Editor’s Note: “Top 5 Equity Crowdfunding Sites” was originally published on Aug. 25, 2020. It was updated on Oct. 6, 2020, to provide the latest available information.
Investing is changing. Robinhood has altered how people approach stock investing, and now, thanks to changes in U.S. law, even small investors can use equity crowdfunding sites to invest directly in private companies. Often the minimum investment is only $100 per deal.
Crowdfunding has definitely seen substantial growth over the past few years. Interestingly enough, the Covid-19 pandemic has accelerated things. Startups have been looking at alternative financing options. And as for investors, they are looking for long-term growth opportunities.
Using a crowdfunding site is kind of like using eBay (NASDAQ:EBAY). That is, you browse across various listings and you can then read the profiles, which includes an investor presentation. Although, depending on the type of deal, the financial information may not be available.
A crowdfunding deal often comes along with different perks as well, which are based on the amount you invest. They may include discounts on the product or invites to events.
Then what are the best equity crowdfunding sites? Here are five that stand out:
Let’s dive in!
Equity Crowdfunding Sites: StartEngine
The founder of StartEngine, Howard Marks, has a long history as a serial entrepreneur. He was one of the founders of Activision Blizzard (NASDAQ:ATVI), which now has a market capitalization of over $61 billion. He also launched Acclaim Games. He would go on to sell the startup to Disney (NYSE:DIS).
Now Marks is focused on helping entrepreneurs realize their own dreams. Since 2014, his platform has facilitated the raising of over $150 million.
While crowdfunding is growing in popularity, it is still somewhat of a niche. But Marks wants to change this. To this end, he has retained Kevin O’Leary as a strategic advisor. Yes, he is one of hosts of the Shark Tank television show and has an strong following on social media platforms like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR). His role will be to help evangelize the crowdfunding industry.
In the meantime, Marks has been innovating StartEngine. For example, he plans to launch an ATS (alternative trading system). This will allow investors to sell their positions.
Oh, and something else: He has recently used crowdfunding to finance StartEngine! In all, he has raised almost $19 million.
Kendrick Nguyen, who came to this country as an immigrant from Vietnam, would go on to become a successful securities attorney. But through this experience, he saw the complexities for raising capital for startups.
So when he saw the emergence of equity crowdfunding sites, he knew that this could be a great option. As a result, he would found Republic.
The company has since become one of the leaders, as growth has been particularly strong. Over a two-month span earlier this year, there was a 42% spike in investments. The total number of users is over 700,000 and more than $100 million has been raised since inception.
A key part of the strategy for Republic has been to expand into various asset classes. Note that there are sites for real estate and blockchain investments.
Nguyen has also been focused on diversity. On Republic, you will notice that a listing of each company will show if there are minority or women founders. In fact, Republic purchased Sheworx, which is a platform for women entrepreneurs.
Among the equity crowdfunding sites, SeedInvest has one of the strictest set of criteria for accepting companies on its platform. Keep in mind that only about 1% of the submissions meet the cut. SeedInvest also generally lists larger companies.
This focus on quality is certainly important. When it comes to private investing, the risks are substantial.
Here are some of the recent investments on SeedInvest:
- Miso Robotics: The company develops Flippy, which is an AI-powered robot that cooks food in restaurant kitchens. Miso Robotics is one of the most successful crowdfunding deals as the company has raised $7.4 million (you can read my profile here).
- 20/20 GeneSystems: This company leverages AI for the development of diagnostics for cancer and Covid-19. Since March, 20/20 GeneSystems has sold over 70,000 of the Covid-19 tests (I wrote a post about the company for InvestorPlace.com).
Since 2012, SeedInvest has funded more than 200 companies, with the average investment size at about $500,000. The company also has a fund that invests $200,000 per deal.
Nick Tommarello founded Wefunder because he wanted to invest in the ventures of his friends. But for this to be a reality, the U.S. securities laws had to change.
Well, like any savvy entrepreneur, Tommarello set out to change things. He put together a petition for Congress and was then invited by various Senators.
This effort would help lead to the creation of the Jumpstart Our Business Startups Act (JOBS Act) of 2012. This would be the most pivotal legislation for early-stage funding since the Great Depression.
Since the passage of the JOBS Act, Wefunder has become one of the top players in the industry. The platform has raised more than $140 million and the revenue run-rate is about $6 million.
Here are some of the latest deals:
- SapientX: The company develops AI voice systems for companies.
- BlissDivorce: This startup uses AI to help with the complex process of a divorce.
- Kiwibot: The company has created a comprehensive robot system to help restaurants with food delivery.
Crowdfunder has a network of more than 130,000 entrepreneurs and investors. In all, the platform has funded more than $160 million in deals and the average size is about $1.8 million.
In fact, because of the larger investment amounts, Crowdfunder only allows accredited investors to participate. These are persons who have either a minimum of $1 million in assets (this excludes the main residence) or income of $200,000 ($300,000 if filing joint) for the past two years. Although, it does look like the Securities and Exchange Commission (SEC) may loosen the requirements.
Here are a few of the deals on the platform:
- Digitzs: The company operates a cloud-based payments system for property managers and nonprofits.
- FinClusive Capital: The company provides services to help companies with financial crimes compliance.
- Real Estate Nexus: This startup sells software to help real estate and mortgage companies with marketing and sales.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks