Do you want to potentially invest in the next big thing? Well guess what, its possible. How you ask? Well, there’s this thing called equity crowdfunding sites and its one of the newest and coolest ways to invest.
There are a lot of equity crowdfunding sites out there. What I want to do is to separate the fluff from the truth. To be honest, I didn’t know what equity crowdfunding was until I Googled it.
So, what is equity crowdfunding?
It’s basically buying stock in a company, but the difference is you can buy shares online, and the offer is made to much more people because it’s over the internet.
Another important distinction for equity crowdfunding sites is it allows people to invest in early-stage companies. This is similar to venture capitalists in the sense regular people over the internet can invest earlier than others.
Also, instead of companies on the public exchange, we get to invest in companies that’re private. This gives early investors the chance for a big payout if the company does well in the future. Another incentive to get into equity crowdfunding.
But it’s also important to know what the limitations are in equity crowdfunding for both businesses and investors, this also includes beginners.
5 Negatives On Crowdfunding
One important limitation is, investing in crowdfunds only goes to people who are 18 years or older. This limits the amount of people who can invest. On the other hand, some people would say this is a good thing because it prevents people who are less knowledgeable to invest.
But when a lot of people are already invested in a company, this has the potential to turn off professional investors like venture capitalists. Venture capitalists make their living from investing heavy and taking a sizable ownership piece. If others are involved, then it dilutes ownership for others.
If entrepreneurs were to miss out on investments from venture capitalists, then they lose out on potential connections that comes with venture capitalists.
Furthermore, not all businesses will get in the crowdfunding action. You’ve got to remember, people that invest in crowdfunding are not balling out of control. They don’t put millions down online and hope to get a payout later in the future.
That’s what a more professional investor hopes to get out of it. But in this case, you’ve got “regular” people trying to invest their money most of the time, and people investing millions doesn’t happen as much as you think over the internet.
When people are investing big amounts of money, they want to meet with the entrepreneurs themselves so they can see what the founders are like. They want to mitigate as much risk as possible, and one way of doing that is making sure you’re investment is in the right people.
Knowing that big investors are not investing online on a regular basis limits the opportunity of making selected investments for the smaller investor online. Basically, smaller investors get a smaller selection to choose from because businesses that need big funding won’t try to finance with them.
3. Capital Restrictions
If you were an entrepreneur who was trying to finance your business, would you want restrictions on how much you can get?
Well, that’s what happens when crowdfunding is your source of financing. You can only raise $1 million dollars a year and then wait until the next year for more. What happens if the business is growing super fast? What happens if the business burns through the cash fast?
So many questions and no answers will leave entrepreneurs discouraged.
Imagine being an entrepreneur and having an opportunity to go buy something you’re business really needs….but you funded your business through crowdfunding and starting up a campaign takes time.
The better bet is to ask the bank for money. This sucks for the entrepreneur, but if you’re an investor and take this into account, you’ll see it affects you also.
If the business you invested in burns cash fast and finances itself through crowdfunding, is it worth investing in. Some investors don’t do the research necessary to study the details necessary. And any missteps can potentially put your money in the wrong business.
Just like any other business that’s on Earth, equity crowdfunding financed businesses are still vulnerable to lawsuits.
So why even get into crowdfunding huh? Because there is some good that can come from it. If there wasn’t, equity crowdfunding wouldn’t be around. Here are some positives on why investors and beginners should stick to crowdfunding.
6 Positives On Crowdfunding
Equity crowdfunding platforms let you have one point of contact. Meaning, even though there are a lot of investors investing in your business, you can manage all of them through one platform.
2. Faster Start
I can go on the computer right now and start up my own thing. It still takes a business plan and all the other things that come with a business, but I don’t have to go through all the paperwork and bureaucrats that come with asking the bank for money.
3. Less Risk
If you’re a small-time investor into crowdfunding there’s less risk. This is due to the limits on spending/investing on a venture.
4. Free Marketing
Crowdfunding is a cool industry because it can generate attention for you without putting in the extra effort. Whether it’s through people investing who tell other people, or media companies picking up on what you’re doing, the attention can increase exponentially because of the internet.
5. Market Research
When investors invest using an equity crowdfunding platform, they can drop comments, and give insights on your business. This gives a chance for the entrepreneur to study their market. They can learn what the target market is, what is good/bad about the business, and adjust accordingly.
6. Strong Network
When investors invest with you it means they believe in you and your venture. When a lot of people invest on a equity crowdfunding site, they’re not just investors, they’re also supporters. And if you’re successful in one venture, best believe investors will follow you to your next venture!
Now that you know what makes equity crowdfunding good and bad, let’s learn which platforms have a great reputation, and which are user-friendly.
Here are the best equity crowdfunding sites for investors and beginners (in no particular order):
A definite staple in the community of crowdfunding, AngelList is one of the first platforms to emerge. Found in the year of 2010, AngelList is a huge platform for investors.
It originally started out as a a platform to connect tech-savvy entrepreneurs and investors, but now startups create profiles on AngelList and stay on the site.
One perk of registering with AngelList as an investor is you get to see if a company is in a financing round, but note, that the minimum investment is $1,000. Here are some of the investor options on AngelList:
The first is the “deal-by-deal investments.” This is where the investor can only get access to private companies. Minimum checks are $1,000 and are placed in a VC fund called a syndicate. A syndicate is where all funds are placed in one place for a single investment.
The investment is lead by experienced technology and angel investors.
AngelList Access Fund
On this option you get a broader deal selection. This option works more like an index fund in the sense that you invest in multiple startups across different sectors.
Every investment gets you exposure to 200+ companies across different sectors. But the minimum investment for this option is a tidy $100,000. One cool addition is there are no carry or management fees.
Only consider going with this option if you’re balling out of control LOL. Because a minimum check is $500,000 year which means a house, car, and a vacation plus an arm with a leg if you ask me.
What separates this option from the others is you get a broader selection, and personal support from experienced and lead investors. This is so so important if you’re serious about going with this option.
Honestly, after everything I typed here, I can’t really tell you more because I haven’t invested with AngelList. And you personally need to request access to look at the description of what a professional investor gets.
Taking a look at some of their recent success, companies like “Cruise Automation” which is a company about self-automating cars was just bought by General Motors. Another recent acquisition was “Ticketbis” which was just acquired by Ebay.
Some of their other successful startups on the site have been Dollar Shave Club and Twilio. It’s hard to know how much credit goes to AngelList because they don’t share their returns, but having multiple acquisitions throughout their run isn’t nothing to scoff at.
But AngelList is more than an equity crowdfunding site, it gives job seekers opportunities to find jobs at startups. It gives startups the chance to find great employees. Overall, AngelList gives the opportunity for startups to thrive whether its finding the right people for jobs, or
find financing from angel investors.
Another successful equity crowdfunding site, found in San Francisco in 2011, CircleUp, in my personal opinion is another reliable platform. Found by ex-private equity investors, they’ve invested $300,000,000 since 2012.
Similar to AngelList, CircleUp gets into different sectors. Sectors like the food, beverage, electronics, pets, and apparel industries. In contrast, CircleUp is different from AngelList because it doesn’t invest in so called “high-tech” startups.
Most of the “representative transactions” on their site are food companies. There is nothing wrong with that, but it’s definitely different, because when you associate angel investing and startups, it’s easier to assume that startups is in one way or another dealing with “high-tech.”
Although the industries they invest in are not “high-tech” in appearance, ironically, the system they use to find deals for their consumers is.
A combination of machine learning and algorithms are used to screen deals for consumers and their preferences. If you think about it, this is where most businesses, assuming they’re large enough, will go.
CircleUp is using machine learning specifically to analyze consumer brands while the algorithms use the data input as a way to find the major investment opportunities amongst the thousands of other opportunities.
Its truly an innovative way of doing things, especially when it comes to investing.
In addition, there are 2 ways to invest with CircleUp:
The direct investment allows investors to purchase equity right there on the website. Self-explanatory if you ask me. But there’s another way to invest with CircleUp.
Just like the “AngelList fund”, which is a tier above the beginning investor option, the fund buys a small size of each company in one sector and oversees the investment. The investor leading the fund is always a professional who has deep experience in each sector.
If you sign up as a registered investor then you can see which companies are in the middle of a financing round. Another perk is you can get FREE SAMPLES from each company that makes a product. How can you beat that?
EquityNet is a equity crowdfunding site which invests mostly in commercial real estate, consumer products, and social enterprises. It doesn’t really get into the tech business as much as AngelList, or other equity crowdfunding sites but its probably the earliest crowdfunding site.
Found in 2005, EquityNet’s mission is dedicated to helping entrepreneurs and small businesses. The site has a forum to help connect entrepreneurs and investors, and it also provides educational tools.
To look at financial statements and contact businesses, you have to be a registered user. There isn’t an explicit minimum requirement but anything less than $1,000 is rare, especially in the equity crowdfunding community.
If you’re looking for another platform that’s great for investors and entrepreneurs, then definitely check this site out!
Crowdfunder is a great site. The user interface is crazy good, and everything is neatly laid out. Besides that I also enjoyed the blog section they have. It shows they truly care about educating investors.
When you go into the “browse companies” section you’ll get to see elevator pitches, statistics, like the number of employees, and more. Details in which you wouldn’t normally find out are available even if you’re not a registered user.
They also show which companies are still accepting funding. Compare that to the other platforms and you’ll see that there aren’t many other comparisons. If that isn’t enough for an investor, consider that as an entrepreneur you get fundraising coaching.
Companies that are publicly displayed are mostly made up of products, green energy startups, and more. Although they invest in more traditional businesses, Crowdfunder is definitely a strong platform for beginners because of its user friendliness and transparency.
Thunderclap classifies itself as a crowdfunding site but from the looks of it, it looks like a social outreach site. And there’s nothing wrong with that, but its hard to attract investors when the campaigns don’t look like they’re attracting funding.
To start a campaign, you start a message or story, then you reach out to people who you know and grow the network.
You get to set a deadline and direct traffic towards your landing page. If anything, this site seems more geared towards entrepreneurs but it can provide useful for investors.
If you see any campaign get big enough then try to keep tabs on it. Maybe, down the line they’ll start accepting funding and you could be part of the first group who started investing in it.
FundRazr is another great fundraising site. It provides easy steps to start your campaign right away. Whether its for a non profit or for any other personal reasons, with FundRazr’s social reach, its possible.
Sharing your story is made easy with FundRazr. Every campaign is free to create, and the fees are low so there are low barriers to entry. Even though the campaigns are traditionally made for more personal reasons, it doesn’t mean you can’t fund your startup here, just make sure to tell your story.
Krowdster is similar to FundRazr in where you can use their social media platform to jump start your campaign. Those social media features include Twitter marketing, landing pages, and customized press releases.
The social outreach is good. On their homepage they explain how there social media process works and they first start by creating a landing page. Once that is complete, they use an automated Twitter account to follow people who tweet your keyword and follow them.
Once they follow you back, their email will be captured in the system and voila! Your campaign will generate 1500-3000 followers a month according to Krowdster.
The video below goes more in-depth on how Krowdster’s platform works:
- For “Twitter Marketing”, which is the basic plan, you get a 7-day free trial and then pay $49/month for all the features I just said above.
- For the “Backer Directory”, its $99/month. You get unlimited searches to find as many backers as you like and you get to filter those contacts towards your preference.
- The “Twitter and Backer Bundle” is where you get the benefit of both packages but you also get your campaign featured in a newsletter. This is special because your campaign will be viewed to 20,000+ crowdfunders each time a newsletter comes out.
Kickbooster.me is a site where entrepreneurs take control of their campaign. From the landing page, to deciding how much affiliate marketers make, entrepreneurs definitely view Kickbooster.me as a great tool.
One example of a campaign is Crux LX. This is a campaign revolving around a wireless router that has the ability to connect 250 users simultaneously. Useful in the era “internet-of-things.”
For investors, you can’t really make more money by just giving to the campaigns you believe in and hoping they are successful. But you can make passive income by promoting the campaign and earning a percentage when people fund a campaign.
Sure, the income is not totally passive, but promoting a campaign isn’t that hard with the right resources. Also, there are indicators that help when deciding which campaign to promote.
Seeing how close a campaign is to its goal. If you study the campaign and check how long a campaign has been going, and check how close a campaign is to its goal, you get an indicator of what type of campaign you are potentially investing in.
Wefunder is a great site because it guides investors. One example of this is their FAQ section. This section includes a post on “How can I decrease the risk?”, or “How many investments should I make?”
Out of all the equity crowdfunding sites, this is the only one I can remember who has a FAQ that is as thorough as this one. Another great addition is the section where you get to explore.
Here, startups are divided into industries such as “hardware”, “software”, or “food.” Wefunder is involved in are a variety of businesses. This is another difference Wefunder has from other sites.
There is also another section where Wefunder shows what Y Combinator invests in. This could be a good or bad thing. One way it can be good is you know the startup is receiving great support. It can also be bad because seeing who invests in other startups can cloud one’s judgement.
As an investor, Wefunder is definitely a contender for an investor’s efforts. From interface, details, and variety of startups, Wefunder definitely helps beginner investors in crowdfunding.