A look at two different ways of raising funds for your startup.

What should founders consider when deciding how to raise capital to start or grow their company?  This article will explain:

  • The VC vs. Crowdfunding Models
  • The JOBS Act and the Origin of Equity Crowdfunding
  • SeedInvest, a Leading Crowdfunding Platform
  • VC or Equity Crowdfunding: What to Consider

The VC vs. Crowdfunding Models

Inside’s Meet Our Fund event features many of the top VC firms working with startups today.  This video replay features Bain Capital Ventures and SeedInvest, which take two different approaches to funding startups.

Bain Capital Ventures is a large venture capital firm founded 20 years ago on the back of the private equity firm Bain Capital.  VC investing originated with the American Research and Development Fund at MIT in 1946.  The SEC only allows accredited investors to participate in these types of high-risk investments.  An accredited investor must have a minimum of $200,000 annual income ($300,000 if married) or a net worth exceeding $1 million.

SeedInvest is a leading equity crowdfunding platform that helps companies raise capital online.    In crowdfunding, many investors pool resources online and gain equity in early-stage startups.  This differs from crowdfunding sites like Kickstarter, where people donate money and do not receive equity for their contributions.  Although anyone can participate in equity crowdfunding regardless of income, there are investment limits based on annual income.

The JOBS Act and the Origin of Equity Crowdfunding

Where did equity crowdfunding come from?  In 2012, the Jumpstart Our Business Startups Act, or JOBS Act, was signed into law with bipartisan support.  It aimed to stimulate the economy after the recession by allowing emerging growth companies (under $1B in annual gross revenue) to access public funding in ways that were not allowed before due to securities regulations.  The JOBS Act reduced regulation, removed barriers, and allowed for new ways of accessing capital, like equity crowdfunding.  Enter SeedInvest.

SeedInvest, a Leading Crowdfunding Platform

SeedInvest was founded in 2012 and was acquired by a global blockchain company called Circle  in 2019.  They are now the startup investing arm of Circle.  SeedInvest has helped over 250 portfolio companies from various sectors worldwide raise $450M.  The average raise is $1M.  SeedInvest democratizes access to private capital markets, allowing even everyday investors to invest in top-notch opportunities.  Roughly 15% of their 600,000 investors are accredited investors managed by their Capital Markets team.

Companies get creative in the way they use SeedInvest.  Three of the most common types of rounds raised on the platform are:

  1. Topping off VC and institutional-led rounds.  This is usually done within SeedInvests accredited investors and tops off at around $2M.
  2. Community and crowd-driven round.  Companies interested in bringing on their communities for fundraising choose this option.  Companies can raise up to $5M this way.
  3. Crowd-driven round.  This is traditional equity crowdfunding and is more public.  Companies can raise as much as $75M.  SeedInvest acts like a project manager, helping with marketing, compliance, legal, and cap table management.

VC or Equity Crowdfunding: What to Consider

In 2020 there were double the investments in the private market than the public market.  Public demand for private investments is strong, so as a founder, should you raise from the public or from accredited venture capitalists?  Consider these factors:

  1. Timing: If your startup needs to raise capital quickly, equity crowdfunding may be a more viable option because the process is typically faster than raising capital from venture capital firms.
  2. Amount of capital needed: Equity crowdfunding is typically best suited for startups that need to raise smaller amounts of capital, while venture capital firms are more appropriate for startups that need to raise larger amounts of capital.
  3. Ownership: Equity crowdfunding allows a startup to sell small stakes in the company to a large number of investors, while venture capital firms typically take larger stakes in the company. This means that a startup will have to give up a larger portion of ownership to venture capital firms.
  4. Investor expertise: Venture capital firms usually have a team of experienced investors who can provide valuable advice and connections to the startup. Equity crowdfunding investors may not have the same level of expertise and resources.
  5. Valuation: Venture capital firms typically have a more structured process for valuation and determining the amount of capital to invest. This can be more beneficial for a startup than the more ad-hoc approach taken by equity crowdfunding investors.
  6. Potential for future funding: Venture capital firms often invest in a startup with the intention of providing follow-on funding as the company grows. This can be a valuable resource for a startup that expects to need additional capital in the future. Equity crowdfunding, on the other hand, is typically a one-time event.

View important disclosures and risks associated with Equity Crowdfunding investing: https://www.seedinvest.com/disclosures


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