Crowdfunding Platforms Geared Toward Tech Startups
If you are looking to get your tech startup off the ground and are in need of financial backing, there are more options than ever for funding. Local and regional business grants, angel investors, and venture capitalists are the traditional ways to raise financial support. However, if these options are not something that are readily available, crowdfunding is a method that has gained traction in the past few years and is an excellent alternative to some of the more traditional methods. Crowdfunding platforms can also can be a great way to generate interest in your business from not only investors, but also consumers.
Ever since the 2012 Jobs Act let regular Americans invest in startups, the number of crowdfunding sites have grown substantially. A research firm, Massolution, suggested that crowdfunding may soon overtake venture capital as the main funding source for startups.
Sure, there are challenges involved and investors want to know how much risk they are taking in giving your business money. According to Ryan Feit, CEO and Co-Founder of SeedInvest, “The largest challenge entrepreneurs face generally while raising capital is what I like to call the ‘lead investor game.’ It is a chicken and egg problem in which dozens of individual angel investors and even small venture funds express interest in investing, but ask the entrepreneur to come back to them when they have an investor who is leading the round [of funding].” This is where using a reputable crowdfunding platform with accredited investors can be invaluable.
How crowdfunding works
According to TechCrunch, crowdfunding is the practice of funding a project or venture by raising monetary contributions from various people – platforms are typically Internet based and target raising funds for a common service, project, product, investment, cause or experience.
The model consists of a product/service initiator, people investing in the product/service, and a platform bringing the two parties together.
Common crowdfunding platforms are Kickstarter, Seedrs, and Indiegogo. However, a problem with these platforms is that they are generally more project based rather than helping a new company get started. The amount of funding is also normally lower (around $15,000). Below are listed four crowdfunding platforms that are more geared toward tech startups as well as provide larger amounts of monetary support.
Fundable helps companies raise seed capital – the average amount of money raised through the platform is $175,000. Designed to help new companies get off the ground, Fundable provides the opportunity for early startup funders to also earn a return on their investment. You first create a profile (it’s free to set up). You then choose a rewards or equity fundraising campaign. The equity fundraising is best for larger funding goals ($50k-$10m). You then share and promote and gain commitments from investors and backers. The platform currently has over 23,000 investors and over 377,000 entrepreneurs. $319 million in funding has been committed on Fundable.
The catch? Small business owners will need to pay $179 a month to use the Fundable platform and that does not include any type of rewards if the project is funded.
Called the “Kickstarter of Venture Capital,” FundersClub is a highly selective equity crowdfunding platform. The average amount of funding from FundersClub is $250,000. FundersClub has almost 18,000 vetted members from around the globe who have made 247 early-stage investments in 195 companies. Members make an average investment of $10,000 so needless to say, the platform is very selective as to which companies they allow on the site – normally young companies that have strong potential.
Basically, FundersClub gives smaller accredited investors the opportunity and access to young, unique innovative companies. The platform is also very transparent and their returns data is publicly available.
Other companies such as Cytex Ventures, can play the role of angel, incubator and accelerator and help startups and early stage companies grow very fast. For example, they took a small company named Lusens into a global organization with representatives in more than 40 countries, in less than a year
Whether you are needing to find a business advisor, build a team, as well as raise financial support, Onevest is designed to connect accredited investors with early stage tech startups. For funds raised through the investors, there is a 7.5% commission fee. Funding comes from investors like Talent Equity Ventures, Robin Hood Ventures, Mid-Atlantic Angel Group, etc. In 2015, Onevest had raised $5.3 million venture capital, including $2.1 million on its own platform. Over 300,000 entrepreneurs are currently in the network with projects raising amounts from $200,000 to over $2 million.
MicroVentures (actually one of the first organizations to merge crowdfunding with the venture capital industry) is an investment platform that assists startups and small businesses in raising capital online. The company currently raises capital through Regulation D Rule 506 and Regulation Crowdfunding. Both accredited and non-accredited investors can invest in the startups.
MicroVentures looks for startups and companies that need $150,000 to $1 million (the company takes a 10% cut of every deal). According to the website, the company determines if businesses are eligible to be on the site based on whether it is unique idea or a new spin on an old technology. They also review the team, traction, market size, etc. $85 million has been raised through the site so far.