How to Choose Between Different Crowdfunding Portals / Intermediaries
Hi Founders,
I get this question a lot: “With all the different options for choosing a Reg CF funding portal / intermediary, how should I choose which platform to go with?”
Here are some resources and questions to ask yourself to hopefully help you in making that decision for your business and crowdfunding campaign.
Please feel free to reply with questions and your personal experience with selecting which funding portal to use.
Resources
- Top 2019 portals ranked by deal flow and campaigns
- Video – top Reg CF crowdfunding portals comparison for founders
- 2019-2020 Funding Portal reviews
- List of all FINRA Reg CF funding portals
Question to ask & funding portal areas to compare
- Investors on the platform (number of active investors, average check size)
- Platform fees
- Due Diligence process (or lack thereof)
- Securities offered (e.g. SAFE, Equity, etc.)
- Valuation range of companies on the portal
- Average raise statistics on the platform (number of investors, total dollar amount)
- Experience of the platform’s team (who do you think would be more successful in helping to coach your campaign to success, a portal with a lot of successful deals, or one with very few?)
- Does the portal offer Reg D, Reg A+? Do you care?
- Overall fit
In general, looking at the above comparison areas and statistics of the portals, most companies will probably be best-suited by going with one of the larger portals, which have vastly larger investor audiences.
Big Fish in a Small Pond or Small Fish in a Big Pond?
Another common question I get is whether it’s better to raise on a smaller funding portal and potentially get greater exposure (because you are one of a smaller number of deals), or raise on a larger platform and be one of many other campaigns.
With a few exceptions (e.g. if you are a niche, such as Cannabis, Green Energy, a local business that wants to leverage an investor base in a specific geographic location, etc.), I would typically advise that it is better to be a small fish in a big pond (i.e. go with a larger funding portal).
To be clear, I would love to see all the smaller funding portals succeed. And you may get more of a concierge experience going with them, which some founders may want. However, if you’re purely looking to maximize chances of raising as much capital as possible, would you rather be on a platform that has hundreds of thousands of investors and has a high deal volume, or a smaller portal with tens of thousands of investors and fewer deals?
For example, as of April 2020, Wefunder has nearly 550,000 investors (note: this means registered investment accounts, and not necessarily active investors, which is a common issue you will run into when talking to any portal). Many of the mid-tier portals may boast 10,000-20,000 investors. Despite perhaps getting “greater exposure” on the smaller platform and more hand-holding, I look at this as limiting potential upside.
I have seen many companies that start on these smaller platforms to do their first CF round, then move to the larger portal once they have had some experience and exposure. This can be a good technique for tapping potentially different investor audiences and making a good first impression with the larger audiences.
Friction for Investors to Create New Accounts on Smaller Portals is Real
Using myself as an example, I have now invested in nearly 90+ deals in the past three years, so I’m probably in the top 5% of active investors in terms of number of deals. Despite that, I only have accounts currently on 5 of the top Reg CF crowdfunding portals.
Since the smaller portals have less deal flow, and most of the largest deals are on the top portals, it’s not worth my time to have an account on every single funding portal. Thus, even if I like a deal on a smaller portal, to have to create an account, link bank account info, and then manage that investment on a completely separate website is all an obstacle to getting me to invest there.
Again, I would love for all the smaller crowdfunding portals to succeed, and there are certain companies that will be best-suited to using them and get real value from them. However, making a decision to raise capital should be based on data, and for the majority of companies, they will have the largest chance of raising the most money by going with one of the larger portals.
This is all my own personal opinion, and I haven’t raised capital for my own business, so take all this with a grain of salt. Hope this at least helps you to start considering the types of questions and portals that will help your campaign achieve a successful crowdfunding raise.
- 2 Replies
Great article Brian. Just a statement. I just recently applied for StartEngine as a entrepreneur, but was told by them that I was too early stage and to reapply in 6 months.
I incorporated at the end of August 2020, and have just heard somewhere that that to be eligible for Reg CF that the company needs to be 6 month or older. Is that correct?
Hi John,
To my knowledge, the only regulatory requirement that mandates being incorporated for at least six months is if you wish to take advantage of the COVID-19 temporary relief here (recently extended 18 more months):
That being said, each intermediary may have their own requirement in terms of minimum age of issuers that they allow on their platform.
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