July 20, 2017 | 4-minute read (785 words)
Equity Crowdfunding 101 Recap
Equity crowdfunding is a hot new path to consider if you are a business that is looking to raise capital. What it is, how can it help you, and what do you need to be aware of are touched upon in a recent presentation created by Early Growth Financial Services.
(See more: on Crowdfunding on our blog)
We sat down with president of EGFS, Gadiel Morantes, Senior Director of Equity Crowdfunding at Indiegogo, Michael Hughes and Bill Clark of both Microventures and First Democracy VC to pick their brains about this lucrative and expansive new possibility for creating equity stakes and raising cash.
Check out and like our EarlyGrowth YouTube channel for all the latest news, and learn more about this developing field with this video presentation Equity Crowdfunding 101:
Michael Hughes: Senior Director, Equity Crowdfunding, Indiegogo
Bill Clark: CEO, Microventures & COO, First Democracy VC
Gadiel Morantes: President and Partner at Early Growth Financial Services
0:00 Equity Crowdfunding and the future of raising money
3:40 Why are we talking about Equity Crowdfunding?
5:25 Equity Crowdfunding Statistics (Breakdown Analysis Image)
8:30 First Democracy VC Six Months Summary – By the numbers/ Types
10:05 First Democracy VC Six Months Summary – Offerings/Top Investor Countries
12:20 New Options for Entrepreneurs
16:10 Anyone can be an Investor
18:55 Republic Restoratives
22:00 Is Equity Crowdfunding right for you?
22:30 Entrepreneur Checklist
26:33 Investor Checklist
28:49 The Future of Equity Crowdfunding
35:24 The Financials
36:20 Financials Are Critical
39:40 How Much Do You Need to Raise?
42:18 Q&A, Email Contacts for presenters
Q: What are the fees associated with a successful crowdfunding launch and is that paid out by the company raising, or is that an additional fee paid on by the investor?
A:(43:37) Michael: “Sure, good old fees question. So, I'm going to keep it very high-level, happy to follow up with anyone specifically, but the way our platform for Democracy VC works is essentially there are some what we call upfront costs.
Those are things like the financial review that Bill mentioned, there's a legal review required, there’s a form that needs to be filed with the SEC called a form C, and an escrow account that needs to be opened, all that stuff is required.
All of that is done via third parties and we just pass those costs on to the company, the entrepreneur or the issuer if you will. So, though you are responsible for those costs when you're raising money we've gotten it down as low as we can go, so it's a few thousand dollars give or take but again it depends on the company. After that during the actual raise itself there's two components, very simply we take 7 percent commission based on what we raised for you and 2 percent equity also based on what we raise for you.
Combined Raise Possibilities
Q: Have you seen anybody or is it feasible to combine a regular CF campaign with traditional venture capital?
(45:15) Bill: “Yes we have, so just from a compliance perspective and from a regulatory perspective, the raise itself can only be done on the platform for let's just say the million dollars that you raise, but what we've seen are companies that may already be raising with VCs or with angel investors carve out a slice of the round for the crowd and on very similar terms. So, we try to get as close as possible.
Q: Are their audit firms that work specifically with early-stage companies?
(46:59) Gadiel: “So yeah this is a question we've been getting quite a bit recently with companies engaging on these types of platforms, and there are firms out there that are both really focusing on the crowdfunding, the review of the financials and then also doing some of its audit work.
I think one of the considerations really ends up being the price of the review, and the price of the audit. I'm actually thrilled to hear that some of these folks are popping up and we offer pretty cost-effective solutions and I'm sure Bill and Michael both have recommendations of folks that have worked on those reviews and such on that side.
In terms of preparing the financials that's going to either be the company, or you know a firm like us, or somebody else that will handle that piece of it and then you get an independent auditor or an independent firm to review those financials in order to make sure you're compliant there.