Why Choose Equity Crowdfunding?
If you are looking for money for your business, but you do not want to take out a loan or you do not qualify for a loan, equity crowdfunding is a good alternative. Investors who are interested in your business contribute to your business's crowdfunding goal, and in return, you offer equity. That may be in the form of stocks or a percentage of your sales for a certain amount of time
For this site, we have included crowdfunding sites that focus on investors and businesses and those that involve equity in some way or another as repayment, including EquityNet, CircleUp and Fundable. If you are looking for reward-based crowdfunding for non-business reasons, have a look at our crowdfunding site. If you are looking for debt loans that you repay, take a look at small business loans or peer-to-peer lending.
Equity Crowdfunding Sites: What to Look For
When choosing an investment or equity crowdfunding site, you will want to understand the process and be clear about what your investors receive in return. Some services set you up with investors interested in stocks and equity, while other sites connect you with investors who would like returns in the form of a portion of your sales. Looks for sites with low fees, if applicable. Not all services charge a fee for the investments but rather charge a subscription fee. The following are some of the crucial aspects we considered when looking in to equity crowdfunding sites.
Process & Eligibility
With most services, you create profile and funding page, and the service puts you in a position where investors can review your business and the equity offered and decide to invest. The average time for raising funds is a consideration, as some services may take two or three months to raise funds while other companies set a maximum campaign duration of 30 days.
Eligibility is also a factor. You and your business will have to be verified before being listed. Legal regulations exist in this investment sector, such as U.S. Securities and Exchange Commission rules. Some of these rules state that all investors in this industry must be accredited, unlike personal crowdfunding sites where anyone can contribute. These campaigns are restricted from solicitation and advertising, as well.
Equity or investment crowdfunding means that you offer compensation to investors rather than repaying a loan. Some services require you offer stock in your company, providing them with part ownership. Others have you pay a percentage of your sales for a predetermined amount of time. Although this is monetary repayment, there is no set amount. You also do not give up any equity. The better your business preforms, the more your investors make. Some sites do not facilitate the investment process, and in that case, you would come to an agreement with your investors as to what equity you will offer.
Rates & Fees
Depending on the service you choose, you may pay a fee to use the site. Some services are subscription based, so there is a general fee. Many services simply charge a commission fee once your business crowdfunding campaign is fully funded.
Rather than take out a standard loan that you repay with interest, equity crowdfunding sites set you up with investors who hope to have part ownership or stock in your company. They take a personal interest in the success of your business. Building an investing circle can help your business grow and succeed.