On March 20, 2019 truCrowd, Inc., launched its fourth regulation equity crowdfunding portal. Musicfy is a platform dedicated to the music industry. An independent record label called L2 Records is the first offering to appear on Musicfy.
L2 is offering investors short and long-term exit on their investment. Everyday people can take part in the music industry by owning a small piece of L2 Records.
What is crowdfunded equity or equity-based crowdfunding? Read on to learn more.
Equity crowdfunding invites people to invest in a company during its earliest stages.
At this point, the companies are not listed, meaning they are not yet on the stock market. People invest in exchange for company shares. Being a shareholder means they own part of a company.
Should that company do well, investors stand to make a profit. Of course, there’s always the risk of losing their investment should the company fail.
Equity crowdfunding platforms have allowed anyone to become an investor. It’s no longer reserved for the wealthy and venture capitalists.
With equity crowdfunding, startup companies sell securities rather than products. They offer securities as equity in the company, revenue shares, or convertible notes.
Entrepreneurs enjoy the control that crowdfunding equity offers. They decide what and how much to sell, and at what price. They set the terms for potential investors. And, they set expectations about how much capital they wish to raise.
Private Companies, Public Investors
In the past, the public could buy shares in public companies only. Though, the number of publicly-traded companies are declining. Becoming a public company is expensive. Most startups and small-to-medium businesses cannot afford to do so.
The unfortunate results are that smaller companies can’t create liquidity for shareholders. So, investors have fewer investment opportunities. Though, private companies can raise capital through equity crowdfunding from public investors.
Historically, investing in private companies meant waiting until the company went public to reap the rewards. There was no liquidity to their investment if any.
For wealthy investors, this wait is manageable. Not so for the less affluent investors. With crowdfunding equity, investors can trade their shares on public markets.
Equity crowdfunding rules allow companies to have more shareholders before they go public. This creates liquidity because the investor is not bound by the old lock-up period.
They can sell their shares on an ATS after a year. More shareholders result in a broader market. The larger the market, the more liquidity in the investment.
Why Don’t More Businesses Take Part?
Equity crowdfunding is still a new concept. Only about 1,400 of the 6 million businesses in the US have adopted it. President Obama signed the JOBS Act in 2011, which permitted equity crowdfunding.
In 2015 and 2016, the government implemented two regulations that limited crowdfunded equity. With Regulation Crowdfunding, companies can raise up to $1.07M per year.
To raise more than $107,000, a CPA needs to review the company's finances for the past two years.
Regulation A+ is also the mini IPO, and it enables companies to raise up to $50M per year. But, before the company can raise capital, it must hire a securities attorney.
Companies must also conduct a financial audit going back two fiscal years. They can collect investor information when the SEC qualifies their offering. But, they can’t raise any capital until then.
Many entrepreneurs are still learning about the regulations surrounding equity crowdfunding. This deters many from undertaking the venture.
Entrepreneurial Investing for Everyone
Crowdfunded equity allows both entrepreneurs and investors to engage in entrepreneurial investing. While the regulations surrounding it are new, the concept is very American.
After all, all large companies started as small ones. And the American Dream, like equity crowdfunding, is not only for the elite and wealthy.
To learn more about investing, visit our blog again for more articles like this one.
You're an enterprising startup owner. And that means you know the importance of raising funds for your business.
But if you want to find investors, you first need to know what your investment options are.
Here, we're answering the question, "what is equity crowdfunding?" to help you decide if this is the right financial choice for your startup.
What is Equity Crowdfunding?
First, let's cover the essentials: what is equity crowdfunding?
Crowdfunding is the lovechild of microfinancing and crowdsourcing. It works by bringing people who want to fund companies to companies that need funding. It's sort of like Kickstarter and Indiegogo...but for companies trying to raise capital.
However, unlike your typical big-money investor, crowdfunding campaigns typically involve a large number of investors giving small amounts of money to a company.
Equity crowdfunding is a subset of crowdfunding sometimes called investment crowdfunding. It allows individuals to invest in an early-stage company that isn't yet on the stock market in exchange for equity (stocks, or a percentage of ownership) in the company.
Not only does this help your company raise capital; it also comes with a few key benefits.
Benefits of Crowdfunding
Aside from raising capital, the single biggest benefit of crowdfunding is minimizing risk.
As a business owner, you know the ongoing risk of equity: when you get large investors, they buy larger shares in your company, which means more say in what your company does. Crowdfunding eliminates this problem since you get a large pool of investors who invest at lower levels.
The large pool of investors also means that you have a large pool of people willing to give your company feedback on what you're doing right and how you can improve, which is a huge help in the early stages of a venture.
Where Equity Crowdfunding Fits With the Rest
There are several different types of crowdfunding out there, including rewards-based crowdfunding and peer-to-peer lending. Of all the types of crowdfunding, equity crowdfunding makes up the smallest slice of the pie.
That does not, however, mean that equity crowdfunding should be ignored. In fact, it offers a key benefit that other types of crowdfunding often lack.
It gives investors a real ownership stake in the success of the company they're investing in, however small that stake may be.
This goes a long way to ensuring that your investors will stay loyal. They have a real stake in the company, which means that even if they only gave a small amount, they're more likely to want to see your company succeed.
Angel Investors to Help Your Business Soar
Now that you know the answer to the question, "what is equity crowdfunding?" you're ready to use it for the betterment of your business.
If you need more tips on how to make equity crowdfunding work, check out our blog for more ideas. Check out these six tips for successful equity crowdfunding or this post on the basics of a successful equity crowdfunding site.
In 2015, the crowdfunding market was valued at $2.6 billion.
Today, the industry is still growing with the UK and US being the primary markets. In fact, the World Bank estimates that the industry will hit $93 billion by 2025.
So, if you need crowdfunding for business, there's no better time to launch your campaign. Fledging entrepreneurs and business owners frequently turn to crowdfunding to secure funds for their operations and ideas.
In this post, we're going to share proven tips you can use to ensure the success of your campaign.
Keep on reading!
1. Be Ready Before Launching the Campaign
Experts recommend business owners to start securing funds at least three months before their campaigns go live online. You can approach colleagues, family, and friends to help you hit your goal.
Also, ensure there are no other critical projects that could disrupt your campaign. The campaign is going to be your life for the next couple months, so it's probably not the time for you to also take your month-long backpacking trip to Europe.
2. Set Realistic Expectations
Be realistic about the amount you want and from where the money is coming. In some cases, up to 90 percent of your donations will come from your friends and family.
If this is your first business, some investors may be hesitant to fund you. They will always want to know how you intend to use their money. So, be sure to provide as much details as possible.
3. Creating a Compelling Video
The quality and content of your videos need to be compelling enough to convert viewers into investors. Let your viewers learn about your business and achievements.
Highlight the unique selling points to attract potential investors. Keep the video concise but informative. Crucial details including your business model, product demo (if applicable), market size, financials, and financial ask should all be clearly stated.
4. Share Your Story
In equity crowdfunding for business, the more investors know about you, the better. Be sure to share your story or something unique about you and your business. Be honest about what you share, and avoid making claims you can't prove.
Let your story inspire investors by showing how you have advanced since you started. It should also show your passion and motivation.
5. Build Relationships and Network
You're not going to raise everything online. Offline interactions are also great for fueling your campaign. Attend events and tradeshows to build relationships, which can convert to potential investors.
Every event is a promotional opportunity to grow your audience. Find events where you can present your product, let the attendees learn more about your product and campaign. The more relationships you build, the better.
6. Be Patient
Crowdfunding is like hosting a party. Think of it this way: you can't expect to send out invitations the day before the party and expect everyone to turn up. Planning is crucial.
Promote your campaign on social media and other platforms before you finally launch it. Let people know you, your vision, and product. You should attempt to raise at least 40 percent of your goal
Crowdfunding for Business: Final Thoughts
Are you ready to launch your crowdfunding campaign? If not, don't rush. This post shares some of the crucial things you should do to ensure success. Crowdfunding for business works, but only if you plan well and give investors a reason to fund you.
Are you an entrepreneur looking for financial, knowledge or social capital? You can apply here to get started with our investment process.
Equity crowdfunding sites are among the hottest ways to fund your startup business. Learn all about the basics: how they work, how they can help you fund your startup, and how to find success with them.
When most people think 'crowdfunding,' they think of Amanda Palmer closing a $1.2 million campaign. Kickstarter and Indie Go Go have brought brand new businesses into the public consciousness.
But crowdfunding also offers opportunities for start-ups. In 2012, the JOBS Act came into being. It loosened federal restrictions on where companies could find investment.
Maybe you've struggled to secure traditional funding. You're looking for an alternative.
Are you a founder looking for an explanation of crowdfunding? Read on to learn the basics of equity crowdfunding sites.
What is Equity Crowdfunding?
Crowdfunding refers to the practice of sourcing funds from a 'crowd.' People can invest smaller sums because the power comes from the number of investors.
Equity crowdfunding offers a stake in a start-up rather than the 'perks' you'd get on a platform like Kickstarter. Start-ups get access to a bigger pool of equity investors than they could access through traditional networks.
What are equity, investors? They're the people who opt for this process because they can invest in a broader range of start-ups and have more options on amounts they can choose to invest.
How Do Equity Crowdfunding Sites Work?
Different sites exist to meet different needs. On a basic level, the sites seek to connect investors with investment opportunities.
Start-ups list their company on the sites and fundraising happens in rounds. Once a round successfully finishes, the investor transfers their funds and gains equity in your company.
Some sites hold investment funds in escrow until a fundraising round finishes. At that point, the funds transfer to the company.
There are other equity crowdfunding sites that operate more like advertising platforms. Start-ups market their fundraising efforts, and equity investors contact them privately to make arrangements.
How To Find Success with Equity Crowdfunding Platforms
Identify the sorts of investors you want to bring on board. Do they match with the funding stage of your project?
Work you how much equity you're willing to offer. Once you know who your target investor is, it's much easier to pitch your start-up to them.
With a compelling offer, you can support your idea in the mind of the investor. You'll need a proof of concept to validate your idea. Can you demonstrate what potential market returns, or scalability, you can enjoy?
Show your progress on your KPIs to help boost your valuation. You'll need a strong pitch to get your point across.
Grab attention within seconds; be sure to include key points, and use the highest production values you can afford. Show investors you mean business.
Build momentum before you launch on the sites. Try to get at least a third of your target committed in advance.
This shows other investors that people believe in you and your start-up.
You also need to 'work' the platform. Work to land promotions in email campaigns and look into social media advertising to boost your visibility.
Plan Your Campaign Before You Start
Planning your campaign can be hard work. Running it is also hard, but it can be satisfying if it works.
Or is there another way?
Are you a start-up founder looking for help along your business journey? You could turn to equity crowdfunding sites. Or, you could partner with us.
We work with entrepreneurs who might not get the chance they deserve elsewhere. Get in touch and let us hear your pitch. We're waiting to hear from you.
There are many different ways to finance your business: personal savings, business loans, venture capital, and now equity crowdfunding.
Equity crowdfunding is when you offer a portion of your company to people over the internet. They give you money, and in return, you give them company securities.
There are advantages and disadvantages to this system. Let's go over them.
Pros of Equity Crowdfunding
One of the most significant advantages is that you and your team can raise cash quickly. This benefit is especially valuable for entrepreneurs that are unable to obtain capital in any of the other standard ways.
Another benefit is that it involves the public. If you have a great consumer idea, crowdfunding is the way to go.
It displays your company and product in raw view for the public and gives them the opportunity to share it across social channels. Many businesses have succeeded by using equity crowdfunding as an advertising platform.
Not only that but when people invest in your startup, they'll want to protect their investment. This means more recommendations to friends, more social media content, and more brand ambassadors.
Lastly, equity crowdfunding gives you extra freedom to make decisions. Unlike some financing options, you won't lose control of the direction of the company. This means you are free to take your business to exactly where you want it to be.
Disadvantages of Crowdfunding
Unfortunately, there are some serious disadvantages of crowdfunding that need to be considered. First, crowdfunding is typically done on an online platform.
Many times these platforms charge fees or take a percentage of your earnings. In comparison when you pitch an investor, you leave with all of the money, no hidden fees. Here's how to rock your pitch with an angel investor.
Another disadvantage to equity crowdfunding is that you lose the opportunity to receive great a great mentor and partner. Investors want your business to succeed just as much as you do.
Therefore, if you partner with a knowledgeable and experienced business person, you'll receive a lot of their wisdom for free. This can be an incredible asset to your business.
Learn how you can talk to our top advisors and entrepreneurs.
Recognizing the Pros and Cons of Crowdfunding
Equity crowdfunding raised over $5 billion for startups in 2013, and that number continues to grow. There are many pros and cons of crowdfunding, so the decision ultimately falls on your shoulders. However, it's important to remember that there is no one right answer.
Do you want more freedom in your decisions, or do you want a teammate with already established business skills? Whatever you choose, your business will have great potential.
We can't wait to see you take your company to new heights!
Have any questions? Contact us! One of our seasoned professionals will get back to you quickly.
Sometimes a lack of money is the only thing standing in the way of your dreams. That's why crowdfunding is such an amazing tool. But there's a ton of competition on those sites. It can be tough to stand out from the crowd and find the right people to fund your project. Which is why you need to present well. Here are a few tips to help you achieve the right results on an equity crowdfunding site.
Launch Only When You're Ready
Only launch when you're prepared to commit your total focus on raising funds. If you're in the early stages of raising capital, it can be safer not to raise too much too soon. You may want to consider finding customers and receive revenues. The cost of raising capital can be high, which could mess with your numbers. Right now, you need to focus on achieving a valuation that's both high and credible to show traction on your operational and financial KPIs (Key Performance Indicator).
Identify Your Ideal Investor
Before you receive any money from the equity crowdfunding site, figure out what type of investors you want to work with. Maybe accredited investors are your best choice. Don't forget that some investors only want to work with companies who are at certain stages in their project. Others are more open. Figure out which type is best for you. Determine how much equity you're willing to give up. You'll need to negotiate the investment once you find your investors. Research your niche target audience. Know their demographics beyond just the financial details. Then find people within that niche market who also are looking for investment opportunities. When it comes time to make your pitch, knowing exactly who they are and what they're looking for will be a huge help.
Put a Social Media Strategy Together
Social media is a must when finding investors. Start building up your followers on social media a few months or more before you put yourself on the equity crowdfunding site. There are a few strategies that are helpful when using social media. Talk about general business news relating to your company. If you hire someone, post it on social media. It will show your company is growing.Share news about all your product and service improvements with your followers. If any new lines are introduced, be sure to rave about it on social media. Lastly, if any positive press coverage is received, by all means, post the links all over social media. Social media is a great place to find potential investors who are already interested in what you're doing.
Include a Great Video on the Equity Crowdfunding Site
By 2019, 80% of all internet traffic will be video. Facebook only has over 8 billion videos each day. You need to make a video if you want investors. Look at it your video as an opportunity to tell your story. Also, look at it from the viewpoint of an investor, if you don't have the time, skill, or resources to make an interesting, well-produced video, how will you succeed as a startup?
Keep Learning How to Improve Your Chances
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