Over the past 2 years we have seen equity crowdfunding explode and as of March 2018 regulation crowdfunding had raised over $100M from non-accredited investors in just two years time. This doesn’t even account for the Reg A and Reg D deals that have raised hundreds of millions from the crowd as well.
Yet with all of this success, there is still a hefty dose of skepticism surrounding the space.
The biggest reason for skepticism is largely because investors don’t think founders who could raise traditional capital would ever utilize equity crowdfunding. Over the past couple of months we’ve sat down with tens of founders raising via equity crowdfunding and this myth that is out there could not be further from the truth.
The 5 founders below talk about why they decided to raise from the crowd, and they will handedly put to bed any concern that equity crowdfunding isn’t legit.
“We actually had a deal with a well known VC on the table after a six month diligence process that we ended up turning down.” – Wallace Santos, Founder & CEO of Maingear
After months of negotiation, Wallace Santos of Maingear began to worry that the prominent VCs he was working with had different visions for the business than he did, and felt that, “Overall, it wasn’t a great experience.” As he moved further in the process it became clear to him that he would be forced to, “grow the business while compromising the brand. That’s how we ended up deciding to raise capital via the crowd instead.”
When asked about his experience with equity crowdfunding Wallace said, “It felt a lot more like we could keep the soul of the company intact this way. And so far it’s working in a big way. We’ve already raised a couple hundred thousand and we are just getting started.”
Stories like this are everywhere we look when it comes to startups raising via equity crowdfunding. Essentially, it allows for a new form of capital raising that aligns better with the objectives of the organization.
In other instances, equity crowdfunding has proven to be a way to access a better network than a traditional VC might be able to offer. Take Love Goodly, for instance.
“We’ve been approached by potential distribution partners, and people who can help scale the business too. The network effect is fascinating.” – Katie Miller, Co-Founder of Love Goodly
Originally the team decided to engage the crowd simply because the team was, “attracted by the thought of allowing our loyal community to invest in our success who believe in our cause and passion.” But as the experience carried out they found that, “it has been opening more doors, not just on the investment side.”
Think about it. The traditional VC model means that only a handful of individuals will be involved in a deal. Even if they have huge networks it will be hard to rival an equity crowdfunding round where hundreds or even thousands of individuals have large and small networks to offer.
Other founders have felt that equity crowdfunding simply presents a better, faster way to raise seed funds rather than the traditional route.
There is definitely a place for institutions to invest in the later rounds, but in the seed and preseed world of VC I think we see a continued shift to more crowdfunding. – Chris Stanchak, Co-Founder & CEO, LoveSeat
Chris and his wife are serial entrepreneurs with plenty of connections to do a capital raise from traditional Angels and VCs in the early days. Chris founded another company that raised $10M and was acquired called Ticketleap, and his wife was employee #7 at Venmo. Despite their deep network and former success, they both felt the WeFunder model better suited their capital needs.
In Chris’s world view, “It just makes sense because companies can get to market a whole lot faster.” As Wallace Santos, Founder of Maingear had said, he had gone down the path of engaging VCs and the process had taken over 6 months. Whereas equity crowdfunding raises can be completed in 3 months or less, with less time intensive meetings and schmoozing.
Not only was the process faster and more streamlined, but Chris also felt that, ”having lots of small investors giving you $100 or so is exciting especially when it is done in a safe way. I think as it stands it is really the next frontier for early stage startup funding.”
That is a pretty glowing review of equity crowdfunding from someone who has access to all of the traditional channels of VC investing.
One reason that has not even come up yet is likely one that most people would expect, which is that some companies see a real opportunity to create customer loyalty and brand ambassadors.
“We thought crowdfunding would be a great way to engage our early users more deeply with the company, building loyal fans and sharing in our future.” – Clemens Graves, Founder & CEO, Finnest
This is an obvious one, which is not only does equity crowdfunding enable you to raise capital, but it is essentially a simultaneous marketing campaign that will get your business noticed by thousands. And all those investors will quickly become brand ambassadors and evangelist of the organization, which can be exceedingly beneficial especially for B2C organizations.
Interestingly enough, we have also seen many startups that have already raised substantial funds from the traditional VC path, raise via equity crowdfunding. Why you ask?
“As a young entrepreneur, I was lucky as hell to be able to know people in the startup universe that provided me access to unprecedented deal flow. Philosophically, I just feel that everyone deserves access, and I love to give others the same types of opportunities that I was given.” Olivier Grinda, Founder & CEO, Home61
To date, Olivier Grinda had already raised over $4M for his real estate tech platform from VCs like FJ Labs, and The Founders Fund, which are famous in the valley. Nonetheless, technologist like Olivier believe that, “technology is one place where there is just a huge amount of growth and untapped potential and I think all people should have access to those deals.”
And the raise was rather successful. He and the team raised over $400K from the crowd, which will help the organization to continue its rapid growth trajectory and bolster its traditional VC round.
As you can see, the reasons are varied to raise from the crowd, but one truth holds across all of these examples. None of these founders raised from the crowd because they couldn’t secure traditional VC dollars.
Some raised via the crowd because they found it to be a less invasive form of funding, others found it quicker and more efficient, others looked at it as a way to get the benefits of the network that comes from the crowd, while others simply believe that technology is about democratization and this falls right in that wheelhouse.
If you still don’t believe that equity crowdfunding is a viable form of capital raising worth considering, you are sincerely missing out. The pedigree of founders above is astounding, and the fact that we as a crowd can partake in their future success is immensely exciting.
I would say the myth of poor deal flow in the equity crowdfunding market has been put to bed. Time to get investing. What founders will you back??
Curious to learn more and have deal suggestions. Contact us at Hello@kingscrowd.com
Wall Street has Morningstar, S&P, and Bloomberg
The equity crowdfunding market has KingsCrowd.
About: Chris Lustrino
A Boston College Eagle for life, on a mission to democratize startup investing for all people at KingsCrowd, with a passion for Fintech, investing, social impact, doing well and doing good, and an avid runner, cyclist and writer.