company should have is a solid business model. As Gary Vee has put in, "Lately, too many startups are relying on VC money instead of going out and actually make money."
This is very true and in fact, many startups come up with an idea and start looking for venture funding without having a way of making money or haven't even market tested their product. When you are doing your research, make sure the company you are looking to make an investment in has a viable business model and has at least, started making money.
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