Unraveling myths about Equity Crowdfunding from the point of view of the investor (Part One)

Equity Crowdfunding has “officially” existed in our country for over more than 4 years. None the less, there are a few false ideas going around about this alternative way of investment. These false are stopping investors and company promoters from using alternative investment, which is very innovative and has many advantages.

1. Equity Crowdfunding is the last financing resource for founding members, so startups must be trash

False. The glamour of investors, capital risk or Business Angels like Ashton Kutcher or Mark Cuban, or here in Spain, Luis Martín Cabiedes, has provoked many small investors to see Equity Crowdfunding as a desperate move from founding members to sell their round. This isn´t true at all. In fact, Equity Crowdfunding doesn’t replace other, more traditional forms of investment, it complements or even amplifies these other ways. Startups are actually taking advantage of Equity Crowdfunding to help close their rounds.

Take for example, Babymico, a company that sells perlicultured products and services, has gotten a mix of very interesting investors, thanks to their visibility at Fellow Funders. Another example is ChineSpain, the first tourist operator specialized in the needs of Chinese tourists in Europe, has gotten support from Decelera (previously Menorca Millennials) and E2in2 during their round of Equity Crowdfunding.

In the last two years, the rumor surrounding the financing of new businesses of lesser quality, has decreased as investors see that the platforms are becoming more professional and every day even more strict with their selection processes.

2. You can only find startups in their early or seed stage getting investment from Equity Crowdfunding

Totally false. Equity Crowdfunding works for every type of business, no matter their maturity level, even for companies that have gotten investment from Business Angels or capital risk. Each day, more mature companies have completed their rounds. Rounds are getting bigger and even have objectives like getting funding before going public.

We have Dougall’s as an example, it completed its 1.2 million euros round in of 6 hours and 15 minutes from nonprofessional investors through Fellow Funders. We must also remember the successful pre-IPO round from CF Intercity, that raised this past May more than one million euros before going public.

3. Only small investors invest through crowdfunding platforms.

FALSE. Even though you can get great things in small packages, crowdfunding is not always included in this category. Equity Crowdfunding sometimes gets confused with crowdfunding based on rewards and donations through platforms like Kickstarter or Indiegogo, where a lot of people give a small amount of money in return for a reward or just because they want to support the project.

Equity Crowdfunding is very different. At Fellow Funders every project is converted by Business Angels, Venture Capital or Family Office. Without going any further, the project WowTrip with Pinama Inversiones also Babymico with BF Capital have gotten support from capital risk professionals, of course by dozens of small investors.

This directly contradicts the idea that investors in Equity Crowdfunding, almost everyone, invests in small amounts without having deep knowledge.

The law to this day (Law 05/2015 to promote business financing) allows accredited investors to invest more than 3.000 euros per presented project in an Equity Crowdfunding round. To be considered a credited investor as a physical person, the law establishes, among other things, to meet one of the following criteria:

  • Have an annual income above 50.000 €
  • Have an established patrimony superior to 100.000 €
  • Has received financial assessment from an authorized company of investment services.

Fortunately, everyday there are more accredited investors investing through Equity Crowdfunding platforms.

A great proof of this, are projects like QPQ that have attracted more than 50 of them.

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