We talk to startups and investors, you get the value.
If you get an idea and start working on it, you will have to think of financing sooner or later. Even if you manage to find a team of professional enthusiasts who are ready to work for a share in the future business and are not asking for a salary now, you will still need money to cover other expenses, like marketing. One way to raise this money is crowdinvesting.
We talk to startups and investors, you get the value.
In this article, we will try to explain what crowdinvesting is and have a look at how the largest crowdfunding platforms in the world work.
Crowdinvesting (also known as equity crowdfunding) is a financial tool for raising capital from a wide range of micro-investors. It refers to a collective financing of projects through special sites based on voluntary participation.
Crowdinvesting is less oriented toward altruistic, social goals. Unlike crowdfunding, it suggests that investors receive a share in the company’s share capital, as well as realize the risk of losing their investments. In simple terms, it works like this: an investor gives money to a project through a specialized platform, and then returns it with interest.
Specialized Internet platforms that, with the help of social networks, contextual advertising, and other marketing tools, attract the necessary pool of investors from Internet users (crowd) for the presented projects play the main role in crowdinvesting. Platform operators take on technical support when investing and returning investments, and retain a commission for this either from the project being promoted, from its investors, or both. Ideally, everyone: projects, investors, and the site itself benefits from crowdinvesting platforms.
For startups, crowdinvesting can close the development stage when the project has a working prototype already and primary funding has been received. In this case, the company does not yet meet the criteria of a venture fund, while the needed amount of financing is already unaffordable for business angels.
We have selected TOP largest crowdinvesting sites. Let’s see what they are all about and how they work.
Founded in 2010 in San Francisco, AngelList is both a site for crowdinvesting campaigns and a high-end job board for those looking for work. AngelList presents over 2 million vacancies from tech companies and startups with 100 000 startups and tens of thousands of specialists registered and ready to join startup teams.
Another feature of AngelList is that entrepreneurs and startups can raise capital for free, since the platform charges all the fees from investors. More than $1 billion has been raised through the site.
Here are a few examples of startups that have raised investments through the platform, and were then purchased by large corporations.
The startup has developed a browser extension that provides access to all existing discounts, profitable deals and bonuses for products that a user has selected. In November 2019, the PayPal payment system acquired Honey for $4 billion.
This Ukrainian startup has developed a security system which creates gadgets and analytics for smart homes. Their most popular product is a video intercom that enables the user to monitor their home from anywhere in the world. The development was recognized as the best among other innovations in the field of ensuring the safety of residential buildings in 2015. In March 2018, Amazon acquired the startup for $1 billion.
The project develops self-driving cars. It has raised investments twice — first $4.3 million, and then $12.5 million. In March 2016, GENERAL MOTORS acquired the startup for $1 billion. There are currently 70 active vacancies in the Cruise profile on the platform.
Since the site is quite democratic, you can register right now and see how it works and what projects are displayed there and also test your CV and your project — it might be of interest to investors, who knows.
The site was launched in 2012 in Los Angeles and works mainly with tech startups, as well as projects in social entrepreneurship, cinematic startups and those from the entertainment sector. Crowdfunder brings together more than 200,000 entrepreneurs and investors. This is a site for fairly advanced projects that have an MVP, users and investors.
15,000 individual and institutional investors have invested in projects through the site. The average deal size here is $1.8 million and a total of $160 million has been raised through the platform.
The site does not charge interest on the funds raised. To start a crowd campaign, you need to:
Create a profile (free);
Prepare documents (The Term Sheet, the Executive Summary, the Investor Pitch Deck) — those are all quite complex, so it is better to seek help from a lawyer who specializes in preparing such kinds of documentation;
Subscribe. This will cost you $299 / month for a Starter pack. (raising funds for the project, public profile, notifying potential investors about the launch of the campaign), and $499 / month for Premium. (In addition to what the Starter package offers you can see investors who have viewed the project, search for investors through the site and contact them. Besides, you get 1 hour of consultations from the platform’s specialists and campaign analytics). The platform offers a discount if you purchase the Premium package for 3 months and will cost you $999 for the entire period.
The Acre project developed “smart homes” that run on solar energy several years ago. It was through Crowdfunder that the company raised $5 million in two rounds. Here’s what their presentation on Crowdfunder looked like.
This is a platform for a wide range of entrepreneurs and your project does not necessarily have to do with high tech to be able to raise finance through the platform. EquityNet covers the entire spectrum of private enterprises from international biotechnology companies with an income of $100 million per year to startups that are just an idea, with just one person in the team.
Founded in 2005, the project was initially a private investment company that has developed into a crowdinvesting site. The platform does not charge a commission for deals and uses the subscription model.
The user registers on the site and can publish their business profile for free but you need to pay a subscription in order to be able to attract investors. Full Access package costs $900 and provides full access to accredited investors on the site. The user also gets full access to fundraising documents and business planning tools.
Premium Consulting package costs $2 500 and provides all the services of the previous package plus access to one-on-one consultations with a member of the platform team on business planning, financing strategies, pitches, marketing, etc.
EquityNet + package will cost you $25 000 and the platform launches a crowdfunding campaign adapted for the user’s project.
Note that EquityNet charges one-time payments so you don’t pay every month.
Fundable offers reward-based Kickstarter-style crowdfunding as well as equity crowdfunding. Crowdfunding campaigns are a good option for the projects that need to raise under $50 000, while those looking for bigger summs opt for crowdinvesting. The total amount of investments raised through the platform is $604 million.
The platform does not charge a commission for the deal and uses the subscription model.
It offers 2 packages:
1. Standard for $179/month. As part of this package, the user receives data analytics, email support, a guide for conducting marketing promotion of the campaign, and marketing templates.
2. Premium for $2 499 (one-off charge). Fundable connects the project with accredited investors, who they believe will be most interested in the startup. The platform will also share media contacts so that the client can launch a good information campaign about their crowdfunding.
Fundable is part of the Startups.com ecosystem that helps projects get started. If a startup can raise finance through Fundable, it can build its business plan at the bizplan site, get access to the expert community at Clarity, and find customers with the help of launchrock.
Bitvore case. Bitvore is a startup that aims to solve the big data problem that enterprises face. The first product of the startup allowed companies to track and analyze large data streams. To receive funds for the development of the project, the team launched a campaign on Fundable and was thus able to raise $ 4 500 000 for the business. Now the project offers several products and solutions in the field of big data — for financial institutions, corporations and consultants.
Founded in 2012, WeFunder is a platform that both accredited investors and private individuals can invest through. At the end of 2019, the project raised $ 5.1 million of investments for its development aiming to “become a Kickstarter (the largest crowdfunding platform) for investors”.
Over 641 943 investors work with the site today, and over $138.5 mln. has been invested through WeFunder since its launch with a total of 389 startups.
This site is best suited for tech startups. Only US corporations and limited liability companies can post projects on WeFunder.
You can raise from $20 000 to $1 million here and you will have to pay $195 before you start crowdfunding. If your fundraising campaign is successful, WeFunder will collect 7% of the amount raised.
The Guesty project — a platform for managing property in real estate through Airbnb and other services — attracted $35 000 from 23 investors on WeFunder. Later it attracted another 59 million, closing the C-round in the spring of 2019 with a check of $35 million, the Israeli venture fund Viola Growth became its lead investor.
Theoretically, anyone can invest through the platform. Unlike previous sites where anyone willing to do so can register, SeedInvest approves only 1% of campaigns, favoring tech-startups.
SeedInvest has a total of 300 000 registered investors with over 200 startups that have raised investment of a total over $200 million.
The platform offers its projects:
Simplification and acceleration of the fundraising process;
Access to a network of accredited investors from around the world;
Drawing up legal documents.
The site attracts investors by selecting the most successful, according to platform experts, projects that will give a nearly guaranteed profit.
It’s worse noting that the platform has a complex system of fees.
7.5% of the total amount of investments raised by the project through the site is charged as the cost of placing the project on the site. It’s charged after successful completion of the campaign.
Another 5% of the total amount raised through the site is the payment for capital.
There is a special calculator on the site that counts how much money out of the amount raised will be taken by the platform in case the campaign is successful.
Virtuix Case. Virtuix startup (specializing in the production of peripheral equipment for interacting with virtual reality in games) has raised a total of $9 million through SeedInvest: $1.5 million in the beginning of 2014 and $7.5 million in 2016. Interestingly, during its crowdfunding campaign in 2016, the project received the first $2.5 million in 24 hours as 500 investors transferred money to the startup almost simultaneously.
MicroVentures is a platform for projects that seek financial support ranging from $150 000 to $1 million. Over $100 million has been raised through the site for growing startups. The platform checks all applications from startups that it receives and approves less than 1%.
MicroVentures is looking for startups that have a new perspective on existing technologies. The platform is suitable for projects with products in the fields of Internet technologies; media and entertainment; software; green technology; mobile, society and gaming. When evaluating startups, experts pay attention to the team, traction, market size and other factors before deciding whether a project is suitable for the platform. In addition, the site prefers the projects whose founders have invested their own funds in the development of a startup. Since 2019, the project does not charge a commission from startups and investors.
The platform has helped to raise $220 million investment in 400 startups and has 110,000 registered investors.
The platform only cooperates with startups in the field of consumer goods — these are food and drinks; personal hygiene products; household products; electronics; pets. Most of the campaigns on the site have a yearly income of $1 000 000, and every startup that launches a crowdfunding campaign through the site has a product that you can test. CircleUp has raised $390 million for over 200 projects.
The sites features Helio algorithm based on machine learning which identifies future trends and provides information visualized in convenient diagrams. The algorithm takes information from public data, partner resources and analytics
Helio identifies, classifies and evaluates companies in the North American market. This is especially attractive for investors who get all the information about the startup they are interested in, its direct competitors in the market and forecasts for the development of the industry.
There are two ways to invest with CircleUp: crowdfunding and the CircleUp Growth Fund — when an investor transfers money to the site and it then invests in projects selected by Helio.
Crowdinvesting has been a thing for just a few years, and this way of raising finance for a project is still developing. Unlike crowdfunding, when you receive the money free of charge, crowdfunding is a form of collective investment where each campaign participant gets a share in the joint stock capital. Thus, their contribution over time can bring them significant profit in case the project is successful.
There are many crowdinvesting sites in the world, each with its own characteristics when it comes to interaction with projects and investors. There are platforms where anyone can share their project and as long as it does not violate the platform’s internal requirements it will be published. There are also those where all projects are thoroughly tested and only those that, according to the crowdfunding platform team, are most stable and give the investor an almost 100% guarantee of capital increase are allowed to launch the campaign. In any case, crowdinvesting is a real opportunity to raise investment for a startup.