Equity Crowdfunding

by Gerri Detweiler

Instead of borrowing money from financial institutions, you can give a slice of your company to investors in exchange for capital. It’s standard practice for tech startups, and only recently has it become available for non-tech businesses as well. You typically don’t need to submit personal financial information to be successful on the equity crowdfunding platform. But you will need to come up with an investor presentation in addition to the typical business plan and financial projections for loan applications. Imagine you are on Shark Tank and you want Mark Cuban to invest in your business. That’s what it takes to be successful to raise funds on the equity crowdfunding platforms.

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What You Need to Know About Equity Crowdfunding

Pros: Cons:
Your investors can serve as advisors to your business Give up some ownership in your company
Can get large sum of money Takes preparation and effort to pitch investors
No need for collateral Most equity crowdfunding platforms charge a monthly fee or success fees
Can take a long time to get funding

 

Best Candidates for Equity Crowdfunding:

  • Businesses willing to give up a % of ownership
  • Businesses with a great business pitch
  • Businesses that can product 5X or more return

Nav’s verdict:

This option is great for high growth, scalable companies, with a compelling product or service. This can almost be a great way to validate your product with industry experts. Be sure to meticulously forecast future financials before giving up ownership in your company though.

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About Author

Gerri Detweiler

Gerri Detweiler

Credit expert Gerri Detweiler is education director for Nav. She has more than three decades of experience in consumer credit education, has been interviewed in more than 3500 news stories, and answered over 10,000 credit questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.