Questions

Specifically, for a seed stage startup. More specifically, one that is a web based platform that uses a freemium business model.

OK, first a general observation. I believe we are still in such an early stage of equity crowdfunding, that is difficult to know how things will even out. VCs and stock exchanges have had plenty of time to work out pricing norms and models. At the current time I believe you are just as likely to get a high valuation as a low one, or none at all due to a failed raise. The lessons from the internet industry to date is that it takes a relatively short time (2-5 years) for a dominant platform to take route; think eBay and Amazon. To date, a dominant platform has not yet taken hold, but it will come.

Now in relation to your specific scenario. The advantages of equity crowdfunding is primarily that of availability. If you have a seed stage business the options for external capital raising are generally thin on the ground, and if you do find a VC to fund it, you will probably get a very tough deal. Crowdfunding, like any public market equity (and let's face it, equity crowdfunding is just a variation of public market equity within a new online context), provides a way to access capital while existing management retain control and have no dominant external party.

Will you get a good valuation? No idea, but the you will probably get a higher valuation that a VC will give. the question is probably more one of whether either Crowdfunding or a VC will fund at all.

Once you have a successful crowdfunding round, the key is to communicate with your shareholders. This is not a fire and forget exercise, and they will not wish to be treated like a parent you just go back to for money.


Answered 11 years ago

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