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These aren’t the only equity crowdfunding platforms available, but they are some of the best for entrepreneurs
Here at InvestorPlace, we’ve been very excited about the investment opportunities made available on equity crowdfunding platforms across the country.
And while there remains a lot of work to get equity crowdfunding on a level footing with the public markets, there’s no question progress has been made since Title III of the Jumpstart Our Business Startups (JOBS) Act took effect on May 16, 2016.
If you’re a regular InvestorPlace visitor, I think you’ll find our coverage of equity crowdfunding will only get better in the weeks and months ahead. In fact, we will provide investors with investing ideas in the private capital markets.
However, if you’re an entrepreneur with a startup in need of funding, I’m not sure we’ve been nearly as proactive. So, in a shout out to startups, I’ll look at the five best equity crowdfunding platforms from an entrepreneur’s perspective. That said, they are:
With all of that in mind, let’s dive in.
The Best Equity Crowdfunding Platforms for Entrepreneurs: Wefunder
In my opinion, the future success of equity crowdfunding depends on more platforms launching that cater to both accredited and non-accredited investors. The democratization of private investment is not only good for investors, but it’s also good for entrepreneurs.
That said, Wefunder calls itself the “Kickstarter for investing.” Since its founding in 2012, it’s raised nearly $155 million from 568,613 investors for 426 startups. Of the $153 million, $110 million was through Regulation Crowdfunding (CF) rules. These limit the maximum a company can raise in a single year to $1.07 million. In turn, some of these startups went on to raise more than $4 billion in venture capital.
In terms of market share, it’s raised more dollars than its top three competitors combined. That said, this suggests that Wefunder is doing something right.
So, what’s it going to cost you to raise funds? Well, you pay nothing if you don’t raise anything. That would be downright cruel. For anything you do raise, though, Wefunder takes 7.5% of the funds.
And with that, a simple fee structure is one of many reasons why Wefunder is the country’s leading equity crowdfunding platform.
I’ve been a fan of the Republic equity crowdfunding platform for a while now. However, it was the campaign from Back Porch Homes late in 2019 that caught my attention. Long a fan of tiny homes (my wife hates them), founders Stephen McKee and Todd Bayer set out to build an affordable tiny-home-on-wheels that would allow people to live in relative comfort without the expense of a permanent home in the city.
In October 2019, it had pre-sold 87 of its Companion tiny homes — good for about $4.4 million in pre-orders. It had also raised $578,000 from investors before its Republic campaign launch. Seeking between $100,000 and $1.07 million from its campaign, Back Porch Homes managed to raise $158,088 by the time the campaign closed on Dec. 7, 2019.
And while that might not seem like a lot, it’s plenty when you consider the head start it’s had in terms of advance orders for the Companion.
However, what’s perhaps more exciting than the individual campaigns currently open on the Republic platform is the work it’s done raising funds through the Republic Note security token. This allows buyers of these tokens to share with Republic in the success of the companies raising funds on the platform.
That said, I recently had good things to say about the Republic Note:
“If you’re a non-accredited investor and looking to expand your horizon beyond the public markets, the Republic Note is an excellent way to dip your toe in the water. It provides diversification, a sense of ownership without the volatility of common stock ownership and can be bought and sold on the private markets one year after delivery.
If you’re an accredited investor who doesn’t want to take on the specific company risk attached to each equity crowdfunding campaign, the Republic Note is an excellent way to make a sizable investment while being able to sleep at night.”
Moreover, on Aug. 7, Republic announced that it sold $16 million of these notes. The number was reached with $11 million through accredited investors (Reg 506c), and $5 million in reservations of interest by non-accredited investors.
Additionally, the one thing I didn’t make clear in my discussion about the Republic Note is that the non-accredited portion of the digital asset fundraise is still awaiting regulatory approval from the SEC.
Any way you slice it, though, Republic is on the cutting edge.
If I’m going to write about the five best equity crowdfunding platforms, one of them has got to be related to real estate.
My InvestorPlace colleague Tom Taulli recently discussed crowdfunding and real estate with Republic Real Estate co-head, Janine Yorio. She headed Compound; an equity crowdfunding site focused on apartments until Republic acquired it in mid-June.
And while I know Republic is going to do a bang-up job in the real estate sector, in the interest of diversification, I suggest you do your due diligence as Republic’s offering evolves.
In the meantime, though, I’m going to talk about Groundfloor. It is an Atlanta-based company I recently reviewed that provides regular investors — accredited and non-accredited — an opportunity to invest in house flips on a project by project basis.
In fact, I get an email weekly that shows me all the new projects available to invest in. The investment portal shows me the project details, interest rate, term, payment schedule and amount raised. It also rates the quality of the project.
For example, a single-family home in Dallas was purchased for $250,000 in December 2019. The buyers planned to renovate and sell it. They borrowed $226,750 at 9%. And although it was a 12-month term, the owners repaid the loan on July 3 — five months early. Overall, the value of the home after the renovation was $325,000.
Moreover, for the home flipper, the loan rates start at 6.5%, interest is deferred until the loan is repaid, loans vary in size from $75,000 to $350,000 and they come in 6-, 9-, and 12-month terms.
Also, Groundfloor will loan up to 90% of the cost of the project (house purchase price and renovation costs) depending on your experience. This means that if you buy a house for $200,000 and put $100,000 into it in renovations, Groundfloor will loan up to $270,000. However, to get this Loan-to-Cost ratio, you’ve got to be good.
On that same project, if the new value after renovations is estimated to be $400,000, they’ll loan up to $280,000 or 70% of the value.
Therefore, for real estate entrepreneurs and investors alike, Groundfloor comes with a better gameplan.
The Ohio-based equity and rewards crowdfunding platform Fundable was founded in 2011. Since then, it’s helped entrepreneurs raise more than $615 million in funding from accredited investors across the U.S.
Usually, I’m not a fan of platforms focused solely on wealthy investors. However, if you’re looking to raise a decent amount of capital for your startup and have a solid business plan, the fees associated with putting your campaign on Fundable are much less than what you would pay on most other platforms.
So, you’re free to set up a company profile on its site that you can share with your circle of influence. Once you’re ready to launch your campaign, you’ll pay $179 per month for the duration. There are also no success fees. Thus, based on 5% and a $1 million fundraiser, you’re saving upwards of $40,000. That’s not insignificant.
Additionally, if you decide to do a rewards-based campaign rather than an equity crowdfunding campaign, you’ll also have to pay merchant processing fees (standard in any selling situation) of 3.5% plus 30 cents per transaction.
Should you require extra guidance, Fundable does offer a premium package. However, it’s said to cost $2,500. However, given its experience getting businesses funded, that isn’t an unreasonable amount.
The biggest issue for entrepreneurs will be that it operates an “all or nothing” fundraising model. This means that if you set a 90-day campaign to raise $250,000, if, at the end of those three months, you haven’t met your goal, you won’t receive any of the funds raised in those three months.
It might seem like an unfair tactic, but my guess is it keeps the tire kickers to a bare minimum. Hence, the $615 million in funding raised over the past nine years.
Therefore, if you’re serious about raising capital, Fundable could be for you.
Taken from https://investorplace.com/2020/08/5-best-equity-crowdfunding-platforms-for-entrepreneurs/