With the arrival of crowdfunding, many bureaucratic hurdles for raising funds have been removed. For too long, raising capital in small businesses meant either being at the mercy of bank underwriter or a lengthy process with affluent angel investors, involving lawyers and a lot of paperwork.
Now, entrepreneurs can use many different crowdfunding options. What flavors are out there? Which one is best for what purpose? In article, we look at online platform that publicize the fundraising offer, facilitate the transactions, and in many cases facilitate the re-payments to the investors.
| Crowdfunding | Securities | Peer-to-peer loans | No-Interest Loans | In-Kind, Pre-Sale | Donations |
|---|---|---|---|---|---|
| Description | Equity investment or loan promising an additional return | Loans funded by individuals | Small loans without interest | Capital from pre-payments for store credits | Contribution with acknowledgement and giveaway |
| Examples | CircleUp Crowdfunder AgFunder Direct Public Offering (DPO) |
Lending Club Prosper |
Kiva Zip | Credibles | Indiegogo Kickstarter Barnraiser |
| Typical listings | Startups | Mostly individuals | Small businesses | Local food businesses | Creative projects, startups |
| Who can invest? | Accredited investors only DPO: everybody in registered state |
Everybody | Everybody | Everybody(who eats the products) | Everybody |
| How does the business pay back? | Dividends, or cash when liquidity event happens (acquisition, IPO) | Principals + interest, through service | Cash. Principal only, over 1-3 years. | Products, often with extra store credits for larger funding amounts. | No pay back, but incentives (e.g. T-Shirt), or launched products (tech) |
| Focus/share funds for food and ag businesses | CircleUp: 40% Crowdfunder: 0% AgFunder: 100% |
Unknown | Kiva Zip: 26% | Credibles: 100% | Kickstarter: 4% Barnraiser: 100% |
| Campaign duration | 2-3 months Campaign have preview status before launch |
2 weeks | Kiva Zip: 6-8 weeks Rarely repeats |
Ongoing(After capital raise, use as loyalty program) | Up to 2 months No repeats |
| Typical amounts raised for food businesses | $50,000 – $500,000DPO: $100K-$500K | $5,000 – $35,000 | $2,500 – $10,000+ | $5,000 – $50,000 | $4,000 – $40,000 |
| Fees | CircleUp: $500 + Investment Banking Commission AgFunder: 5% DPO: $15,000-$25,000 |
10%-20+%, depending on size and FICO score | Currently waived by PayPal | 5% | 9%-10%Indiegogo: up to 18% |
| Comments | Driven by valuations. Post JOBS act, this option is still in its infancy. |
Identity of borrower is disguised and unknown to lenders. | Kiva Zip Lenders need to be supported by a “trustee” | Credibles will be cross-redeemable between local businesses | Kickstarter and Barnraiser is all-or-nothing, no partial fundings |
Status: updated January 2016
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