A startup is a young company founded by one or more entrepreneurs to develop a unique product or service and bring it to market. By its nature, a typical high-growth startup starts out as a shoestring operation, with initial funding from the founders or their families. After family and friends, startups of the past used to rely on the first injection of capital from wealthy angel investors. Not anymore because Wefunder has changed all of that.
Traditionally, to invest in startups, you needed to be an accredited investor, which meant having an income of more than $200,000 or a net worth of over $1 million, or $300 for joint filers. From 1933 to 2016, it was illegal to make an investment in a private company unless you met the definition of an accredited investor.
The Jumpstart Our Business Startups (JOBS) Act, passed in 2012, opened up venture investing to retail investors. In addition to that, starting in May of 2016, thanks to a new law called Regulation Crowdfunding, it became legal for everyone to invest small amounts of money in the startups they believed in. After the JOBS Act, startups could raise up to $1.07 million from retail investors - a figure that recently rose to $5 million.
A new crop of companies has opened to serve the growing interest in startup investing. While by most metrics the most popular of these platforms is Wefunder, you can pick from a few noteworthy alternatives.
What Is Wefunder?
The most famous equity crowdfunding platform is Wefunder. Wefunder is a highly successful equity startup platform that connects retail investors with startups online. Initially, it was created by its founders so that they could invest in their friends. The founders also wanted to support causes they cared about, like revitalizing American manufacturing or researching cancer. That’s also why it became a Public Benefit Corporation that aims to make capitalism work better by “sprinkling the Silicon Valley fairy dust across the rest of America” to help thousands more potential founders get off the ground and take their shot.
Wefunder requires a $100 minimum investment for its startup offerings. The platform is easy to use and open to international investors.
Wefunder lets investors browse startup investments on its website with a simple-to-use Instagram-like interface. Wefunder claims that it is the largest crowdfunding platform in terms of a number of investors, investment volume and investor returns.
With startup investing on Wefunder, you visit an equity crowdfunding portal’s website. Then you browse among numerous offerings. If one catches your eye, you click on the startup’s profile to learn more information.
Why Invest in Startups?
Several worthwhile reasons might propel you to consider startup investing. For example, much of the growth in a company occurs before the company’s IPO. At Amazon (NASDAQ: AMZN) and Facebook (NASDAQ: FB), many of the early employees became millionaires upon IPO for their companies.
Who Benefits From Startup Investments?
Startup investors who want to access investment opportunities in local businesses, establish relationships with these companies and support new technology stand to benefit from these new crowdfunding platforms.
A few other popular alternatives are worth looking at once you decide to invest in crowdfunding. The best of these are StartEngine, SeedInvest, MicroVentures, Republic and EquityNet.
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Best Alternatives to Wefunder
Considered Wefunder’s largest competitor, StartEngine counts more than 400,000 members as part of its investing community. Companies listed on StartEngine have raised over $400 million from more than 500 offerings. StartEngine enables everyday people to become angel investors by giving them access to startup investment opportunities. It describes itself as “being in the business of helping other businesses raise capital from the crowd - their customers, friends and the adventurous investors that are a part of the StartEngine community - and no one’s been doing this longer than we have.”
Founded in 2012, SeedInvest is an equity crowdfunding platform that connects startups with investors online. The company offers both venture capital and equity crowdfunding opportunities.
SeedInvest offers a SeedInvest Selections Fund that currently invests $200,000 alongside each company that successfully raises capital on SeedInvest under Regulation D. The SeedInvest website mentions that this fund is targeting investments in 50 companies over the next 2 years, and its limited partners are looking for opportunities to make strategic co-investments and follow-on investments.
The SeedInvest website also claims that “investing in startups used to be reserved for just venture capitalists and high-connected angel investors. But SeedInvest is now enabling anyone to invest alongside venture capital firms and angel groups and access startup investments for the very first time. SeedInvest helps filter out the noise. Our team is comprised of former professional investors who screen all companies that apply.”
Founded in 2009, MicroVentures began by offering accredited investors opportunities to write small checks to promising startups. From that, MicroVentures built a platform that gives both accredited and non-accredited investors access to invest in startups. MicroVentures is one of the financial industry's first organizations that merges crowdfunding with the venture capital industry. The San Francisco, CA- and Austin, TX-based firm provides an opportunity for angel investors to invest in startups alongside venture capitalists, often at the same terms.
MicroVentures offers a full range of private market investments, including equity crowdfunding deals, opportunities for only accredited investors and secondary market trading as both the buyer and seller of late-stage private stock.
Republic was founded as a sister company to the highly successful angel investing platform, AngelList. Whereas AngelList opportunities are only available to accredited investors, deals listed on Republic are open to the general public. Republic offers itself as a place where both accredited and non-accredited investors meet entrepreneurs and access high-growth potential deals across a range of private markets. Republic’s success has been built off its hundreds of sourced private deals, all available for investment for private, unaccredited investors with as little as $10 or as much as $107,000. Accredited investors can access private investment deals in highly vetted startups and real estate ventures, from seed to late stage, including primary and secondary offerings.
With 1,000,000 active users, Republic is the largest crowdfunding platform in terms of the number of users. Republic offers investment opportunities beyond traditional venture deals - you can invest in video games, cryptocurrency projects and real estate deals.
EquityNet is a startup based in Salt Lake City, Utah, that lets businesses sign up and raise funds. The business has helped entrepreneurs across North America raise more than $500 million in equity, debt and royalty-based capital. Investors can browse from among the numerous offerings and pick the individual industries that interest them. EquityNet is a recognized pioneer and innovator of crowdfunding and marketplace finance, operating one of the largest business funding platforms since 2005. The EquityNet platform features over 10,000 companies and has helped generate over $600 million in business funding. EquityNet maintains many patents in the space and provides entrepreneurs and investors the most advanced technology for preparing and conducting fundraising campaigns.
Why Is Equity Crowdfunding like Wefunder an Important Alternative Investment?
Crowdfunding has become a powerful way for businesses to raise money in America with benefits that go beyond simply enabling businesses to tap into new pools of capital. For investors, it extends the opportunity to invest in some of the great companies of the future.
With crowdfunding, you can potentially own a small piece of a nascent company like Google was at its start even before that company goes public. The life-changing returns earned by early investors in a blockbuster company can now potentially be realized by you. What’s more, some incredible ideas - and entire industries like the cryptocurrency sector - have only been realized thanks to crowdfunding.
Equity crowdfunding platforms democratize access to early-stage investing. Some of the opportunities on these could become unicorns - a startup worth $1 billion or more.
Startup investing is an intricate science that requires education and discipline. But the payoffs can be worth it. Startup investing is an alternative investment that gives you the opportunity to potentially realize phenomenal returns, while also learning about the new technologies and industries that will change society.
Several new industries such as clean energy, blockchain and artificial intelligence are arising that each may yield incredible returns. With startup investing being democratized, anyone can have a stake in future great companies.
When investing in a startup, the best time to get in is early on. These tools used to be out of reach for average investors. Fortunately today, the tools to invest are now available to everyone. We really can all be angel investors now.
Check out Benzinga's Alternative Investment Hub for guides, resources and reviews to help you choose the best alternative investment opportunities.
Frequently Asked Questions
Is Wefunder all or nothing?
As a startup investor, you will take on risk. Startup investing is all or nothing because you might lose all your money should the startup fail to make an exit or be acquired.
When a startup fails, startup investors typically do not receive any form of compensation. As a result, you should decide carefully before making an investment on one of these platforms.
Should I do equity crowdfunding?
While startup investing is inherently risky, it’s nevertheless worthwhile to consider an investment on one of these platforms. For investors with disposable income, startup investments can deliver tremendous returns. But remember, you should never invest more than you can afford to lose.
Is investing in startups a good investment?
Investing in startups can be a great investment if the stratup goes on to become a profitable business.
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