Trends #0024 — Equity Crowdfunding

Crowdfunding platforms are built around rewards, debt, donations and equity.
We’ll discuss the emergence and future of equity crowdfunding.

🔍 Problem

Founders need to raise money.

💡 Solution

Equity crowdfunding provides another option to raise capital. In addition to banks, angel investors, venture capitalists and more. You can raise from the public.

In the early 2010s, many countries made this possible. The U.S. joined in 2016 with the U.S. Jobs Act Title III. Which allows non-accredited investors to participate in equity crowdfunding.

Equity crowdfunding shocked the startup ecosystem, created new types of businesses and shifted power dynamics. This is just the beginning.

🏁 Players

Platforms

Companies

Founders

🔮 Predictions

  • Crowdfunding platforms will get unbundled. EnergyFunders is for oil and gas investments. Fundrise is for real estate. Localstake is for small businesses.
  • Platforms will emerge to crowdfund collectibles. Masterworks and Otis let you buy shares in non-income generating assets. Liquidity comes from resale. See the returns of these Basquiat paintings. And the investment memo for this comic book. Are Pokemon cards and classic cars next?

☁️ Opportunities

  • If you don’t have time to vet deals, avoid equity crowdfunding.
  • Build a process to vet deals. What’s your thesis? What will you not invest in? Do premortems.
  • Don’t look at equity crowdfunding in a vacuum. As an investor, you’re looking for yield. Compare this asset class to others.
  • Craft a compelling story. Selling is storytelling.
  • Crowdfund a community. Give members equity and create alignment. SoleSavy is raising a seed round for a community of sneaker enthusiasts. Where else could this work?
  • Use crowdfunding to get users. Linen issues equity for downloading the app and inviting friends.

😠 Haters

“Equity crowdfunding is a negative signal.”
Hot rounds get funded before they make it here. But some companies use venture capital and equity crowdfunding. The latter lets non-accredited friends and family invest. Crowdfunding can also be used for promotion.

“Using equity crowdfunding for promotion can backfire.”
If you don’t hit your funding goal, a marketing stunt can become a negative signal to existing and prospective investors.

🔗 Links

  1. Pure Green Raises $1M Through Equity Crowdfunding • See how investors become super fans.
  2. Equity Crowdfunding: High-Quality or Low-Quality Entrepreneurs? • A study shows that founders using equity crowdfunding may be more likely to fail.
  3. Why Winc Is Turning to Equity Crowdfunding to Raise Capital • Winc raised from a top-tier VC firm and used equity crowdfunding.
  4. The Angel Syndicate & Equity Crowdfunding Boom • How equity crowdfunding is changing the investing landscape.
  5. Dawn Dickson was the first woman to raise the maximum amount through regulation crowdfunding.


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