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If you have a unique or innovative business idea, you may be able to raise capital through equity crowdfunding. Here's where to get started.
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Editor & Senior Staff Writer
Last updated onUpdated
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Capital is necessary to ensure the success of your business. Of course, there are loans, lines of credit, and other traditional types of funding available at your bank or through an online lender. But there’s another option that should be on your radar: crowdfunding. More specifically, equity crowdfunding.
This type of crowdfunding allows entrepreneurs and startups to receive funding from backers in exchange for an equity stake in the company. In this article, we’re going to look at equity crowdfunding, what it is, and where to find it.
Learn More About Our Top Picks
| Company | Best For | Next StepsBest For |
|---|---|---|
Wefunder
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EquityNet
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Fundable
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MicroVentures
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Read more below to learn why we chose these options.
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Table of Contents
Equity crowdfunding is a way to raise capital to start or grow your business. Investors invest money in a business in exchange for equity — typically in the form of shares in the company. So, an investor receives ownership in the company, and in return, the company receives the capital it needs to launch or expand.
Aside from what the investor receives in exchange for their money, another primary difference between equity crowdfunding and rewards crowdfunding is how much money can be raised. Typically, equity-based crowdfunding is best for entrepreneurs and companies that need large amounts of capital to start or grow their businesses.
An equity crowdfunding platform is an online platform that allows you to pitch your business to potential investors. These platforms typically require a fee for the service but in exchange will allow you to post information about your business so you can connect with investors to meet your financial goals.
For the right kind of business, equity crowdfunding represents a prime opportunity. But it’s also important to know that equity crowdfunding is legally complex, so make sure you work with reputable companies, understand laws regarding equity crowdfunding, and consult with an attorney or CPA for advice.
If you want to raise large amounts of capital, equity crowdfunding may be the solution. You can receive capital in exchange for a stake in your business — no loan payments, collateral, or credit scores required. Start your search with these top-ranked equity crowdfunding platforms.
| Fees | Best For | |
|---|---|---|
| Wefunder | 7.9% | Startups with exponential growth potential |
| EquityNet | $0 to $2,990/month | Entrepreneurs & small private businesses |
| Fundable | $179/month | Flexible crowdfunding |
| MicroVentures | Varies | Businesses with a unique idea |
Pros
Cons
Wefunder is the most successful crowdfunding platform to use Title III equity crowdfunding or Regulation Crowdfunding. In simpler terms, this means you can solicit investment from anybody — both from accredited investors and those who are not accredited.
US corporations and LLCs can use Wefunder. The rare startup with exponential growth potential stands a decent chance of finding funding through the platform. Other businesses may have a tougher time of it. Tech and food companies seem to comprise the majority of funded startups on Wefunder.
Pros
Cons
EquityNet stands out because it doesn't just serve high-tech or high-growth businesses. Instead, this company markets itself to a broad range of entrepreneurs and private businesses. EquityNet does not have a prescreening process, so your business can be on the platform quickly and easily. You can sign up for a business profile for free, but a paid subscription is required to take advantage of services.
EquityNet offers entrepreneurs and businesses alike the ability to use its equity crowdfunding platform. EquityNet's equity campaigns operate under Title II rules, so you'll be raising funds from accredited investors only. You'll also get to keep everything you raise regardless of whether you hit your funding goal.
It is important to note that EquityNet does not facilitate transactions, and funding is done outside of the platform.
Pros
Cons
Fundable is a crowdfunding site that offers both rewards and equity crowdfunding campaigns (though not both simultaneously). For the purposes of this article, we'll focus on its equity crowdfunding campaigns, though its rewards campaigns may be something to keep in mind for the future.
Fundable is a flexible crowdfunding platform in terms of campaign types you can launch through the site. It is important to note, however, that Fundable does pre-screen businesses before allowing them to begin fundraising, so make sure you have everything in order before you begin the process.
MicroVentures |
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MicroVentures is another example of a Regulation Crowdfunding platform. According to MicroVentures, it mainly invests in industries including internet technology, media and entertainment, software, green technology, mobile, social, and gaming.
Per the company, "MicroVentures looks for businesses that have a unique idea or a new spin on an old technology." MicroVentures also goes on to note that less than 5% of businesses that apply are added to the platform. MicroVentures is an all-or-nothing crowdfunding site. If you raise some money but fail to meet your funding goal by the time your campaign ends, you'll get nothing.
Get Started With MicroVentures
We spend hours researching and evaluating each crowdfunding platform that we review at Merchant Maverick, placing emphasis on key characteristics to generate our product ratings.
When rating crowdfunding platforms, we use a rubric that looks at terms and fees, project qualifications, application process, sales and advertising transparency, customer service, and user reviews. We weigh each section differently to calculate the total star rating.
Each section is further broken down into granular, weighted subsections, in which we look at specific attributes, such as campaign durations, supported project types, time to funding, application processing times, and platform fees. Learn more about how we rate crowdfunding platforms.
Now you should have an idea about some of the big players in the equity crowdfunding space. But how do you decide which one of these — or maybe another platform entirely — is the right one for you?
In order to narrow down your choices, keep note of the following factors you should look for in an equity crowdfunding site.
When researching crowdfunding sites, take into account all fees, which may include a subscription fee, a percentage taken from raised funds, legal fees, and other associated costs.
Then evaluate the needs of your business and what is offered on the platform. Ask yourself if you can afford the fees, and decide if the features offered are beneficial to your needs and worth the expense. If not, keep looking.
Some platforms specialize in working with businesses in the tech industry. Others are looking for businesses that have new and unique ideas. Some crowdfunding sites are extremely picky over the businesses added to their platforms and will only take those that show the most growth potential.
While there are plenty of crowdfunding sites that cater to a variety of different industries, consider sites that specialize in your specific industry.
While not guaranteed, this can help improve your chances of reaching the right investors. For example, your tech startup may get lost among different businesses and industries on one platform but may stand out on a site that caters specifically to tech businesses.
Look for a crowdfunding site that’s easy to navigate, offers excellent customer support, and has a variety of resources to help increase your odds of a successful campaign.
Some sites are designed for later-stage companies that have prior experience with crowdfunding. If you’re a newbie, avoid these sites and find one that’s beginner-friendly.
One last thing to note is that sometimes these resources may come at a cost. For example, you may be required to pay a subscription fee or upgrade your account to get personalized help, legal documents, and other resources and support.
Some crowdfunding sites have an “all or nothing” policy. If you raise all of your funds, great — you’ve met your goal and can collect your funds. If you don’t reach your goal, you don’t get to keep funds, even if you fall just a little short.
If you have a set goal that you have to meet, these platforms will be fine for you. However, if you could use capital even if it falls a bit short of your goal, look for a site that has flexible funding options.
Make sure that the platform you select allows you to raise the amount of capital needed to launch your business or take it to the next level. If you’re looking to raise $2 million, for example, a platform that only allows fundraisers up to $1 million isn’t the best choice.
Equity crowdfunding has only been around for a few years. Suffice to say, it is a work in progress. If you play your cards right, however, it might be just the thing to take your startup to the next level.
If you’ve done your due diligence in preparing your offering and you possess the ability to excite investors, professional and amateur, then it’s certainly an avenue worth exploring.
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