Equity Crowdfunding vs Venture Capital

Spread the love

Equity Crowdfunding vs Venture Capital – The Debate is Over.

The redoubtable Professor Irwin Stein, Esquire slammed the lid on the equity crowdfunding vs venture capital debate  back in 2019 with his seminal work “The Great VC Con Game” but obviously far too many people failed to receive the memo.  You’ve probably heard plenty of entrepreneurs talk about their funding.  Did you notice how infrequently venture capital comes up in the conversation?

That’s because the savvier startup has come to the conclusion that in the equity crowdfunding vs venture capital arena, equity crowdfunding is the champion of the entrepreneur.

What’s the X factor? The crowd itself.

The one reason that crowdfunding beats VC funding is the skill sets that each require. Equity crowdfunding requires a strong knowledge of marketing, specifically e-commerce. Yes there are some nuances, but as a whole it follows eCommerce best practices closely, specially with the critical task of attracting and converting investors,  VC funding on the other hand is all about your network. If you know the right people or are somehow connected to them you’re on your way.  But if you’re not lucky enough be so well connected,  you’ve got a long road ahead of you. If you’re a networking pro you can hit your funding goal without having any connections already in your network, but is networking really your strongest skill? Here’s a more pointed question; do you have all the free time needed?

That’s why VC funding loses the equity crowdfunding vs venture capital debate every time.

That’s why crowdfunding for startups is the answer

Entrepreneurs are, in a nutshell, people who create and grow a business or, in the case of serial entrepreneurs, many businesses. And during the starting phases of any business, they must wear many hats.

One of those hats is always marketing. This means that most (if not all) entrepreneurs have some level of marketing knowledge, even if it’s only conceptually. And that’s the key reason that crowdfunding will be a better fit for most entrepreneurs; it calls upon skills they’ve already developed through the course of just being entrepreneurs!

But what if you really don’t know enough about marketing?

Equity crowdfunding wins again. When it comes to VC funding, it’s up to you to do all the heavy lifting. Sure you can outsource some aspects, like having your pitch deck designed, but you still need to be the one to pitch to potential investors. There’s no outsourcing that.

Conversely, equity crowdfunding can be almost entirely outsourced. Consultants and agencies such as Crowdfund Buzz  can manage the social media marketing, email marketing, public relations and press engagement, all on your behalf.

This means that even if you don’t have any marketing know-how, you can still launch a successful crowdfunding campaign!

Equity Crowdfunding vs Venture Capital – Here’s the Heavy Firepower to Bury the Topic.

Equity Crowdfunding vs Venture Capital
Venture capital Rest in Peace.

While both options can provide the funding needed to get a business off the ground, there are clear advantages to using equity crowdfunding vs venture capital.

Equity crowdfunding offers more flexibility when it comes to the terms of the investment. Venture capital firms often force you to give up a significant amount of equity in the business in exchange for funding, and may also have strict conditions for what the funding can be used for and even when.  With equity crowdfunding, the founder(s) set their own terms for the investment, and usually retain more control over the business.

Equity crowdfunding allows entrepreneurs to reach a far larger audience of potential investors into the millions since almost anybody can be an investor. . With venture capital firms, entrepreneurs are typically limited to a small group of wealthy individuals or institutions. With equity crowdfunding, however, entrepreneurs can reach a much larger audience of potential investors, including everyday people who may not have the means to invest with a venture capital firm. This can lead to a greater level of interest in the business and a higher likelihood of reaching funding goals. Equity crowdfunding truly democratizes the capital raising process and kicks VC funding to the curb.

In the same vein, equity crowdfunding gives you the ability to gather feedback and input from investors. With venture capital firms, entrepreneurs often have to pitch their idea to a small group of individuals who may not have a lot of experience in the industry or precious little knowledge of the subject matter. With equity crowdfunding, entrepreneurs can gather feedback and input from a much larger group of investors many of which who may have more experience and insight into the industry. This can lead to a more informed business plan and a greater likelihood of success thanks to the think tank qualities of equity crowdfunding.

Once again leveraging the power of numbers, equity crowdfunding allows entrepreneurs to build a “tribe”: a community of supporters around their business. With venture capital firms, entrepreneurs usually don’t get to engage with “the suits” much and may not have much interaction with their investors beyond the initial pitch. With equity crowdfunding, entrepreneurs can connect with investors and supporters all the time, and keep them updated on the progress of the business. This can lead to a greater level of engagement and support for the startup.

All told, equity crowdfunding offers a number of advantages over venture capital firms for startups looking to raise capital. Entrepreneurs can reach a wider pool of potential investors, gather feedback and input from investors, set their own terms for the investment, and build a community of supporters around their business.  Looking ahead, many of these supporters go on to become brand ambassadors which can have a tremendous positive impact.

The Tale of The Tape

Regarding Equity Crowdfunding vs Venture Capital, I hope the topic is buried once and for all. While it’s true that the initial hype surrounding crowdfunding for startups was impressive,  the best is yet to come with regard to tremendous opportunities. And even though getting and writing about venture capital is in vogue, a crowdfunding campaign can often be a better fit for the entrepreneur’s skills sets.