Cheat Sheet
- Equity Crowdfunding and Rewards-Based Crowdfunding have some key similarities and some key differences. The main difference is instead of a reward, backers end up becoming shareholders.
- Projects that don’t make great rewards campaigns, like B2B, SaaS, or local services, can make great Equity Crowdfunding campaigns.
- Because the industry is so new, and securities markets are heavily regulated in most countries, the platform market is very fragmented. Instead of two major players, there are a number in every country.
- To satisfy regulators, there are a lot of extra financial projections and disclosure work involved with setting up an equity crowdfunding campaign. It is not a great idea to go for an equity raise of less than $30,000, and raises in the $100,000 – $200,000 are more common.
- Because you are selling shares, often campaigns have a funding ceiling. There are no “runaway successes”. You either hit your funding goal or not. You want to be able to maintain control of your company after the raise.
About this episode
I get asked all the time what the difference is between Equity Crowdfunding and Rewards-Based Crowdfunding.
There are certainly a few major differences and a few key similarities.
But I am no expert on the equity side of things…
So for this episode, I invited Nathan Rose, the author of Equity Crowdfunding – The Complete Guide For Start-Ups and Companies (launching November 2016). He also advises companies on how to raise money on equity crowdfunding platforms.
Nathan’s journey into Equity Crowdfunding was quite serendipitous.
He was an investment banker in New Zealand when he, like many of us, was inspired by Tim Ferriss and the 4-Hour Work Week. He wanted location independence but didn’t see himself as a product or software creator.
Right around the time he read the book in 2014, New Zealand was one of the first countries to change its laws to allow equity crowdfunding.
And when Nathan was working in banking, he had a lot of fun working with early stage companies raising money the traditional way.
As he was looking into the budding market, he spoke with the Kickstarters and the Indiegogo’s of the Equity world and found out that most Project Creators on those platforms were not strong on the financial modeling side, which was his specialty.
The platforms didn’t want to advise the campaigns. They wanted to build their software. But the platforms need projects to be compliant with the local securities laws, so Nathan ended up being referred by the platform to advise projects!
And since then, Nathan has helped raise over $11 million on Equity platforms all over the world.
In this episode, Nathan and I take a broad look at the equity crowdfunding industry from all angles and compare it to rewards crowdfunding.
Resources Mentioned
