When crowdfunding began, it was a great concept that caught on like wildfire. Suddenly, people were using the internet to raise money for everything from dream vacations to medical procedures. It wasn’t long before startups in need of funding began to see the potential in crowdfunding.
So too, did the tech industry, which followed suit and created online crowdfunding platforms designed specifically to help startups raise seed money. Would you like to learn more about startup crowdfunding? Do you want to know how to get a business funded or how to invest in startups? Keep reading this guide to Benzinga’s best crowdfunding platforms.
Why Should Startups Try Crowdfunding?
Startups can benefit from crowdfunding in a number of ways. First, crowdfunding is more flexible than getting a loan from a traditional bank. Usually, banks want collateral before they loan, and most startups simply don’t have it. Additionally, banks tend to be conservative in their lending practices and tend to shy away from the risk that comes with funding startups.
However, when it comes to startup crowdfunding platforms, the lack of a business track record or collateral is not something potential investors see as a drawback. In fact, it’s just the opposite. Startup crowdfunding investors are more concerned with the potential upside that comes with a successful bet on a new company than the risk of failure. To them, the risk and the upside go hand in hand.
Because of this, startup companies will usually find a more receptive audience on crowdfunding platforms than they will find at brick-and-mortar lenders.
Why Should Investors Use Crowdfunding Platforms?
The answer to the question of why investors should use crowdfunding platforms is simple: upside. Very few investments pay off like having early equity in a successful startup. It’s not a stretch of the imagination to say that just one bet on the right startup can set an investor up for life. Imagine where you’d be today if you had made an investment in Alphabet Inc.’s (NASDAQ: GOOGL) Google in 1997.
Before startup crowdfunding platforms, the only way to really get in early on an opportunity like Google or Meta Platform Inc.’s (NASDAQ: FB) Facebook was to be a very well-connected venture capitalist or have a close association with one such as a former business partner, relative or fraternity brother. Now, you can simply log into a startup crowdfunding platform and find an incredibly diverse range of startup offerings in all kinds of industries.
Perhaps more importantly, crowdfunding platforms allow investors to get early equity shares in startups at incredibly low prices. This low buy-in price allows investors to make bets on startups for much less than the price of buying stock in a new company after they make their initial public offering (IPO). So, in addition to tremendous upside, startup crowdfunding platforms allow investors to put together a diverse portfolio of startups for an incredibly low price.
Benefits of Online Crowdfunding
The most obvious tangible benefit of online crowdfunding for startups is the easy access to capital they provide. Startups burn through cash at an astonishing rate, and crowdfunding is a much easier route to investor capital than traditional series A and B funding. However, online crowdfunding offers a number of additional benefits to startups outside of just fundraising.
Simply being on a crowdfunding platform as an investment offering gives startups a great deal of exposure. Not only that, there is some degree of validation for the startup’s business model. The most reputable crowdfunding platforms are headed by savvy investors who are experienced with venture capital and funding startups.
Startup crowdfunding platforms normally do extensive due diligence on proposed startups before accepting them as an offering. So, for a startup, simply appearing on a crowdfunding platform represents an important endorsement of the startup’s chances of success. It’s also a tremendous bit of marketing and exposure for the startup. All of this only enhances the startup’s chances of long-term success.
The exposure and marketing that comes with appearing as an offering on a startup crowdfunding platform is a great way for the startup to expose itself to new customers. Even people who don’t invest may see the startup on the platform and decide to buy its product.
Crowdfunding also brings in new investors, some of whom may be experienced in the startup industry and could provide innovative ideas for the startup. Lastly, crowdfunding is incredibly cost-effective. Many platforms post offerings free of charge or for no out-of-pocket money from the startup.
The Best Startup Crowdfunding Platforms
If you have a startup you want to submit as an offering, or you’re an investor looking to invest in startups, there are several different crowdfunding platforms available. Each has its own strengths and weaknesses. Below, you will find a brief summary of some of the more reputable startup crowdfunding platforms, along with the pluses and minuses of working with each of them.
Wefunder is an online crowdfunding platform that offers equity shares in various startups for an incredibly low price. Whereas many platforms require investor accreditation to invest and have offerings with five-figure minimum investments, many Wefunder offerings are available for an initial investment of only $100. This allows investors to spread their funds across a number of different startups.
On the negative side, most Wefunder investments have very long holding periods. Startups are always difficult to get up and running, then profitable. Because of that, many Wefunder offerings require investor capital to be tied up for multiple years before investors can expect to earn dividends. Additionally, there are very few secondary market options.
The SeedInvest platform offers a solid selection of startups in various industries. This platform has offerings available for both accredited and nonaccredited investors. SeedInvest’s offerings are carefully vetted, and although the platform may not have as many offerings as some, the offerings it does have are quite intriguing.
However, even for nonaccredited investors, the entry fee is a bit higher than some other platforms. Most of their startup offerings have minimum investments of $1,000. This higher investment amount usually translates into more equity, but investors will certainly need to be discerning about how much they can afford to risk.
StartEngine is a platform with incredible diversity in startup offerings at various stages of fundraising. Regardless of what your preferred industry to invest in is, StartEngine will probably have an offering that’s worthy of consideration. Offerings are open to both accredited and nonaccredited investors in the U.S.
Minimum buyins range from a reasonable $100 per share to $500, depending on the structure of the offering. This platform has a variety of offerings, but it’s clearly designed to attract investors who want to build a large portfolio of investments. That could get pricey if you’re buying multiple shares in multiple startups at $500 each. Additionally, the secondary market for StartEngine investments is limited, and there is no guarantee of share liquidity.
Fundable offers startup opportunities almost exclusively to accredited investors. The platform’s offerings are not as plentiful as some others, but it is a diverse set of offerings that spans many different industries. With that said, at first blush, this platform feels a bit more like it’s geared toward startups that have reached a more advanced stage in their development.
That would justify the accreditation requirement, but it would almost certainly mean the offerings will have much higher buy-ins, probably in the five-figure range. So, this platform is also aimed at a more seasoned investor.
If You’re Not Already Looking at Startup Crowdfunding Platforms for Investment Opportunities, Maybe You Should Be
Startup investing will always have an increased element of risk in comparison to investing in established companies. However, in the world of investing, wherever there is an upside, there is risk, and vice versa. Until recently, investing in startups has been limited to a few investors.
Fortunately, startup crowdfunding platforms have begun to make startup investing available to more people than ever before. As an investor, you may want to consider diversifying your portfolio by scouting startup crowdfunding platforms for opportunities. You might find a couple of diamonds in the rough.
Frequently Asked Questions
How does crowdfunding help startup businesses?
Crowdfunding helps startup businesses by giving them a potential source of investment capital they can access without necessarily having to borrow from a bank or rely on venture capitalists. That’s because crowdfunding, and crowdfunding platforms, allow startups to fund the early stages of their operation by getting small contributions from a multitude of investors all over the world. Additionally, crowdfunding campaigns provide an increased level of visibility for the startups that run them.
How to invest in startups?
Right now, one of the best, and easiest, ways to invest into startups is through startup crowdfunding platforms like StartEngine and Wefunder. These platforms were specifically designed to connect startup companies with small to medium-sized investors who are looking for startups to invest in. Better still, many of them have investment offerings that start at less than $500.
What is meant by startup?
A startup is a company that is in its initial stages of operations.
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