Top 10 US Reward and Equity Crowdfunding Platforms

Top 10 US Reward and Equity Crowdfunding Platforms

Mass digital connectivity has significantly disrupted the business investment market. Online crowdfunding enables company owners to trade equity for funds to invest in growth. Who’d have thought 10 years ago that it would be possible for business owners to raise seven-figure sums from people they didn’t know, or even have as a customer? The vital stepping stone was the sometimes massive sums raised on reward crowdfunding platforms. Except early backers are unable to invest in the companies themselves, only acquire their often innovative products.

Reward crowdfunding

  1. Kickstarter is the world’s largest reward crowdfunding platform. It was launched on April 28 2009 in New York as an alternative way to raise funding for performance arts projects and productions. Its model is to encourage low value donations from a large group of people rather than a lot of money from a few individuals.
    It quickly expanded to cover many other hobby, craft and product categories, and has raised almost $3.05bn through hosting 124,935 successful projects (the figures are updated daily by Kickstarter).
    It has an “all or nothing” policy meaning projects that fail to reach their target don’t receive any funding and the backers who made pledges don’t pay anything. Successful projects pay a 5% commission plus up to 3% transaction charges.
  1. Indiegogo actually launched first in January 2008 in San Francisco, again as an alternative way to raise funds for arts projects. Indiegogo also quickly grew to host projects in many different categories.
    A significant difference is that Indiegogo allows projects to receive the money that’s pledged even if they fail to reach target. When this happens their regular 5% commission rises to 9%, plus there are always transaction fees of approximately 3% on every project.

Top 10 US Crowdfunding Platforms (Reward and Equity)Since 1 January 2014, Indiegogo has hosted slightly more projects than Kickstarter: 231,900 vs 218,896 (as measured by crowdfundingcenter.com on May 17 2017). However,  Kickstarter has hosted significantly more that reached their target – 68,984 vs 26,272.

Based on these figures Kickstarter has an average success rate of 31.5% and Indiegogo achieves 11.3%.

These two broad scale platforms dominate the US reward crowdfunding market and to have a point of difference the next largest platforms focus on specialist business sectors.

  1. PledgeMusic is third placed behind these two giants, as measured by website traffic. It launched in August 2009, aiming to do for the music industry what Indiegogo and Kickstarter were doing at the time for other arts genres. It is used by all types of people from hopeful wannabes to established performers with an existing fanbase.
    It operates like Kickstarter on an “all or nothing” basis for people raising money to complete a project like record an album, and on a “keep what you raise” basis when people use it as a sales channel for any finished content that can be downloaded. It charges a flat and all-inclusive 15% commission on “sales” and fundraising projects that hit or exceed target. This looks expensive though they claim a success rate of over 90% for the average 100 projects they carry per month.
    The platform operates globally by accepting payments through credit cards and Paypal.
  1. Seed&Spark is an industry specific crowdfunding platform for the tv and film industry and is based in Los Angeles. It launched in December 2012 and within an overall aim to build an independent film community it provides filmmakers with a reward-based crowdfunding facility. They claim a 75% success rate.
    Projects must reach a minimum 80% of target to keep the money pledged by backers. Then upon completion of a film, any project that also gathered over 500 backers is automatically eligible for distribution through Seed&Spark and their partners including all major cable and digital platforms such as iTunes, Comcast, Verizon, Netflix, and Hulu.
    Seed&Spark charges a 5% fee on successful projects, though offers project backers the opportunity to add this to their pledge. Many choose to do this and on average the crowdfunding projects themselves pay just 1.9% of funds raised to the platform.
  1. Barnraiser is a platform for artisan food producers, small farmers and exponents of sustainable, healthier living. It encourages its community of over 30,000 like-minded people to crowdsource advice and contacts from each other, and also provides a rewards crowdfunding facility they claim has a 65% success rate.
    It launched in 2014 and 187 projects have been successful. The largest amount raised was $93,190.
    Successful projects are charged a 5% fee based on the amount raised plus payment processing fees of 3-5%. If funding isn’t successful there are no fees.

Equity crowdfunding
Title III of the JOBS Act came in to effect in May 2016 and extended online equity crowdfunding opportunities to Americans earning under $200,000 per year, though included limits on the amounts that could be invested. New platforms were launched to provide a full online equity crowdfunding facility to this wider market, whereas the previous ones serving higher net worth individuals (“accredited investors”) required transactions to be made offline.

The Wefunder platform tracks progress of this new retail equity crowdfunding sector based on mandatory Form CU filings on the SEC’s EDGAR database. Since May 16 2016 to May 23 2017, just over $35.8m has been raised through Regulation Crowdfunding offerings.

Top 10 US Crowdfunding Platforms (Reward and Equity)

  1. Wefunder is the early market leader and it launched in 2012. The minimum investment size is $100, and Wefunder has created internal Investor Clubs in order that part-time investors in its network can access the wisdom and leadership of more experienced and professional investors and combine their investments with them on equal terms.
    Wefunder members have provided 55% of all online equity crowdfunding investments through Regulation Crowdfunding in the first 12 months of online equity investment trading being open to non-accredited investors.
  2. Investments made through StartEngine, which is based in LA and launched in June 2015, represent nearly 22% of the Regulation Crowdfunding total raised so far, according to SEC figures. StartEngine also raised $17m from 6,600 investors under Regulation A+ for its client Elio Motors.
  3. In 2016 Indiegogo ventured into equity crowdfunding in partnership with Microventures to launch a platform called First Democracy VC. To date it has accounted for 9% of the sector’s total $35.5m.
  4. NextSeed is based in Houston and its investor network has invested $2.8m in equities, 8% so far of the combined Regulation Crowdfunding. Investors can put in as little as $100 and NextSeed’s equity crowdfunding projects have ranged from as low as $25,000, typically for personal leisure/entertainment/service providers such as bars, restaurants and hairdressers.
    NextSeed also provides companies with debt facilities which contribute to their claim of having provided their clients with total funding of $3.8m.
  5. Three other platforms in this sector tie for fifth place as they have each raised in the region of $1m for clients from equity investors:
  • Republic (offers Reg CF only and investments can begin at just $10);
  • SeedInvest (which mainly focuses on non-Reg CF raises of over $1m);
  • FlashFunders (where Reg CF investments can start at $50 and they also handle Reg D raises over $1m and Reg A+ raises up to $50m).

Whilst equity crowdfunding is now at least possible to some degree for everyday Americans, and there are some equity crowdfunding platforms that at last provide the single “one stop shop” we are accustomed to in the UK, there are still some built-in restrictions that impede faster growth. These include businesses cannot use Regulation Crowdfunding to raise more than $1m (about £833,000).

If you are based in the UK and considering any form of crowdfunding to raise money for a business startup, to scaleup an existing business, or to use a crowdfunding platform as a sales channel for your products, then please get in touch if you’d like a free and confidential consultation with an independent crowdfunding adviser – which is me! Call 07788 784373 or send an email to [email protected]

Equity crowdfunding hopefuls and ten tips from successes

This month I enjoyed a week in which week I met nine entrepreneurs at different ends of the equity crowdfunding spectrum. Six were seeking investors, three were sharing tips on having achieved successful results. The willingness to share experiences and support each other is a very positive characteristic of the crowdfunding sector that helped me decide to specialise as an independent crowdfunding adviser. And those tips apply just as much to donations-for-rewards crowdfunding as equity projects.

Investors and business development advisers critique crowdfunding hopefuls
Investors and business development advisers critique crowdfunding hopefuls

The six entrepreneurs ready to trade equity for investment presented to a panel of four advisers and an audience of over a hundred people gathered in Whitechapel, London E1. The audience included several potential investors plus other people who were planning how to conduct their own equity crowdfunding to launch or develop their businesses.

The meeting with the successful users of crowdfunding was organised by equity platform Seedrs and held in a function room at Camden Market, London NW1.

The Hopefuls
Here is a brief summary of the six companies and the diverse business sectors they operate in.

In Your StrideIn Your Stride, founded by Shaun Lancaster, is a smart adaptive coaching platform. It matches runners’ individual abilities with a database of over 20,000 events to create a custom training plan that adapts with progress. It is compatible with a range of wearable technology for easy use. It is available through a personal subscription, and also supported by charities that stand to receive more sponsorship income if people running in events on their behalf achieve better results. In Your Stride has exceeded its £100,000 target on Crowdcube for a 15.8% stake in the business.

Unis Learning provides HR departments with the means to test the aptitude of potential employees and thus place them in the most productive roles compatible with their inherent talents as well as academic qualifications. They wanted £150,000 for 20% and would seek further investment two years on.

Waleed Shihadah, Commercial Director at Perks LoyaltyLeeds-based Perks Loyalty, represented by Commercial Director Whaleed Shihadah, enables local traders to co-operate and utilise electronic customer loyalty cards. It empowers the traders with affordable technology to build and maintain business traffic through customer tracking and dynamic and adaptable benefits. Perks Loyalty is currently seeking £130,000 through Crowdcube for 8% of the company. One of the panellists thought they weren’t seeking enough to establish themselves firmly in their competitive marketplace.

Two bespoke high-end men’s tailoring companies, Daniel & Lade and Edit Suits Co., utilise the benefits of electronic 3D imaging and laser cutting to create quality clothing at a fraction of the cost of traditional suppliers. Both want extra money fast to develop ahead of the me-too competition in this obviously highly competitive business sector.

Colony is a new management software tool to manage increasing numbers of staff working remotely. It helps new office-based companies set up without the need for as much office space as traditional businesses, if any at all. They want £450,000 for 20% and in 12 months they will be seeking further investment.

What all six have in common is harnessing the latest IT, developing its use to provide tangible customer benefits, and trying to raise funding to move faster than inherently slower existing competitors tied to older methods and perhaps dated software. If you have a business idea along these lines then perhaps you’d like to get in touch with me and we can explore the opportunities and benefits that equity crowdfunding could deliver for you.

The successes
The three successful equity crowdfunding users had all used the Seedrs platform.

  • Shaken Cocktails raised £118,690 for 9.43% equity in March 2015
  • Incubus is a business incubation service for start-ups provided on a converted double-decker bus. They raised £53,770 for a 15.95% stake in July 2014
  • Brother Cycles make bike frames and builds custom bicycles for their customers. They raised £125,880 for a 16.22% stake in the business in July 2015

Ten tips the three companies offered.

  1. Thorough planning and preparation is vital. Decide on who (the types of people) you want to tell about your offer, create in advance what you’re going to tell them (the content), and plan when to tell them (don’t overload demands on your own time by telling everyone all at once, stagger it).
  2. Examine projects by other equity crowdfunding users in your business sector. Check for opportunities through your platform provider to identify and contact backers with a relevant investment history.
  3. Build your own networks of relevant people for as long as possible before going live. Every person you have ever met is a potential investor! This crowd-building includes making professional media contacts to ensure a good response to press releases in your local area and sent to relevant trade/business sectors.
  4. Pre-sell to your closest contacts and supporters so that you can count on at least 30% of the funding arriving in the first few days. This gives the project vital momentum and reassures other would-be investors.
  5. Ensure you and your support team have adequate social media skills, or have a budget to access some.
  6. Crowdfunding can be a fulltime role. Organise your day job, maybe by taking on temporary support, so you have the time to answer questions, send out information, and personally meet prospective backers. Don’t forget – people invest in people, get out and meet some investors.
  7. Set weekly targets to monitor progress and check that you are doing enough, and establish what’s working well and what isn’t.
  8. Make it easy for investors to tell their own networks about your investment opportunity, provide them with content.
  9. Be flexible to accommodate other opportunities that arise, such as offers of retail distribution.
  10. Invest some time on your new backers because they could turn in to important brand ambassadors for your business.

In short, you will need soft ‘people skills’ to engage with potential investors; an ability to segment audiences and identify key prospects; skills to harness the power of the written word; social media skills; an easy to deliver and understand SMART business plan (Specific, Measurable, Achievable, Realistic, Timetabled); a budget to bring in any of these skills and any other requirements as necessary (such as video production, temporary office support staff); a campaign plan with KPIs; a campaign manager to oversee everything if you don’t have the time. These requirements are just as important for donations-for-rewards projects.

Picture-of-CliveOr contact me, an independent crowdfunding adviser, at [email protected] or on 07788 784373.

Crowdfunding’s role for worthy causes

Crowdfunding goes from strength to strength. And for social community projects and worthy causes, crowdfunding provides new and exciting opportunities for fundraisers to exceed previous levels of expectations, perhaps by up to three-fold.

Here’s how it works. Like most other disruptive changes to established ways of doing things, it is based on the internet. Crowdfunding delivers an innovative way to generate an investment budget to finance a business start-up, expand an existing organisation, or achieve a worthy aim in the community. The crowdfunding process makes your funding requirement public on a dedicated website platform, and you need to drive a big enough crowd of people to it and convince a high enough proportion of them to give just a little bit each towards what you need.

There are four broad types of crowdfunding. For businesses it includes money on loan with pre-set repayment terms, or in exchange for some company equity. For social community projects or worthy causes there are direct appeals for donations (with or without reward incentives) that do not incur any responsibility of repayment.

Donations campaigns are often built around a donations-for-rewards model. Donors not only feel a rosy glow from supporting a cause they empathise with, they are also encouraged to give by the range of perks and incentives offered in recognition of their support. This reduces the net income a crowdfunding project generates by the amount it costs to source and distribute the perks. Though if the perks include merchandise material that promotes the cause or the project then they can deliver valuable longer-term visibility. Perks may also include reduced rates to buy products or use a facility or venue, encouraging a level of habit-forming patronage.

Here is what makes crowdfunding particularly effective for worthy causes. The money raised through donations campaigns tends to come in three roughly equal parts. The first third is donations from your closest contacts and you need to personally secure their support. In the past this may often have been the extent of the fundraising for a particular cause or project. However, crowdfunding now provides effective leverage to use this income as a base upon which to achieve even more, perhaps double the initial amount again. Do the personal selling in time to refine an effective pitch for your important crowdfunding video.

The donations from the key personal contacts should appear quickly in your online crowdfunding project, certainly in the first few days because they will inspire and encourage other donors to follow them. The next third of donations are likely to come from other contacts in your e-mail database and various social media networks who are not close enough for you to have reasonably approached on a personal basis. It is thus vital to have an organised e-mail database and sufficiently sized social media networks for this to be viable, and some prepared content to quickly distribute. You may want to consider an e-mail automation programme. Independent crowdfunding advice on several of these issues could be very worthwhile.

The average UK crowdfunding donation is around £35, and – again on average – one in twenty people who visit an online crowdfunding project will make a donation. Depending on your target amount you can start doing the sums to estimate the size of crowd you need to drive to your crowdfunding project.

And finally, there are many, many people out there who are open to contributing to good causes. Up to a final third of your  income can come from people outside of your networks, people you have never been in touch with before, but who are encouraged by the quality of your project and reassured by the fact that so many people who do know you are prepared to contribute. It gives them confidence they are making the right decision. Traditional media coverage generated through PR and Twitter hashtagging can usefully extend awareness of your crowdfunding project beyond your known contacts. This needs to be put in hand perhaps months before your crowdfunding goes live. You can of course then add these new people to your database to maintain regular contact and develop a deeper relationship with them.

PrintClive Reffell established Comanche Communications & Marketing in 2014 to provide independent crowdfunding advice to SMEs. He brings a wide range of problem-solving experience from a 30-plus year career in results-focused marketing. His formal qualifications include post-graduate diplomas in direct and digital marketing from the IDM and business management from the Open University Business School.

W: www.comcomms.com. E: [email protected] M: 07788 784373. T: @Cliveref

A high octane evening of crowdfund investment opportunities

It had all the ingredients for a heady cocktail of modern-day wheeling and dealing. Nine entrepreneurs seeking equity or loan investments through crowdfunding. Each giving quickfire three minute pitches followed by a couple of questions from a Crowdcube convenor in front of an audience of around a hundred people. These were potential investors and some would-be entrepreneurs who had come along to get a flavour of the occasion before they go under the spotlight themselves. And it did not disappoint.

Early evening networking_01It was one of Crowdcube’s regular monthly events that allow registered investors and investment seekers to get together in person for some important discussions. The funding seekers were spread around a few tables in a meeting area, some with samples of their products. Potential investors and the simply curious began to appear after 6.30 pm.

Among the refreshments available was a Grind stand. Grind is a small group of espresso and cocktail bars that provide “beautiful spaces in London for eating, meeting and drinking. Their strong, bitter coffee cocktails with Icelandic vodka and Kahlua coffee liqueur were a new take on the classic Black Russian. They are seeking £750,000 through bonds that will pay 8% interest over four years.

Joe Inglis, QTSYIs Joe Inglis on to a winner with a website, Qtsy, aiming to become a favourite for pet owners? They can post photos of their own pets, and vote on others. Votes win points and points mean prizes. Joe is after £150,000 for 12.5% equity.

Doug Bernier, Lumo Clothing_01As a cyclist who has suffered from the actions of errant motorists (and an impatient passenger in a traffic jam) the Lumo Clothing proposition has strong appeal. Doug Bernier is targetting £200,000 investment for 14.29% equity in his company that produces washable bags and jackets for cyclists with built-in powerful LEDs to give added accident-avoiding visibility. This is clothing and accessories designed for the places you’re going to, not the archetypal cyclists’ bright coloured and skin-tight garb. You could wear it in Grind and feel at home.

It may seem unfair not to mention the other projects seeking funding but I want to give you a flavour of the evening, not a blow-by-blow account of the whole proceedings. Though here is a line up of the entrepreneurs using this democratic source of securing funds to achieve their business aspirations.

Investment seekers line up_01

Left to right: Doug Bernier, Lumo Clothing; Hasan Mustafa, Collar Club; David Abrahamovitch, Grind; Richard Berkeley, Linkz; Joe Inglis, Qtsy; Alex Holland, Brew; Mark Aspinall, Extremis Technology; Sokratis Papafloratos, Togethera.

Crowdcube does not allow questions from the crowd following the quickfire presentations. So you have to stay at the event and find the people you want to talk to. If you have any interest in raising money through crowdfunding, even if it’s on a donation basis rather than equity or loan, checkout how to attend on the Crowdcube website and get along to the next one. It will show you how high the professional bar is set to be a winner in this competitive arena. And if you want help or guidance with any aspects of crowdfunding, please contact me, [email protected].