Equity Crowdfunding has emerged as a viable option, growing in popularity. It has positioned itself as a viable alternative to raising capital via traditional channels (banks, seed capital, friends/family) to fund its early-stage business ventures.
In the early days of startups, Crowdfunding was seen as the last line of fundraising for startups looking to get into the game with their product and idea (typically because it meant VC firms passed on the opportunity of funding said startups). However, as of 2021, Crowdfunding is considered a legitimate alternative to raising money from a bank or venture capital firm—with proper promotion and generation of interest, there’s a greater opportunity to raise money independently.
What is Equity Crowdfunding
In short, Equity Crowdfunding lets early-stage businesses (aka startups) or private businesses raise capital from their networks (the crowd), and it allows folks like you or I to invest for as little as $100. It’s a way of democratizing fundraising — anyone can be an investor, not just VCs and private equity firms.
Equity Crowdfunding has become a compelling option because there are generally far fewer roadblocks to entry. Thus, more companies and startups are pursuing this fundraising channel because they can bypass a lot of regulatory red tape and get started quickly. In fact, this mode of Crowdfunding has become so prolific that in 2020, Equity Crowdfunding was attributed to roughly $239 million, according to Fits Small Business.
Also, the US Securities and Exchange Commission set new Crowdfunding limits of 5 million in 2021. So even governments are helping make things easier for businesses to get in on the Equity Money-Raisin’ gravy grain! The US is not alone, however. According to the Journal of Business Venturing Insights, perhaps the most prolific Equity Crowdfunding country has been the UK. They cite that also, due to government intervention and a loosening of the reigns back in 2011, the UK has many more businesses that have run Crowdfunding campaigns to raise equity.
Raising money from Venture Capital (VC), your friends and family, or other government assistance programs isn’t easy. Obtaining funds from these channels has only become more complex. Seed rounds are getting bigger and more challenging to access for many startups and businesses.
Why Equity Crowdfunding?
Equity Crowdfunding has seen an explosion of adoption in recent years; however, it remains largely a niche or “fringe” approach to raising capital. There exists a massive opportunity for Crowdfunding to provide access to those who may not be as well connected or flush with cash, such as Investment Firms, Banks, or people with large bankrolls. In that way, I believe Crowdfunding provides real access to cash-strapped folks and an easy point of access to organizations looking to lower the barrier of entry into supporting (or creating) a platform.
The allure of this type of Crowdfunding is that you can get early exposure to startups, products, and other exciting ventures and the opportunity to invest in something potentially high-growth (which could mean even higher returns).
Platforms and Service Providers Exist (and more to come)
Industry pros always talk about the “secondary market,” that is, the market that provides access to the thing of value. In our specific use case, we’re talking about platform providers such as IgnitionDeck or StartEngine. More and more platforms continue to rise to meet the needs of those looking to fund their next big project, startup, or initiative.
Service providers like the Aurora Project provide services and platforms that raise capital via Reg CF, Reg D, and Reg A offerings for innovative companies worldwide.
The continued growth and creation of these platforms and providers will ensure the continued viability and growth of Crowdfunding in general, not just Equity Crowdfunding. As a result, IgntionDeck is firmly positioned as a viable option for those looking to kickstart their next big product idea.
One thing that doesn’t get talked about enough is companies like Paypal or Stripe often act as a hurdle to those looking to start a Crowdfunding campaign or platform.
Paypal has been a notorious villain for many a Crowdfunding initiative (see Paypal has a Crowdfunding problem). Paypal has consistently seized/frozen funds for various Crowdfunding projects. In addition, Paypal flirted with the notion of their own Crowdfunding/Social-Payments service called Money Pool back in 2020 but quickly shuttered the service. It’s clear they saw an opportunity but never capitalized on it.
We have had regular discussions with IgnitionDeck customers regarding Paypal’s refusal to them to use their service for crowdfunding, usually with a line that violates their terms of service. In addition, sometimes Paypal requests a detailed budget/accounting of how the funds from the Crowdfunding project will be used, which is ridiculous to ask, in my opinion.
It’s not just Paypal. Popular Payment Gateway Solutions provider, Stripe, has also been problematic to deal with when it comes to crowdfunding. Stripe has acknowledged that they’ve been slower to adapt to newer business models like crowdfunding because “historically, many payment companies have been leery of marketplaces that “aggregate” funds on behalf of other sellers due to the possibility of fraud or money-laundering.” This apprehension has made it difficult for those starting their own crowd-backed platforms but it’s getting better.
Crowdfunding via Crypto
We recently announced the development of a new Crypto Currency Integration with Online Crypto Payments Provider, CoinPayments, which will help those raising money without fear of having their accounts frozen.
Crypto has disrupted a number of industries and business models in recent years. Some of the most compelling reasons for this are:
- Because of the high level of security that blockchain inherently has—which is the underlying technology of Bitcoin—is used for an ever-increasing number of services and products.
- Blockchain allows for transparency and makes transacting safe; this means crowdfunding platforms that use blockchain can help maximize the success of a project while minimizing risk from faud and those who may attempt to run dishonest campaigns and steal peoples’ money.
- Crypto is still in the early days. We’re going to see more innovation as businesses get creative with the use of blockchain technology; its potential applications extend well beyond Crypto crowdfunding, of course.
What Kinds of Businesses Utilize Equity Crowdfunding?
There exists a myth regarding the kinds of businesses that engage in Equity Crowdfunding. Typically, they’re buzzy startups or that existing, established companies DO NOT engage in Equity Crowdfunding. These are myths and not rooted in reality.
In truth, many types of businesses engage in Equity Crowdfunding to fund their new business ventures, new business models, or ideas they wish to field-test interest for.
Sometimes you’ll find independent software developers raising money to fund the development of their product, like the folks who built Simply Schedule Appointments.
Billion-dollar enterprises such as Oculus and Allbirds also began life from successful crowdfunding campaigns (both on Kickstarter).
From software to footwear or anything you can dream about, Crowdfunding is a valid vehicle to create funding for your dream projects and products.
IgnitionDeck + Equity Crowdfunding
How IgnitionDeck Helps You
IgnitionDeck is a fully-featured, White-Label, Crowdfunding platform, that empowers you to create a Crowdfunding ecosystem to raise funds for any project you can think of. You can also host a full-featured, White-Labeled, Crowdfunding Platform where project backers can create projects on your platform and raise funds for their projects. It’s a robust and highly customizable platform.
You don’t have to build the platform from scratch, nor are you constrained by the restrictions of many other hosted funding platforms like Kickstarter or GoFundMe.
What Projects Are the Best to Raise Money for?
The truth is that there is no one correct answer. However, using IgnitionDeck, you can easily create a platform geared to any specific niche. Quickly!
Create a Crowdfunding Platform to Fund Startups
I mentioned StartEngine above, and they have an excellent platform for funding startups and interesting innovating products and companies. In addition, the notion of investing on the “ground floor” is compelling. Who wouldn’t want to invest in the early stages of a company that changes the future technology landscape? So I’m over here raising my hand because I want to invest in things I believe in (and reap the benefits later).
Create a Platform for Startups
Investing in pre-IPO ventures gives you the chance to become part of startups before they go public and grow the reach of companies with tremendous value potential while supporting diversity and inclusion of ideas and initiatives.
Maybe you don’t want to invest; instead, you’d like to provide a platform for Startups to raise capital instead, which is a viable option also. Hosting your platform decreases your risk and investment; all you have to do is provide other startups (project creators) tools to begin investing and promoting their initiatives.
Create a Platform for Content Creators
We’ve all heard of Patreon and IndieGogo; those platforms are well-suited for creatives to fund their interests and projects. IgnitionDeck provides you with the right tools and technology to spin something up quickly. Crowdfunding for the Arts is a great niche to get into and typically a great thing to create a community around.
Create a Platform for Yourself or Your Next Passion Project.
Maybe you’d instead promote and fundraise for your projects, like writing a book or creating a business. Then, you can raise funds for yourself, rather than trying to sell your business plan to your local bank to get them to loan you money. IgnitionDeck Partner, Jay, is using IgnitionDeck for his son’s Cub Scout troop to raise funds for all the goods they need to provide a fun experience for all troop members. What a good Dad he is!
Self-Hosted vs. Managed Platforms
Managed (Hosted) Platforms
However, when it comes to Self-hosting, it comes down to ‘why?’ The primary motivator is control and access for those running their platform. They want to control the technology and campaigns without fear of being shut down by their platform providers. Also, needs differ from person to person and project to project. Many of these hosted services obscure or prevent direct access to your backer’s information, making your marketing goals much more difficult to achieve.
- No hassle with technical issues; your platform provider handles it all for you.
- A limited set of features, preventing overwhelm.
- You can get started right away and quickly vet interest.
- Access to their audience. Established platforms have a large audience and you can potentially take advantage of the potential for interested viewers right away.
- You’re limited to what the platform allows you to get away with
- Terms of service sometimes obscure the ownership of content they host. That means that a platform’s ToS may actually stake a claim to the content you create on their systems. Always read the fine print
- Your project could be shut down at any time if the platform feels you’re in violation of its terms of service.
- You pay a nominal fee or a cut of the money raised. Many platforms charge about 5% plus any transaction processing fees. It’s not a lot but it’s also not nothing
- You don’t truly own your platform. As noted in the previous point, because you don’t own the platform, if it closes shop, or if they shut you down you can’t do anything about it, short of legal action
- Customer details like email and other contact info are often “black-boxed” or obscured/hidden from project creators, thus curtailing marketing efforts to a large degree
The draw of large, existing, platforms is that they have a large audience they can promote your projects. Thus, getting folks’ eyeballs on your project right away is not so difficult. However, those views and visibility can be fleeting (think window-shoppers at the mall). Platforms like Etsy build their business off the backs of their users’ networks. It’s generally easier to get up and running on a managed platform like GoFundMe/Kickstarter. You get the same set of tools for any project, regardless of your project’s needs. And that’s great for the majority of people.
- You own the platform
- Quick to get started
- Most of the tools you need are already provided out-of-the-box
- Keep more of the money you raise, there’s no entity taking a cut of your hard-earned crowdfunding proceeds
- You gain access to all marketing details for your customers and you may use the that information for your marketing campaigns later on.
- You own the platform, which means you’re on the hook for fixing any problems that come up
- Requires patience and technical knowledge or a technical partner who can fix issues that arise
- You may need to purchase additional services to provide the features you need for your platform
Innovation and the tools available continue to evolve and grow. Equity Crowdfunding has made raising funds accessible to a much wider audience you, as the project or platform creator, you have a lot of choices to build out your platform and support your endeavors from bleeding edge startups to funding established businesses. You can build it faster with managed platforms or you can make it yours with a self-hosted crowdfunding solution like IgnitionDeck.
What will you build?