What is equity crowdfunding?
The StartCharlotte team hosted a panel to help delve deeper into equity crowdfunding and all its facets.
Moderated by StartCharlotte’s Juan Garzon, William McGuire from Crowdfund NC and John Panaccione from INVESTinNC spoke on their two different models of equity crowdfunding on June 18 at Not Just Coffee’s new West Charlotte location.
Equity crowdfunding, also known as investment crowdfunding, is a mechanism by which a broad group of investors can fund a startup business in return for equity, as opposed to actual products.
With regular crowdfunding, called pledge crowdfunding, people can invest smaller amounts of money in businesses usually in exchange for the actual product or some sort of company “swag.”
McGuire said this model can be inconvenient, and even unsustainable, when the price of giving things back to investors is too high for your company.
“When your give-back doesn’t cost you much, in terms of getting people to support your business – if that’s you, pledge crowdfunding is good,” McGuire said. “Where it tends to blow up on you is if the cost of the giveback is high.”
How it Works
Equity crowdfunding solves this because it gives investors equity in a company. And instead of getting a product, they get a very small piece of the company. If the company does good, the value of that share in the company goes up.
Panaccione’s site, InvestInNC.com, opens up a way for unaccredited investors to invest smaller amounts in local businesses. McGuire’s site uses a syndicate model for accredited investors.
“A syndicate works exactly how it sounds,” McGuire said. “Group a bunch of resources together, in their case it’s capital, to raise money for a company in a very short period of time.”
As for Panaccione’s site, Non-accredited investors (those with net-worth less than $100,000) can invest up to $5,000 in a 12-month period. By opening up funding to non-accredited investors, INVESTinNC helps connect businesses to new funding opportunities.
North Carolina just recently legalized this type of investment with the NC PACES Act.
“There’s a lot of advantages,” said Panaccione. “The state did a dynamite job of looking at other states and programs and really making it more lucrative to use the state program.”
Panaccione also said that other crowdfunding sites decide who gets to invest and who doesn’t, but INVESTinNC lets anyone willing to invest have a shot.
“We’ve chosen not to be a gatekeeper,” he said. “I’m tired of gatekeepers.”
Panaccione and McGuire’s investment crowdfunding sites are a way for individuals to invest in projects and businesses that they truly care about.
“The ability to get a bunch of people in a community to give money to an organization has been around since as long as I can remember,” Panaccione said. “That’s what equity crowdfunding is, we go into the community.”
