Since President Obama passed the JOBS act in 2012, we’ve been witnessing the beginning of a new movement in the U.S. – one that empowers entrepreneurs to raise money from almost anyone, anywhere. It’s a movement that removes the barriers to fundraising so that it’s not just those who know the right people or who are in the right place at the right time that can work on their passions.
Title III of the JOBS Act, passed in May 2016, opened doors for both entrepreneurs and investors alike. Now, entrepreneurs can raise money from investors all over the world.
In November 2016, Indiegogo and MicroVentures launched First Democracy VC, a registered equity crowdfunding portal. As one of the foremost players in the space, we’ve learned a thing or two.
Here are a few things founders should know about Title III, also known as Reg CF, equity crowdfunding.
1) It’s called equity crowdfunding, but you don’t necessarily have to do an equity raise.
You can do an equity, debt, or even revenue share offering. Different structures are better or worse depending on your specific company, industry, stage, and financials. We suggest researching the different options to see what structures might work best for your company, and once you’re ready to move forward, our team can help you figure out what the best structure is for your particular company.
2) Equity crowdfunding isn’t only for tech startups.
Equity is all about empowering entrepreneurs, and over the last six months we’ve helped fund founders in categories as diverse as hardware, software, food and beverage (including restaurants, distilleries, and bars), gaming, film, and media.
3) An equity crowdfunding raise can be part of a larger raise that you’re doing with institutional investors and angels.
You can carve out a piece of the round for your community and let them invest right alongside the more traditional investors.
4) Your engagement directly influences the success of your raise.
It’s very important that you as founder/CEO are engaged both during the due diligence process and during the raise itself. We’re not going to lie: it’s an intensive process and there are a lot of “i”s to dot and “t”s to cross. The entire process is a partnership, and while we as the platform will promote your listing to our audiences, it’s critical that you do your part and engage with yours. As an engaged founder, the setup process will move along more quickly and smoothly, and you’re likely to raise more money when your deal goes live.
5) You can decide your minimum and maximum raise.
For example, you might attempt to raise between $100K-$500K. $1M is the maximum amount you can raise via Reg CF in a 12 month period.
6) Equity crowdfunding is more than just about money.
It’s also about engaging your passionate community of friends, family, customers, and supporters, building a tribe of ambassadors for your company and brand, and also letting those key people share in the potential upside of your company’s success. Plus, as we’ve seen in Indiegogo perks-based crowdfunding, equity crowdfunding can also provide market validation for your company and/or product.
7) Anyone can invest.
Under SEC Title III/Reg CF, the companies raising money need to be incorporated in the U.S., but anyone over 18 can invest from anywhere in the world as long as your country allows it. Investing in startups and private companies is no longer limited to just the wealthy.
8) SPVs currently aren’t allowed but there are ways of dealing with lots and lots of small, individual investors.
Special purpose vehicles (SPVs) where all investors are pooled into one entity, and therefore one line on your cap table, aren’t currently allowed for a Reg CF raise. One way of dealing with lots of individual investors is a revenue share structure. This structure doesn’t make sense for every company, but for some it’s a great way to reward your investors without giving away any equity.
Another option is a Crowd Safe. This is similar to the popular SAFE (Simple Agreement for Future Equity), but you can extend the conversion to equity beyond your next round of financing. For example, you can set the conversion to an exit so that even if you get hundreds of investors in the raise, they won’t actually be converted to equity holders on your cap table until an exit.
Equity crowdfunding is the next generation of how fundraising works. Since day one, our mission has been to empower entrepreneurs to work on projects they’re passionate about. If you’re interested in pursuing equity crowdfunding for your company, let us know at equity.indigogo.com/entrepreneurs.
Ready to learn more about equity crowdfunding? Join Indiegogo co-founder Slava Rubin and Techstars founder David Cohen for an AMA on Thursday, July 13, 2017 at 9am PT/10am MT. Register here.
Just over six months ago, we launched equity crowdfunding on Indiegogo. Through our joint venture with MicroVentures, First Democracy VC, anyone can invest in startups and innovative companies for potential financial returns.
Since November 2016, we’ve launched 14 offerings, raising nearly $5M from more than 3,700 investors worldwide. All 11 of our completed deals reached their minimum goals, and we’re constantly adding new offerings ranging from tech companies to distilleries to films and more.
So, what exactly IS equity crowdfunding? This fairly new industry is growing quickly following the passing of Title III of the JOBS Act in May 2016. Whether you’re interested in investing in companies you care about or opening up your early-stage startup to investment crowdfunding, here’s what you need to know.
What is Equity Crowdfunding?
Equity crowdfunding, also commonly referred to as investment crowdfunding or crowdinvesting, is a concept that arose in 2009. Equity-based crowdfunding allows people to invest in an early-stage, private company (a company that is not listed on any stock exchange) in exchange for equity (shares, or a percentage of ownership) in that company.
This is different from rewards-based crowdfunding, where people can contribute money to campaigns in exchange for perks.
Title III and the JOBS Act
In April 2012, President Barack Obama signed the Jumpstart Our Business Startups Act, or JOBS Act. One of the goals of this act was to give more people to ability to participate in investment opportunities. Title III, passed on May 16, 2016, was a landmark piece of legislation for the investment crowdfunding space.
Title III gives every American the opportunity to invest money into the startup companies they care about, while enabling issuers to raise up to $1 million over a 12-month period online.
Who Can Invest in Equity Offerings?
Since the passing of Title III, any American 18 years or older is eligible to invest in an equity offering. International investors can invest as long as they follow their countries’ securities regulations, so we recommend checking local securities laws before investing.
What are the Benefits of Investing in Equity Offerings?
As with any investment, there are always risks. There is always the possibility of losing all or a portion of your investment. However, the unique nature of investment crowdfunding offers many benefits that investors won’t find anywhere else.
Because most offering companies are early-stage startups, you get a chance to be a part of the journey, with the potential to participate in the company’s upside. You’re showing your support early on, which gives you the chance to feel more engaged and as though you are actually a part of the business. Plus, you can diversify your portfolio, while supporting new ideas as they come to life.
If you have ever wanted to be a part of a company’s journey to success, equity crowdfunding could be for you. Investing in an innovative startup gives anyone the opportunity to own a piece of the company and be along for the ride, whether up or down. It’s also a great option for early-stage companies to bring together their communities and engage with their biggest supporters from the beginning.
Ready to learn more about equity crowdfunding? Join Indiegogo co-founder Slava Rubin and Techstars founder David Cohen for an AMA on Thursday, July 13, 2017 at 9am PT/10am MT. Register here!
This blog post was originally published on Indiegogo.
GSB Teams: Looking to Crowd Fund? Grab Your indiegogo Resources Here!
If you competed in this year’s Global Startup Battle, we highly encourage you to keep working on your concept, whether or not you’ve made the top 15 for your Circle.
Indiegogo is an international crowdfunding site where anyone can raise money for film, music, art, charity, small businesses, gaming, theater, and more. If you’re ready to get started, use the GSB Campaign Creation Link to begin creating your campaign.
To help you out, the wonderful team at Indiegogo created this ‘Crowdfunding 101‘ document just for you. It includes benefits of crowdfunding, 6 fundamentals of a successful campaign, resources and help getting started. Download it here.
Wait there’s more…the following resources are also available to help you as you build:
- Campaigner Field Guide – complete guide to running a successful crowdfunding campaign
- Introduction to Crowdfunding Training Video – additional training videos available here)
- Insights Blog – helpful stats/metrics/tools for running successful campaigns
Watch the entire GSB Crowdfunding Webinar below.
My biggest fear was that we would win. Then what?
It was the first ever Maker Edition of Startup Weekend in Seattle and the competition was fierce. My team was up against hardware veteran Marc Barros, Founder of Contour Cameras and Kyle Kesterson CEO of Freak’n Genius, who blew my mind at my first ever Startup Weekend event 2 years prior. The entire weekend I anxiously told my team that we had better be amazing to beat these guys.
Then Morgan, who is now my cofounder, blew everyone’s mind by developing algorithms that could track weightlifting reps with an accelerometer and an Arduino device; In a weekend! And sure enough that put us over the top to win the first ever Maker Edition of Startup Weekend.
But that was a problem. Starting a hardware company is hard and expensive. But we decided to maintain the momentum of the win. We adjusted our focus from rep tracking to a much more fundamental and wide spread problem: sitting. With a more narrow use case and clearer problem to solve we were ready to test the market. We talked with several mentors and friends they suggested that we launch a crowdfunding campaign to see if our product had legs. The thinking was that we could make a quick video, 3D print some prototypes, take some pictures and be done. Simple and quick right?
Wrong. Crowdfunding is tough work. It involves a lot of preparation, particularly in getting the word out. Luckily I had a great mentor along the way: Joe Heitzeberg. Joe had recently successfully launched and funded his campaign for Poppy on Kickstarter. One day, while running errands in his car with him, he unfolded the mystery of crowdfunding to me: I call it Reach.
Essentially there are 3 levels of Reach: 1) Friends and Family 2) Top Tier Media 3) Other Media. Joe explained that each one is essential to reaching your crowdfunding goals and each one requires their own strategy.
Level 1) Friends and Family: With friends and family you have to bring them along on the journey. 6 weeks prior to our launch we started an email list on Kickmailer that included all of our friends and family. Each week we would update them on our progress and include a few pictures to keep it interesting. We got invaluable feedback on the product and our campaign. This is where we also found connections that helped us with both Top Tier Media and Other Media.
Level 2) Top Tier Media: 2 weeks before our campaign was live we sent out an email to friends and family to ask for connections to Top Tier Media. Very few people had these connections and when they do they guard them close. It took a lot of hustle but we eventually got intros to the WSJ, TechCrunch, VentureBeat, GigaOM and others. Then a week later we flew to SF to do in person demos. Joe explained that this was key because it would help us stand out from all the product pitches they get and he was right.
Level 3) Other Media: Through a friend on our email list we were introduced to Vivek an MBA student that was invaluable to this level of Reach. He made a list of 200 blogs with their email addresses so that we could blast an email to all of them the day of the campaign. We then set up a Media page on our site with a sample story these bloggers could copy and paste from, with high res and blog size images, and essential info about us and our Indiegogo campaign; everything to make it easy for them to cover us.
In the end our Reach was pretty significant. Between all 3 strategies we have woven a strong web of connections that we hope will make the difference in reaching our goal on Indiegogo.
Still, each time we have a win, I find myself nervous about the next stage and asking myself now what? But the momentum of progress blazes a trail just far enough ahead to guide us into the next win. That’s what I love about Startup Weekend: it gives you a penchant for action which always leads you to a win, in some way or another. So get out there and build something this weekend and see where it will take you.
Please take a moment to view our Indiegogo campaign. We appreciate any support!