Crowdfunding can provide startups with capital accessibility. Unlike traditional approaches, crowdfunding gives entrepreneurs easier ways to raise capital. Funds are raised without the need for a previous track record.
With crowdfunding, emerging businesses can develop more support and opportunity. Various types of crowdfunding are specific to the company. Investors looking to form mutually beneficial agreements around the company’s impact may do so using various crowdfunding platforms.
There are various kinds of crowdfunding. Below, we discuss some of the most common types of equity crowdfunding for startups. Read on to learn what they are.
Types Of Equity Crowdfunding: Regulation Crowdfunding
Regulation Crowdfunding (Title 111) allows small businesses and startups to raise $5 million in one year. Investors can be accredited and/or non-accredited. Independent investors also have yearly investment limits that correlate with their net worth and income.
Regulation A+ (Tier 2) Crowdfunding
One of the common types of equity crowdfunding is Regulation A+ (Tier 2). This allows companies to accumulate up to $75 million from investors within one year with strict disclosure and reporting.
Regulation A+ (Tier 1) Crowdfunding
This is one of the common types of equity crowdfunding, which contains a lower cap for fundraising ($20 million within one year). Companies follow state or SEC regulations.
Regulation D Crowdfunding
This crowdfunding approach allows companies to raise unlimited capital from investors using online platforms that limit public disclosure.
State Crowdfunding Options
Intrastate crowdfunding allows capital from state residents. These are in-state investors, and there are typically fewer compliance requirements involved.
Startup Platform Crowdfunding
These crowdfunding platforms focus on the initial stages of startups. This gives investors time to back innovative ventures with a stake in the company’s future success.
Social Enterprise Platforms
Businesses and investors with social and environmental goals are focused on social enterprise equity crowdfunding platforms.
Specific Industry Crowdfunding
Crowdfunding platforms that focus on specific industries allow investors to invest in initiatives they’re passionate about, like healthcare, clean energy, and technology.
Investors looking to promote inclusion and diversity in business may select crowdfunding platforms that support underrepresented groups and minority-owned businesses.
Nonprofits Equity Crowdfunding
Investment opportunities for nonprofits include nonprofit equity crowdfunding, offering investment opportunities for those supporting its mission. This allows nonprofits to raise funding and stay engaged with donors.
Convertible Note Crowdfunding (Loan-based)
Startups not prepared for valuation may gravitate toward these types of equity crowdfunding because they allow investors to give companies a loan for future equity conversion. Startups also get the chance to develop.
Investment Contracts (SAFE)
SAFE is an investment contract that transfers as stock following significant events for a startup. SAFE crowdfunding is not debt-based. With these types of equity crowdfunding, there’s typically a valuation cap.
The revenue-sharing crowding model gives investors the company’s advantage for an extended period instead of using traditional security.
Funding Approaches For Your Startup
Crowdfunding is diverse, and different approaches work better for some than others. Get to know the different crowdfunding options and choose the best approach to raising capital for your startup.