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Frequently Asked Questions (FAQs)

What is Investment Crowdfunding?

What is Investment Crowdfunding?

Investment crowding is a funding vehicle to raise capital from community, customers, professional investors, and other supporters of businesses. Similarly to an investor working directly with a founder to invest, investment crowdfunding elevates that relationship by using the power of technology for investors to transparently view different business online in one location and determine what businesses they want to invest in based on a compelling business case. Investment crowdfunding offers the flexibility to democratize investing by using any securities exemption strategy (accredited or non-accredited investors) to facilitate the raise process in a way that is efficient and effective for both founders and the investors.

Is investment crowdfunding similar to Kickstarter and Indiegogo? Is it a nonprofit that gives grants to companies?

How does investment crowdfunding work? Is similar to Kickstarter and Indiegogo? Is it a nonprofit that gives grants to companies?

The crowdfunding approach is similar concept to businesses such as Kickstarter in that it provides an online platform for people to see startup businesses. However, the business approach is different. Unlike with Kickstarter where a person would get a reward, perk or gift for contributing to an early stage B2C company campaign, investment crowdfunding:

  • Supports a variety of companies (B2B and B2C)
  • Has a person actually invest in the company, becoming a true investor and therefore had a financial stake through equity or debt.

Investment crowdfunding is not a nonprofit that provides grants or donations to business but a true investment vehicle.

What are the benefits of investment crowdfunding?

What are the benefits of investment crowdfunding?

Unlike the offline raise process, Investment Crowdfunding provides a business the ability to make a raise strategy match a founder’s business strategy, not the other way around. The founders get to choose which investor base they are making an offering to and what the terms will be to each investor base. They can create equity and/or debt offerings, and work with advisors to determine the terms of the offering.

CrowdfundNC facilitates investment crowdfunding with three main principles:

  • Community: Certain raises are idea for running a crowdfunding campaign where people come together to mass support a business, further supporting the regional economy.
  • Accessibility: Investment crowdfunding supports access to capital for founders and investors, letting them set the terms of how much they want to raise and invest.
  • Flexibility: The investment crowdfunding model provides a variety of options to meet founders and investors goals.

CrowdfundNC’s launch readiness advisory services and partnership with Localstake helps guide their business through the decision process.

How much capital has been raised through investment crowdfunding?

How much capital has been raised through investment crowdfunding?

Investment crowdfunding has been used by entrepreneurs across the country. Some of the latest statistics:

  • $2.5B of investment capital raised since 2012
  • Over $200M has been raised from mostly non-accredited investors leveraging Regulation Crowdfunding (Ref CF) since 2016.
  • From 2016-2018: $107.9M raised
  • $121.3M raised in 2019, a 62% increase over 2018 ($75.8M)
  • Additional 2019 can also be found here.

What online platform does CrowdfundNC use? Where can I see all the current campaigns?

CrowdfundNC partners with Localstake to provide their online platform. Current campaigns can be viewed there.

Localstake is a registered Broker Dealer. As a Broker Dealer, they allow businesses to sell any type of exemption available which means founders have the flexibility to choose exemptions (including accredited and non-accredited) which best meet their business’s strategy.

Are there other investment crowdfunding platforms? How is CrowdfundNC different?

Are there other investment crowdfunding platforms? How is CrowdfundNC different?

Various other investment crowdfunding platforms include Wefunder and Texas-based Microventures. What makes investment crowdfunding successful is often the focus on community and people wanting to support their regional businesses.

With that in mind, CrowdfundNC was formed to support the regional southeast and create a true marketplace for founders, investors and partners. CrowdfundNC has partnerships across the region that can support founders and investors to meet their goals and promote their marketing efforts during a campaign.  Investors can come from across the country using CrowdfundNC’s online platform provider Localstake. As a broker dealer platform, Localstake provides flexibility for founders to determine and develop their most effective raise strategy without have to do certain governance and legal considerations offline.

Does CrowdfundNC only support investment crowdfunding for North Carolina investors and businesses?

Does CrowdfundNC only support investment crowdfunding North Carolina investors and businesses?

No. While most of our founders are based in North Carolina, CrowdfundNC also supports businesses which have an impact on North Carolina.  Also, businesses can seek investors across the country. We believe having a regional focus enhances the capital raising experience so community can come together to support businesses they know, love and trust. 

What types of raises are available? Is it for accredited only?

What types of raises are available? Is it for accredited only?

Actually, it’s for business to raise funding from any type of investor. Businesses can perform a private ‘traditional’ raise to ‘strategic investors’ or a known group of accredited investors. Businesses can also perform a public raise allowing anyone to participate.  Webinar on Investment Campaign Marketing Do’s and Don’ts.  Businesses can even perform a side-by-side (aka “Concurrent”) offering where a founder can strategically group accredited and non-accredited investors into separate exemptions, allowing founders to potentially raise more funding.

A variety of traditional and new offering exemptions can be used by a business.

Traditional

  • 504 – Private Accredited and Non-Accredited
  • 506(b) – Private Accredited

New

506(c) – Public Accredited

  • Regulation Crowdfunding (aka Reg CF) – Public for anyone to participate
  • NC PACES – NC Businesses only and public for any NC resident to participate
  • Reg A+ aka Online Public Offering (OPO) – Public for anyone to participate

CrowdfundNC advisors, Localstake NC, and an an attorney can help understand the requirements of each.

Another option is to make a website if it is preferred to use a smaller offering type called a Local Public Offering (LPO). The website has to be compliant with the PACES law and the rules on the NC Secretary of State website. Read the FAQs first, then the PACES Act rules for more information.

Is investment crowdfunding only for certain stage startups or certain industries? Can it be used along with other capital options?

Is investment crowdfunding only for certain stage startups or certain industries? Can it be used along with other capital options?

Investment crowdfunding is a complementary funding vehicle. It can be used for new and established businesses. A variety of companies in a variety of industries (including B2B and B2C) have used investment crowdfunding to achieve their raise goals. It can also be a strategic approach in parallel or serially with other capital options depending on your business model and capital goals.

What is the typical investment crowdfunding raise amount? Any limits?

What is the typical investment crowdfunding raise amount? Any limits?

Based on results across the industry, typical raises are $100K minimum, $250K on average and can go into the millions based on the exemption chosen.

Exemption fundraising limits are as follows

  • 504 – usually up to $5M per year
  • 506(b) – no cap
  • 506(c) – no cap
  • Reg CF – up to $1.07M per year – Potentially Raise More with a Concurrent Offering
  • NC PACES – up to $2M per year
  • Reg A+ – up to $50M

Equity or Debt Offering Types can be used.

What is the process of setting up a raise campaign with CrowdfundNC?

What is the process of setting up a raise campaign with CrowdfundNC?

Below are the high level considerations. For more information, please visit the Get Funded section of our website to learn more about the Launch Readiness Advisor Consultancy Program which supports founders in the preparation for a raise campaign.

Step One: Build a compelling story and offering

On the company profile webpage on Localstake, the business will make the case for the funding they need, and explain the investment offering they are making

The investment crowdfunding mission of a startup or small business is to create a great company profile and offering on Localstake that explains:

  • The company vision
  • The problem to be solved
  • The product or service solution
  • Identification of the target market and how to reach it
  • A business plan and model that works
  • The team that that can make the business a success
  • The traction the company as achieved
  • The milestones and metrics the company anticipates
  • Use of funds to achieve those milestones
  • An analysis of the competition
  • The existing financial condition of the company
  • A reasonable financial projection going forward
  • The terms and disclosures of the investment offering

Step Two: Create and run an effective campaign

The next step is to run an investment crowdfunding campaign to raise the needed funding. The goal is to find investors in the community and around the North Carolina region that share the busienss’s enthusiasm and will help fund it. Localstake NC also provides the broker/dealer investment accounts and the tools to enable investors to invest, and to manage the required disclosures and reporting to investors by the company.

As an investor, how much of a starting investment is required?

 

As an investor, how much of a starting investment is required?

It depends on the business raising and the type of raise they are conducting.

Minimum investment sizes can be as low as $100 and are usually no higher than $500 for public rounds.

Minimum investment sizes for accredited investor offerings (Syndicated rounds, private rounds, public accredited-only rounds) usually start at $1,000 and go up from there.

The minimum investment amount for investment crowdfunding offerings is usually much lower than traditional angel investor offerings. This allows new and seasoned investors to diversify their investments across more offerings to reduce risk.

How do I invest?

 

Investors set up a Localstake investor account (About Localstake). Localstake investor accounts are for both wealthy and non-accredited (‘retail’) investors. Under Regulation Crowdfunding and the NC PACES Act offering exemptions, anyone can invest in these offerings as long as the limits and rules for the exemptions are followed. For the first time, every retail investor in North Carolina can participate in these private equity and debt offerings. Keep in mind that private equity and debt offerings are risky, and that investors can lose part or all of their investment.

Can I invest with my IRA?

 

Can I invest with my IRA?

Yes, but not without either a specialized Self-Directed or Self-Directed Checkbook IRA. The cool part is that the team over at Rocket Dollar has created a simple solution for the everyday person to unlock their IRA. CrowdfundNC has partnered with them to give $75 off account setup to help anyone who wants to become an angel investor in startups and other private businesses as part of their investment diversification strategy. There are IRS guidelines around what you can and can’t invest in with your IRA so check with a tax professional if there are questions.

What is an accredited investor?

What is an accredited investor?

An accredited investor meets the criteria prescribed in the Corporations Regulations 2001, namely net assets of at least $2.5 million, or a gross income for each of the last two financial years of at least $250,000. Details can be found here.

New laws in 2016 supports investment crowdfunding being open to non-accredited investors in addition to accredited investors.

What if I don’t know any entrepreneurs, but want to invest?

What if I don’t know any entrepreneurs, but want to invest?

The southeast region is surrounded by entrepreneurs in the community. Investment crowdfunding platforms like LocalstakeNC make it easier than ever to find, vet, and invest in promising startups and small businesses that are doing debt or equity offerings using Investment Crowdfunding exemptions.

When determining my investment approach, what should I look for in a company?

When determining my investment approach, what should I look for in a company?

While the CrowdfundNC team is not investment advisors, here are some criteria an investor may want to look at:

The mission as an investor is to find great investment opportunities in startups and small businesses that have a good company vision, a real problem they are solving with their product or service, a great solution they have developed, a focused view of their market and how they are going to reach it, how they plan to beat their competition, a reasonable financial projection of their business and the excellent team they have put together that can make their business a success.

On their crowdfunding investment campaign webpage, these companies will make their case for the funding they need to get that done, and explain the investment offering they are making. Their goal is to find investors in the community that share their enthusiasm for their business and will help fund it.

At the end of the day, it is up to the investor to determine if the company is investable and meets the risk they are willing to take. Keep in mind that private equity and debt offerings are risky, and that investors can lose part or all of their investment.

What are the tax benefits or considerations of private company investing?

What are the tax benefits or considerations of private company investing?

The CrowdfundNC team are not tax professionals, though they partners with a few. However, there are several exemptions (e.g. 1202 Qualified Small Business Stock (QSBS)) that individuals can use to potentially completely eliminate any capital gains taxes from investing. Consult with a CPA for additional information.

How do I make money and when do I get my money back?

How do I make money and when do I get my money back?

It depends on the offering. If a business offers a Revenue Share or Dividends,  an investor could potentially see his/her principal starting to be paid back within a month or two and see positive returns within 2-5 years.

If a business offers a convertible note, SAFE, or another equity instrument, returns don’t occur until there is some type of exit event (e.g. an Online Public Offering (OPO) or Initial Public Offering (IPO)). OPOs may occur within 3-4 years. IPOs typically take at least 7 years and may never occur.

What type of returns can I expect?

What type of returns can I expect?

In all cases, the business must be successful in order for it to see a return. If the business fails, which most do, an investor could loose part if not all of his/her investment. An invester should never invest more than he/she can afford to loose.

  • Assuming the business being invested in is successful, then the return depends on the terms that they offered. Some examples might be:
  • If it’s a Main Street business offering a Revenue Share loan, returns of 1.5x to 3x for the period of the loan are typical offerings.
  • If it’s Common Stock with a dividend, an investor may see 6-12% annualized returns after profitability is achieved.
  • If an investor invested in a high growth startup, returns can be 10x+.

Many other scenarios and results are possible. Always carefully review and understand the terms of the offering, as this greatly impacts the potential return.