For early-stage startups, a few things are more important than capital. Startups can work on market conditions, deliver marketing that attracts buyers and fine-tune their product with insights about customer behavior. Still, to create a well-rounded product for the market, they need access to capital.
The Need for Capital for Startups and How They Traditionally Acquired it
Startups need capital to get through the initial barriers to entry, ideate and develop a standout product and make changes to their product or team based on pivots.
Traditionally, startups had four main options to acquire capital:
- Friends and family funds
- Venture capital or angel funding
- Bank loans
- Their personal savings
And yet, there are entrepreneurs who’d not qualify for any of these for varied reasons. For them, an option is becoming rapidly popular- equity crowdfunding.
The Newer Avenue: Equity Crowdfunding
In essence, equity crowdfunding makes it possible for businesses in the U.S. to acquire funds from unaccredited investors. Three developments led to the equity crowdfunding of today:
- The Jumpstart Our Business Startups Act in 2012 enabled companies to raise capital and issue securities online.
- The Title III reform of the JOBS Act 2016 made equity crowdfunding a massive fundraising industry, permitting fundraising directly from unaccredited investors.
- In 2020, the Securities and Exchange Commission changed the JOBS Act, raising the amount of capital startups could crowdfund every year from $1.07 Mn to $5 Mn with Regulation Crowdfunding and up from $50 Mn to $75 Mn through Regulation A.
We’re still on the bleeding edge of the potential of equity crowdfunding for startup founders and investors. Yet, investments of over hundreds of millions of dollars in U.S. startups confirm that this mode of fundraising is here to stay.
Top Equity Crowdfunding Companies
The U.S. equity crowdfunding market is dominated by these three companies today.
WeFunder has been a strong campaigner for the JOBS Act and is now at the forefront of equity crowdfunding.
Startups can sign up on WeFunder with no fees until they raise capital. That means you can focus on marketing your business without being bogged down by paying out for the opportunity to do so.
StartEngine houses a growing community of 300,000 investors, making it a lucrative place to get noticed by investors.
The company supports you every step of the way with a full-service plan and keeps you in the driver’s seat. You’re in control of tailoring your offer to suit business needs with StartEngine.
Republic markets itself as a company that can do more than helping you raise capital. With a growing community of 350,000 investors, it promises to create true fans and supporters for your business.
Republic reminds you that receiving capital is only one-half of the game, besides gaining market exposure and is quick to highlight that.
A Few Facts About Equity Crowdfunding
Here are a few things to know about equity crowdfunding-
- Equity crowdfunding can catalyze your business, opening up avenues for sales, sign ups and engagement when you launch an online fundraising campaign. You may also see an uptick in business development opportunities when you have investors vested in your success.
- Equity crowdfunding and traditional capital acquisition aren’t mutually exclusive. Make sure you create the right blend of two for your startup.
- You can raise a meaningful amount through equity crowdfunding. After the 2020 amendment to the JOBS Act, startups have been raising significant capital through equity crowdfunding.
- Often, it’s not just about raising money once but setting up your startup for easy capital acquisition in the future, too. Equity crowdfunding supports multiple funding rounds.
- Equity crowdfunding democratizes access to capital and doesn’t necessarily mean operational constraints. At KiwiTech, we help you raise meaningful capital through equity crowdfunding and assist you in shareholder management, too.
Common Myths Around Equity Crowdfunding
Finally, let’s bust a few common myths about equity crowdfunding.
- I need to be revenue-positive to equity crowdfund – While you don’t need to be revenue-positive to raise capital with equity crowdfunding, you need a solid and sustainable growth plan with profitability integrated into it.
- It’s for the big companies – Although having a growth trajectory helps, it’s not all that matters. Companies with standout potential for industry disruption see early-stage traction alongside companies with credentialed founders.
- It’s for early-stage companies – Equity crowdfunding works for startups at all stages, including those that already raised angel or venture funding.
- The regulations are limiting – If you equity crowdfund with the companies we mentioned before, you’ll find they have figured out an easy way to comply with all regulations. The most complex of all is the disclosure regulations. All those platforms make it easy for you to maintain compliance without an in-house attorney or CPA.
- It turns off the real investors – This is one of the most common myths that turns startups away from running their equity crowdfunding campaign. A successful campaign can make your company more lucrative to career investors.
- It’s expensive – While there are costs associated with running a crowdfunding campaign, you only need a few thousand dollars to raise a million.
- It’s time and effort intensive – When compared with the time and effort needed to raise venture capital, in an equity crowdfunding campaign, all your effort is invested in growing and strengthening your business’ proposition instead of attending 1:1 meetings. Also, there are other advantages such as exposure, social proof and engagement.
Equity crowdfunding can be the way you decide to raise capital for your startup, not as a last resort but as a choice.
Talk to us at KiwiTech to learn more about the various options available to you and receive consultation from experts on the right way for capital acquisition for you and the path thereafter.