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Equity Crowdfunding Primer

Published: 4/15/2014 8:39:27 AM



As part of VentureDeal's expansive coverage of technology startup company financing deals, we track the nascent equity crowdfunding industry in North America.

Equity crowdfunding portals are those that directly facilitate equity investments in startup companies, contrasted with other crowdfunding portals which enable end users to pre-purchase upcoming products, such as Kickstarter. These portals perform due diligence on startups as well as certify investors as accredited according to SEC guidelines.

Current Status

The industry received a big boost recently when the SEC finalized regulations regarding general solicitation to accredited investors and proposed rules (PDF) about soliciting to unaccredited investors (quick summary of proposed rules). Crowdfunding portals are anxiously awaiting final rule promulgation to allow issuer startup companies to generally solicit to all classifications of investors.

Equity crowdfunding portals in North America that are generating significant volume are relatively few, as the industry is still in its infancy. Below is a listing of the top technology equity crowdfunding entities that VentureDeal tracks, in rough order according to volume:

AngelList - AL operates a crowdfunding portal that provides both private and public fundraising options for technology startups in major cities in the United States.

RockThePost - RTP is based in New York City and has raised nearly $24 million in crowdfunding financing via its online portal.

MicroVentures - MV has been raising financing for startups for several years and also operates as a broker-dealer.

SeedInvest - advised by the main proponents of crowdfunding legislation, SeedInvest has a strict vetting process for startups that it chooses to promote.

WeFunder - founded in Boston, MA, the portal enables individuals to invest as little as $1,000 per deal and includes a variety of technology and consumer-oriented startup companies.

Fundable - The portal provides the options for startups to raise either equity or "rewards" based financing and includes a variety of technology and consumer startup investing opportunities.

FundersClub - This San Francisco-based site describes itself as an "online venture capital firm" and does not perform "equity crowdfunding" per se, but does aggregate investors online for technology startups.

Crowdfunder.com - Based in Venice, CA - Crowdfunder.com has developed a portal to invest not only in technology startups, but also social enterprises and film & entertainment ventures.

Polliwog - focused on healthcare startups, Polliwog enables investment in individual life science companies or via its publicly-registered funds with a minimum investment of $5,000.

The above-listed sites generally include the same types of information on each deal, such as company description and outlook, deal terms, documents and disclosures and the ability to communicate directly with startup principals.

A number of service providers have emerged to help portals and issuer startups with the various requirements promulgated by the SEC, such as escrowing of investment funds, due diligence, bad actor research, financial statement certification, etc.

To date, industry-wide statistics on aggregate funding amounts have been impossible to obtain, no doubt in small part due to the "private" nature of many of the fundraising campaigns. Additionally, there are no aggregate numbers on investment successes, if any, that can be translated into rates of return on equity.

Crowdfunding, if it is to remain a viable option for entrepreneurs and investors alike, must communicate its results to the market. For the industry to grow over the long-term, it will have to demonstrate that investors are receiving an adequate return for their risky, illiquid investments. Otherwise it risks investor suspicion and fatigue.


Additional Resources

Industry Associations - National Crowdfunding AssociationCFIRA

Crowdfunding News - Crowdfund Insider, Crowdfund Beat

Crowdfunding Sites - Wikipedia Comparison

The JOBS Act - An Act, Janury 3, 2012

Crowdfund Investing - Crowdfund Investing for Dummies

 

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Don Jones
CEO, VentureDeal

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