With a swirl of differing, at times conflicting, opinions surrounding the equity crowdfunding industry, it can be difficult to isolate the right advice for you. Whether you’re an entrepreneur questioning whether to leverage a crowdfunding platform for your business, or a retail investor looking to diversify, it can sometimes feel like practical experience is the only way to learn more. Below, Invesdor has compiled insights from both investors and entrepreneurs with experience in the industry, to provide first-hand accounts of the ins and outs of equity crowdfunding.
Lessons for entrepreneurs
For entrepreneurs, it’s almost instinctive for your initial approaches to veer to VC and angel investors. While VC funding is an industry norm, it doesn’t offer the same transparency and publicity as an equity crowdfunding raise, and certain companies exhaust time and resources attempting to lure VC investment.
Laurence Cook, of Pavegen, which raised £1.9 million in the UK via equity crowdfunding, iterates this point: “The way we looked at it, raising the money privately might have been cheaper and faster, but crowdfunding just had so many other upsides – in better investment terms, and better publicity, that for us it just made total sense.”
Indeed, the VC community is increasingly looking at emerging equity crowdfunding trends to help spot profit patterns. As Bret Conkin, Chief Evangelist at CrowdfundSuite, states: "There’s certainly a group of crowdfunding non-believers in the venture capital community, but there is an increasing percentage who are buying into it. In some cases, they are even combing through the crowdfunding platforms, as a way of finding new companies to invest in.”
The flow-on of free media, brand advocates, and investor momentum that are innate in many equity crowdfunding campaigns is similarly alluring, and these traits are pulling more entrepreneurs towards the industry. As Juha Suojanen, of EkoRent, who raised €171,000 with Invesdor attests: “Because we are in the business of electric vehicles, we had a good hunch the public would be enthusiastic about our mission. As well as the money, we expected to get some free media time in TV, newspaper and radio, and tie our existing users closer to us. And that’s exactly what happened. We have been really pleased with how it turned out.”
Lessons for investors
Investors new to the concept of equity crowdfunding may assume it relies on large pools of inexperienced, so-called “Mum and Dad” investors, who need not be accredited, but who may lack the industry nous of angel or VC investors. Not so.
The democratization of finance that equity crowdfunding has allowed for means a diverse network of investor types is at play: OurCrowd Founder and CEO Jonathan Medved attested to this, saying: “The idea that venture capital and investment stays a cottage industry with no automation and no scale, no change really in fifty years is crazy.”
Furthermore, governments worldwide are responding to growing calls from the equity crowdfunding industry to enhance regulations and allow liberal frameworks, the likes of which have lead to the first crowdfunding unicorns, and successful test grounds such as New Zealand. London has set up the LCIF (London Co-Investment Fund), “new Government-backed fund designed to address the funding gap in London faced by tech start-ups, and will see £25m invested in 156 seed stage companies within the Technology, Digital and Science sectors over the next three years.” This is a testament to the industry’s endurance and nascent popularity in the UK.
Similarly, Obama attested to the industry staying power and importance when he signed the JOBS Act into law in 2012: “When their [entrepreneurs’] ideas take root, we get inventions that can change the way we live. And when their businesses take off more people become employed because, overall, new businesses account for almost every new job that’s created in America.”
Our rapidly evolving economies and cries for new, innovative means of investment have created this diverse equity crowdfunding industry, which the above experts consider a necessary and beneficial component of modern finance.