Equity crowdfunding is a legal method by which individuals and businesses can raise capital online. This method doesn’t rely on an exchange of services or products as many other finance-gathering operations do. Instead, it depends on the generosity of various investors who have been invited to participate in the company’s equity growth.
Usually, equity crowdfunding happens online on various platforms. These platforms allow businesses to create profiles specific to their needs so that any pitches, financial statements, and other information investors or businesses may need are readily available.
It’s important to note that equity crowdfunding platforms may charge individuals a percentage of the money they’re able to raise instead of a fee for using their service. Sometimes, this fee will be a monthly recurring charge, and you may face additional processing fees in some situations. Additionally, you may need to invest in service options in addition to the platform you choose to work with including accounting services and other relevant options.
Let’s dive into some of the top equity crowdfunding platforms to see how they operate and compare a few of their key pros and cons.
Circle Up is an equity crowdfunding platform that provides funding options for a wide range of businesses and industries including those working in fashion and apparel, accessories, pet care, electronics, restaurants, beauty, or food and beverage.
Circle Up is catered specifically to early-stage consumer brands that work primarily with retail products. Entrepeuruers can list their product options on Circle Up where it may be placed in front of as many as 850 professional accredited investors.
However, before anyone can post their offering on Circle Up, they must first make it through an extensive application and due diligence process. Only then will they be able to pass the final review and list their items on the marketplace. Typically, this process takes two to three months.
Circle Up has many key benefits that may encourage entrepreneurs to invest their time and products with them.
Reg D Specialization
If your product falls until Reg D–specifically under 506(c) or 506(b), you may want to carefully consider working with Circle Up as they are one of the very few crowdfunding options that specialize in this kind of product. They don’t even allow Reg A+ or Reg CF campaigns to be hosted on their platform.
When it comes to your fees and costs for working with Circle Up, you may be happy to learn that the amount you will have to pay will correlate directly with how much funding you can receive.
This means that if you aren’t able to successfully raise the funds you need, the service won’t charge you excessive fees. Instead, they ask companies to pay a commission comparable to the funds investment bankers make when they fundraise in similar situations–an amount based on the funds an individual is successfully able to raise.
While working with Circle Up has many benefits, there are a few key disadvantages you may want to consider as well.
Commission Costs are Unclear
While it’s nice to know that you will only be charged a fee relative to what you make on Circle Up, this also makes it very difficult to know upfront exactly how much you can expect to pay in fees and other costs. It may be as low as 3% or up to 5% with variations based on timing, preparation, the size of your deal, and more.
Only Regulation D Companies May Apply
If your company doesn’t fall under the purview of Regulation D 506(b) or 506(c), you will not be able to find investment options working with Circle Up and will need to find other equity crowdfunding platform options.
Only Accredited Individuals May Invest
Circle Up has strict limitations on which individuals are permitted to invest with them. Specifically, they only permit accredited investors to their platform. This means that only wealthy individuals earning at least $200,000 per year or those who have a net worth of one million dollars or more–excluding their house–may invest.
Note that institutional investors may also invest–those representing companies, banks, trusts, brokers, or others, for example.
EquityNet is an equity crowdfunding platform that works to provide entrepreneurs and investors with patent-protected analytical tools. Unlike other equity crowdfunding platforms, they don’t take an active part in the transaction process, nor do they charge their users any fees for specific uses.
Instead, they focus on providing a high-quality service to borrowers and investors that help businesses raise funds and investors expand their portfolios in a straightforward, low-cost manner.
There are many different advantages to working with EquityNet. Let’s look at a few key benefits here.
Equity and Debt Crowdfunding
EquityNet provides not only equity crowdfunding options, but also debt crowdfunding options where investors can lend money and capital to businesses to help them repay certain debts in exchange for repayment with interest over time. This process is often more simple than working with banks and other traditional lenders, and it presents borrowers with a more convenient cash flow.
You Keep What You Raise
Unlike other crowdfunding platforms that take a percentage of all the money you’re able to raise, EquityNet operates differently. They don’t subtract sums from the money you raise, or charge you extra based on the amount you’re able to accrue. Instead, they operate based on a simple subscription service that lets individuals and businesses keep the money they raise.
Additionally, they don’t charge transaction fees as everything is collected online at no cost to either borrowers or lenders.
There are many solid benefits to working with EquityNet, but before you choose this crowdfunding platform, make sure you’re aware of these key disadvantages.
Subscriptions Are Necessary
While other platforms let individuals invest and borrow on one-off terms or with more flexibility, EquityNet requires that individuals have a current subscription with them. This gives EquityNet a regular income and establishes a standard so that individuals know exactly how much they will be paying the platform each month, but it also means that you’ll be paying even if you don’t use the service.
Offline Funding is Difficult
Because EquityNet works primarily with online funding options, working with cash or via other offline financing streams can be incredibly difficult, so you may need to consider working with another platform if offline funding is a priority for you.
Fundable is one of the largest crowdfunding businesses on the market today. They work exclusively to help companies raise capital for their businesses by pairing them with investors, customers, and friends who have a vested interest in their success.
Fundable provides both their investors and the businesses they work with access to hands-on services that work to help everyone involved better understand the crowdfunding process from creation to marketing. Additionally, they are founder-friendly which means that the people who created Fundable understand exactly what it takes to get a business off the ground and invested in for success, and they love what they do–and they’re good at it. In fact, Fundable generated more than $80 million in funding from investors and customers in their first year alone.
There are several advantages to working with Fundable.
Rewards and Equity Crowdfunding Options
While many crowdfunding platforms encourage equity crowdfunding alone, Fundable also promotes rewards crowdfunding options. This allows businesses to raise capital through crowdfunding by promising their investors certain tangible rewards in exchange for their investment. There is no set limit to what this reward may be, and it may come in the form of either a physical item or a unique digital product.
Low Fees for Campaigns
If your campaign on Fundable is successful, you’ll be happy to learn that you will face minimal low fees. This means that you’ll have more capital left over to invest back into your business and to market your products to a wide audience of engaged individuals so that you can maximize your growth potential rather than having to reinvest large amounts back into your crowdfunding platform.
While there are many key benefits to working with Fundable, there are also disadvantages that must be taken into consideration as well.
Flat Monthly Fee Requirement
While businesses won’t have to deal with high fees for successful campaigns, they will have to pay certain flat monthly rates to continue using the platform. These fees are not waivable–especially if your campaign is unsuccessful, so you may find that you lose more money than you can generate if you can’t prompt individuals and other companies to invest in your product.
Failure to Meet Funding Goal Penalty
If you don’t meet your predetermined funding goal, Fundable will penalize your company and not allow you to accept any of the funds you were able to raise. This means that all of the time and effort you invest in your campaign will be worthless, even if you’re able to meet half or even three-fourths of your original goal.
Note that this penalty only applies to rewards campaigns, not equity campaigns.
LocalStake, like the other platforms on this list, is a crowdfunding platform. It works specifically with Regulation CF, Regulation D, and Intrastate crowdfunding options, and unlike other platforms, it permits non-accredited investors to invest in businesses.
LocalStakeprimarilyy works with local businesses like restaurants and breweries to generate funds, and the investments in the companies are largely considered high-risk as they are typically start-up companies that request funding options. Additionally, LocalStake is a registered broker-dealer which means that they face specific due diligence requirements including background checks of officers and owners to provide an additional layer of security for investors and those being funded.
LocalStake has many great benefits, including the following advantages listed.
Non-Accredited Investors are Welcome
While some bigger crowdfunding platforms require their investors to be accredited–meaning they meet a certain high yearly income minimum or have over a million dollars excluding the value of their home–LocalStake does not. This means that anyone who is approved by the platform may be eligible to invest in the companies that use the service.
No Investor Fees
In addition to not having to be accredited, investors also are not required the often hefty monthly subscription costs, or, indeed, any fees to use LocalStake’s service. This means that they will have more money available to invest in companies to grow their funding options and potential return.
While it’s fun to look at the many advantages a business may have, it’s also important to consider its disadvantages.
Low Number of Active Investments
Compared to other crowdfunding platforms on this list, LocalStake has relatively few active investments. According to their website, they have only helped fund twenty-three businesses and of those, only four are currently open.
Investment Options Can Be Confusing
While LocalStake has many different regulation permits on the kinds of businesses that can receive funding through their service including Regulation CF, Regulation D, and Intrastate offerings, the breadth of these options can be very confusing to investors which may discourage them from investing in certain company types, or from investing with the company at all.
PeerRealty is one of the top real estate crowdfunding platforms on the market today. They believe that true portfolio diversification is not possible without a proper real estate component, and they work to provide a wide range of individuals with that component. PeerRealty provides users with a streamlined online portal that allows investors to participate in real estate deals with some of the top-ranked developers in the United States who cater specifically to the wealthy elite.
There are a couple of key benefits to working with PeerRealty, so let’s look at them here.
Commercial Real Estate Investment Options for Investors
While many other crowdfunding platforms work to provide funding opportunities for physical products or technological advances, PeerRealtyworkss enables investors to take part in diversifying their portfolios with commercial real estate investment. This allows investors to have access to a wider range of investment opportunities by providing equity to a business model that has had great success.
Lower Fees than Average
Some equity crowdfunding platforms charge investors and companies alike incredibly high fees. These can include monthly subscription fees, investment fees, percentages of funds accrued, service fees, and much more. All of these can add up to incredibly high costs that affect how well companies can use their money to grow their businesses and it can limit how much investors can contribute as well. PeerRealty, on the other hand, charges minimal fees that can help a wider range of people benefit from their services.
While there are many strong advantages to working with PeerRealty, it’s important to consider their drawbacks as well.
Due Diligence Package is Incomplete
Many top equity crowdfunding platforms work hard to maintain solid due diligence standards that keep them above board with governing authorities, their investors, and other companies. Unfortunately, PeerRealty does not maintain due diligence standards that meet the level of some of these other top companies, so investing with them may not be as safe an option as other platforms may provide.
Limited Recent Investments
PeerRealty has had limited investments in recent years, so it may be difficult to judge how successful they are currently. This can affect how much money businesses can source from investors and how much money investors are willing to put forward as well.
Republic is a private investment platform that works specifically with investors who want to pursue high growth potential in their investments.
They work with both accredited and non-accredited investors and entrepreneurs across many different private markets to ensure maximum investment opportunities are seized. This range of investors and business options allows fund seekers to diversify their investor pool while growing a loyal fanbase for their product.
There are several key benefits to investing with and growing funding through Republic.
High Success Rate
Investors and entrepreneurs alike laud Republic for its high success rate with projects across a range of industries. This success rate is demonstrated in Republic’s investments to date exceeding more than $500,000,000 by more than a million people. Additionally, they have more than five hundred completed deals under their belt that just go to show how skilled their platform is at converting products through the creation, funding, and marketing processes.
Large Network of Investors
While many other equity crowdfunding platforms strictly work with either accredited or non-accredited investors. Republic works with both. This gives them an edge over their competition because they permit any qualifying individual to invest, regardless of their income, giving them the widest possible pool of investors for their businesses to market products to.
While Republic has several fantastic advantages, it’s important to consider its disadvantages as well.
High Campaign Costs
Republic has an excellent success rate and an enviable network of investors, but to access these things, businesses must pay incredibly high campaign costs. These fees can range depending on the funding amounts you need, but smaller businesses and start-ups without a lot of capital to spend on crowdfunding won’t be able to use Republic’s services to grow their businesses.
Many Legal Obligations
Republic is a crowdfunding service that is highly competitive and sought-after, so it only makes sense that they have high levels of legal obligations and requirements they must maintain as well. These keep their business from facing legal consequences for misstepping with their clients and investors, but it also means that individuals may be required to meet certain standards that other crowdfunding platforms do not require for the same service.
SeedInvest is a platform that caters to private start-ups. They work to promote vetted startups to investors through a range of investment options, and because these investment options are so thoroughly vetted, very few make it through their due diligence process.
SeedInvest’s main goal is to make investing in businesses much more simple than other crowdfunding and traditional funding options may be, and in pursuit of this goal, they became the first equity crowdfunding platform in the United States to make startup investing accessible to the average American citizen. To date, they’ve funded more than 230 companies with the help of more than half a million investors.
There are several advantages to working with SeedInvest.
Wide Range of Investors
SeedInvest works to encourage a wide range of investors to begin funding startups. They do this by permitting not just accredited investors, but also non-accredited investors to invest in the startups they work with. This means that virtually any qualifying individual may be able to invest in projects on SeedInvest.
Auto-invest features are the ones SeedInvest uses to allow individuals to invest in up to twenty-five different startups at once with minimal effort. They do this through a careful automation process that works as a set-it-and-forget-it function for investors.
While advantages are always nice to consider, it’s also important to look at the drawbacks of working with different companies before you move forward.
Not Ideal for Short-Term Investors
Many equity crowdfunding platforms on the market cater to short-term investment options that provide individuals with faster returns on their investments, but SeedInvest is not one of them. If investors want to make good money with SeedInvest and affect projects that matter, they may not be able to do so if their timeline is less than five years.
High Transaction Fee
SeedInvest, like a few other equity crowdfunding platforms on this list, features many high transaction fees that may prevent certain investors and businesses from working with them, especially if their budget is too small to meet specific investment requirements.
StartEngine is an equity crowdfunding platform that works with investors of any kind–angel investors, accredited investors, and non-accredited investors alike. They employ an easy-to-use platform that allows businesses to be sorted to ease investor use. They can be divided into specific categories including industry, product type, and campaign progress as well as investment type, minimum contribution, valuation, and more.
StartEngine comes with many key benefits investors and businesses alike will appreciate.
Low Investment Requirements
While some equity crowdfunding platforms force investors to make high minimum contributions to investment options, StartEngine is different. For as low as $100, investors can begin investing in the company or companies of their choosing. This means that investment opportunities are more readily accessible for non-accredited investors and more readily available for accredited ones.
High Funding Limits
While some equity crowdfunding platforms may set low funding limits to reduce transaction fees or liability, StartEngine raises their limit to five million dollars for individual founders and to an incredible seventy-five million for larger companies. This means that businesses are sure to find all the funding options they need through this one service rather than having to reach out to traditional load providers on top of their crowdfunding.
StartEngine has many great advantages, but there is also a key drawback that it would be wise to consider before you invest.
Not for Short-Term Investors
If you’re looking to get rich quickly, StartEngine is not the crowdfunding option for you. StartEngine works in the long term to provide funds to struggling start-ups that may not experience results for three, five, or even ten years down the line. If you have time to wait out your investment, this may still be a good option for you, but it’s not a fast process.
WeFunder works with non-accredited investors from the general public to provide funding options for start-ups and other businesses. They work with experienced investors to provide advice to new investors about various investment opportunities so that educated decisions may be made. However, it’s important to note that these investments cannot be made without risk, and, in fact, investments with WeFunder may be significantly riskier than those opportunities offered through other equity crowdfunding platforms.
Let’s examine a few key advantages to working with WeFunder before diving into their key disadvantages.
Available to a Wide Range of Investors
WeFunder works with non-accredited individuals to provide financing and funding options to a range of start-ups. And while many equity crowdfunding platforms only permit funding from the United States and other Western countries, WeFunder permits investors from all over the world to participate in their funding operations.
Early Access to Start-Ups
While some equity crowdfunding platforms only grant funding access to more established start-ups, WeFunder works to get investors in on the ground floor by providing early-stage funding opportunities, This allows investors to be involved in the business from the start and helps them have a greater opportunity to learn about private equity.
Now let’s dive into a few of the key drawbacks to working with WeFunder.
The Platform is Newer
Because WeFunder is a relatively new platform, it is less established than some of its competitors. This means that their success rate is less proven, and their risk factors and investment options may not be as well-selected as some of the more established platforms.
WeFunder is a new platform that caters to average citizens, so it’s easy to see how their risk potential is significantly greater than more established equity crowdfunding platforms that balance their investment opportunities between a range of accredited and non-accredited individuals.