Last year we highlighted Wind Harvest Energy launching an equity crowdfunding campaign. They were successful. This year we have another regional company launching Area 13 eBikes, from the Bolton E Bikes team. Now we are getting more inquiries about this option. We are seeing more growth in the amounts raised year on year. I want to highlight some of the benefits of equity crowdfunding and what has changed.
The biggest change in Equity Crowdfunding is how the rest of the investment community and law firms see it. When we first asked people about it, we were warned it was complicated and would reduce future opportunities. This turned out to be true, but like all new innovations, people got better at it. SEC rules have gotten better, and the limit has been raised on the amount of money that can be gathered through crowdfunding. The downside of having a thousand small investors as a barrier to later stage investments has been mitigated by legal structures putting all the small investors into one vehicle which owns the shares in the funded company. The idea is to deal with the small investors as a group rather than individually. This makes later stage investors more understanding.
Equity crowdfunding has enabled companies to break into public capital sources typically only available to those with the right networks. Historically, 80% of VC money was invested in just 5 metro areas. Compare this with numbers from Startup Engine, 42% went to the same 5 metros.There still are things you need to consider when choosing how to raise funds, but more and more early-stage companies are fundraising through crowd equity to reduce the geographic disadvantages of traditional fundraising.
What can Equity Crowdfunding bring you?
With crowdfunding you can approach a wider audience who may better connect with your solution because they are the end user. Like Bolton E Bikes with thousands of YouTube followers and a large following online they can leverage that belief in their product into investment. Equity crowdfunding gives companies control to use exposure, create brand ambassadors, and build sales channels in parallel with continual fundraising.
How tough is it?
For a technical founder, this fundraising involves more social media and marketing. That probably isn’t any closer to their skill set than public speaking and pitching for investment. Companies need to have a good plan and team to execute If your equity crowdfunding campaign is successful, you still have investors to be held accountable to and you need a team (Including quality legal and accounting support) to guide you. If a company cannot build a balanced team they are still going to struggle.
Traditional fundraising through partnerships and VC brings new networks, validation, potential for additional funding and experience. They become a valuable part of your team. If you are struggling, they may be more understanding and willing to provide additional resources and capital.
What makes a company successful?
I don’t know. Honestly, I would never have expected companies with B2B solutions, who will never make a consumer product, to have success with Crowdfunding. It might be more about companies taking advantage of market conditions. Crowdfunding is still pretty new, and in that time the market has been hot and, until this year, hasn’t faced a sustained downturn. Crowdfunding will never be a panacea, but it appears to be a viable option if a company can bring together the right team.
One important thing to remember is there are many legal and accounting parts of fundraising, so don’t go it alone. CleanStart is supported by GreenbergTraurig Law, Weintraub Tobin Law, and Moss Adams Accounting. Reach out to them for help. Also, connect with us. We have developed a network of people we can connect you to.
ABOUT THE AUTHOR
Thomas is the Executive Director of CleanStart. Thomas has a strong background in supporting small businesses, leadership, financial management and is proficient in working with nonprofits. He has a BS in Finance and a BA in Economics from California State University, Chico. Thomas has a passion for sustainability and a commitment to supporting non-profits in the region.