Startup founders have numerous paths to fundraising, from friends and family and angel investors to bank loans and venture capital. Crowdfunding is a newer form of fundraising that has become more popular lately.
In many ways, it puts the control back into the hands of startup founders, because they can raise capital on their own, bypassing institutional funding and retaining more control over their business.
Read on to learn the basics of equity crowdfunding, including the benefits and how to get started.
What is equity crowdfunding?
Within equity crowdfunding, there are many types; for now, we'll focus on the basics. Equity crowdfunding is a security-based form of crowdfunding. Securities are issued to the general public. In other words, a founder is issuing the public shares of his or her company in exchange for an investment. Investments can vary wildly, though many generally start at a few thousand dollars.
With other forms of crowdfunding, investors are issued rewards. They may invest in a startup or even just an idea, and typically it's in exchange for being the first to receive a product (think Kickstarter). And then there's a donation form of crowdfunding, where investors literally donate funds with no expectation or promise of a reward or a return (think GoFundMe).
Equity crowdfunding gives startups an opportunity to raise more funds, and it gives the general public an opportunity to invest in a startup's passion project or area of interest with little to no hassle. Investors can simply source companies online; it's that easy.
What's next for startups once they raise funds via equity crowdfunding?
"Some startups move onto institutional funding or angel investors," Amster said. "But the majority of our clients come back to us and raise a second or third round."
Amster also notes that while platforms like his were initially dominated by consumer-facing companies, B2B and SaaS have swiftly moved in to take advantage of the process.
"For the public, they're very interested in funding businesses that they are passionate about."
