How is equity crowdfunding different from other ways of raising funds?



10:35 AM on October 10, 2022

Aside from crowdfunding, there are five other ways of raising funds that are available to most ventures: bootstrapping; bank or lending-company debt; investments from family/friends; angel investors; and private equity, which may be done through venture capitalists or the formal capital markets.

Fundraising methods differ in size, scale, audience, and requirements. The following comparisons are just a rule of thumb to let you understand how crowdfunding stacks up against other forms of capital raising.


Crowdfunding πŸ€πŸΌ

Raise the funds your business needs through a crowdfunding platform and reach out to many different kinds of investors. This requires a comprehensive business plan and more extensive requirements, depending on the crowdfunder's business stage, for presentation on the platform. The primary instruments used in a crowdfunding campaign are debt or equity.


Bootstrapping πŸ₯Ύ

Using personal savings and other resources to start or run a business.


Business Loan πŸ’Ό

Depending on the size of the lending institution and loan, the requirements for borrowing from a bank or a lending institution usually consist of collateral, a few years' worth of financial statements, income requirements, and a personal/business credit score.


Investments from Family / Friends πŸ‘―

Coming to family or friends for funds in exchange of shares, a loan, or a gift, can be quite the task. Expect to overcome a healthy dose of skepticism, as it's their hard-earned money on the line. Remember, even when you approach those close to you for funding, present a strong, well-thought-out business case.


Angel Investment πŸ‘ΌπŸΌ

Equity financing from high net worth investors requires a solid business idea, a great product or service, a stellar management team, and a business plan. Consider angel investing groups on the local and foreign scene for this style of fundraising.


Private Equity & Venture Capital πŸ§‘πŸΌ‍πŸ’»

Investments from pooled funds of investors require an established business, a strong track record, and well-defined objectives for profit and growth goals. Offerings have more comprehensive and strict terms compared to angel investors.


Formal Capital Markets πŸ“ˆ

This includes the stock exchange (like the Philippine Stock Exchange) and the exchange for corporate debt. IPOs and corporate bond offerings of listed companies may go up to the billions of pesos in a single offering. 


A Snapshot Comparison πŸ“Έ

Crowdfunding and the formal capital markets have a similar premise: the offering of securities to an investing public. However, they differ in the size and scale of fundraising amounts, as well as in the requirements for listing.

Crowdfunding securities are not tradeable on a live "market" like stock exchange securities are.

Moreover, crowdfunding investments carry significant risks. The risk of loss of investment is substantial, and investors must understand and appreciate the risks associated with early stage, growth-focused, and crowdfunding securities.

Please take time to review and understand our Risk Warnings.


Related: How does equity crowdfunding work?