There are several distinct surveys that show that founders, who are directly and initially ignored by venture capitalists (VCs), have found success with equity crowdfunding (ECF). It is a common scene that people of colour and women seldom win the backing of VCs, and for this reason they are either found lagging behind their competitors or look for other promising alternatives. One such beneficial alternative is the equity crowdfunding.
According to recent research conducted by the Harvard Business School, it is found that women are less than 10 per cent of the VC and entrepreneurial labour pool. On the other hand, the Hispanics are at a low 2 per cent and the African Americans with a meagre one per cent and below.
This segment of business entrepreneurs has found significant help and a reliable source in ECF for empowering their entrepreneurial quality and eradicate the inequality. This way ECF is helping the women and minorities to overcome many of the challenges that they face historically when it comes to raising their VC for their business. In fact, their recent report shows a lot of promise that ECF seems to be providing to this specific business segment and is improving the miscellany of the VC landscape.
In recent years, a lot of ECF investments are made on companies with underrepresented founders based on colour and gender as compared to the traditional VC industry.
Reasons for such diversity
The fact that the VCs favour the founders with colour and women less seems to have stemmed from a background of the people and networks such as schools, associations and even past jobs.
- In essence, there seems to be an invisible barrier to the entry point at the VC landscape, simply due to the fact that one does not know the right people to access for such benefits.
- The World Wide Web has significantly helped in removing such restrictions and obstacles and provides equal access to all those people, who want to invest in different vetted startup companies.
- When you consider the current demographics of theequity crowd investors, you will see that it is basically represented by the entire tapestry of Americana right from Miami to Seattle and to New York ensuring a pretty uniform mix. The common age group ranges from 35 to 50 years.
You will find a lot of source for ECF which happens to be just the beginning of a bright and prosperous future. After the US SEC implemented the Title III rule of the Jumpstart Our Business Startups, JOBS Act, situations are bound to improve for the better as the new law will:
- Empower members of the public who are not an accredited investor to invest in early-stage companies
- Include certain limitations in funding to protect the new investors and
- Be very strict about whom to accept into the program.
The primary reason for such strictness is to ensure safety, stability and the desired success of these businesses and to deliver the desired results and products as much as possible.
Process of funding
Every year, the number of applicants desiring ECF is increasing. However, investments are made after an extensive and thorough vetting process is conducted. It is for this reason that only a handful of these applications pass through the first stage of the investment process. Though reliable and reputable sources such as liberty lending and others may not charge any upfront fees to apply, it is mandatory that all these companies are USbased and have the required pitch deck.
- After the application is accepted, it is required by the companies to file a short financial statement and at the same time do a proper SEC filing.
- It is after this process that the team of experts will create a deal page with pictures, video, and a copy explaining the job of the company so that everything can be quick, clearly and easily understood by the public as well as the average investors.
- After the campaign is launched, the company now has to raise an unitemized minimum amount to get the investment funds. If any company is unable to raise even the minimum amount than all the money is returned to the investors.
- On the other hand, on reaching to the funding goal successfully the company will have to pay 6%of the entire funds raised in cash. Along with that, the company will have to pay another 2% of all the securities issued during the campaign.
Every company can participate in such programmes even those that are in the seed stage but the publicly traded companies are not allowed to participate in it. Those companies that are accepted continue to enjoy the benefits and get ongoing support, mentorship and advice apart from getting an account manager who helps the founders through the fundraising process. These companies also get the entire community to access including the extensive network of traditional venture capitalist investors and conferences.
The entire process is very much ongoing and a continuous relationship is built. This ensures that there is the required alignment of interest on both ends that will eventually help the companies to succeed.
Any investor can make money
Just like the business is benefitted by ECF, investors can also make a lot of money though it may seem that investing in startups is highly risky. Yes, there is a fair amount of risk of the money sinking investing in a startup, but on the flip side there is, however, a high chance of making a very attractive return on your investment and you will be rewarded handsomely.
Over the years, the lending policy and the rules and regulations governing ECF have changed and that, too, is a very significant proportion. These changes have provided the investors with an assurance that their investments if made cautiously, will be safe and high yielding.
Therefore, if you want to raise your capital through or want to invest in ECF there seems to be very little to worry in both cases.
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