Is crowdfunding right for your startup?

by?Cornelius "Con" Harmon

In the past decade, project organizers, nonprofits, and startup founders alike have become savvier than ever when it comes to raising funds to achieve their goals. Though while Kickstarter and GoFundMe quickly became household names to help everyday people raise money for celebrations, challenging events, or donations, equity crowdfunding companies took longer to make their way into the spotlight. That all changed in early 2021, when SEC regulations went into effect that increased annual Regulation Crowdfunding (Reg CF) limits from $1.07 million to $5 million. Entrepreneurs and CEOs started taking this type of fundraising more seriously and its benefits, low barriers to entry, and benefits to investors are just a few of the reasons why its growth is only just beginning.

What is Regulation Crowdfunding?

Regulation crowdfunding (referred to officially by the SEC as Reg CF) gives startup founders the opportunity to sell shares of their company to investors of all kinds (no accreditation needed) through crowdfunding, as opposed to through Angels and VC firms. All transactions must occur through a broker-dealer or a funding portal, intermediaries which are officially registered with the SEC. Seeing as these are SEC-regulated, founders have to disclose these types of raises and there are certain limits that non-accredited investors can invest. As stated previously, the total amount raised through a Reg CF offering cannot exceed $5 million in a single calendar year.

What are the benefits of crowdfunding?

Regulation crowdfunding raises were less popular before the maximum limit increased to $5 million in 2022. But even before this happened, crowdfunding, which became legal in the U.S. in 2012, enabled companies and investors to connect earlier in a company’s development cycle, and lessened the barriers to entry for investors to get involved, particularly those with lower net worths. Now, anyone who is interested in ‘getting in early,’ can source and take part in very early-stage funding rounds, even if their investment is (sometimes) as little as $500. Companies are also able to offer extra incentives to investors who participate in crowdfunding raises, typically tiered based on how much someone invests. Examples of these perks include special meetings with the founding team, merchandise, free subscriptions, and other benefits that allow investors to have more of a connection with the company in which they invest. Finally, in a market that has recently seen VCs pulling back their willingness to invest, crowdfunding widens the pool of potential investors for companies needing additional capital. Though this funding pullback has more so adversely affected larger companies in later stages of fundraising, crowdfunding nevertheless helps more investors become aware of and get involved in fundraising rounds.

How do I crowdfund for my company?

Another reason crowdfunding is growing is how easy it is to establish a Reg CF raise. With several reputable funding portals to choose from, founders can easily start the conversation and establish a round of funding. Some of these funding portals include Republic, StartEngine, and WeFunder. In addition to those portals, there are others that work with companies in specific sectors and attract investors interested in specific types of businesses - not just SaaS companies. All it takes to start the process is a simple navigation to one of these funding portals online and beginning the account creation process. Most of these companies also provide advisory services, partnership networks, and other helpful resources.

How do I attract investors to my crowdfunding campaign?

A crowdfunding campaign is only successful if a wide variety of investors are aware that it is happening. Once a crowdfunding campaign has been launched, it is important to market it to both existing customers, and people figuring out about a company for the first time. While customers that are familiar with a company should be the easiest to convince, preparing marketing materials that can lead other potential investors to your campaign is imperative. Many companies set up banners on their websites and launch social media marketing campaigns, but funding portals can also do their part, notifying investors when deals are raising funding fast, reaching funding goals, and soon to be closed.

Regulation crowdfunding campaigns are a great way to attract investors in very early stages of fundraising because they widen the pool of potential investors, offer those investors extra incentives, and enable loyal supporters of companies to have a stake in those companies.?

Here at Hyperspace, we are proud to partner with companies that have raised via crowdfunding, both in technology and in equity.?Contact us?to hear more about crowdfunded companies that we've worked with, or to find out more about working with our team.