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- Date Established
- New York City
- Good for startups with exponential growth potential
- Connects you to accredited investors
- Allows non-accredited investors to invest
- Over-complicated pricing/fees
- Only ~1% of applicants are approved to campaign
With the attention that crowdfunding has been getting lately, you probably associate crowdfunding with sites like Kickstarter, GoFundMe, and Patreon — services by which campaigners solicit funds from The Crowd in exchange for rewards and gifts (or, in the case of most GoFundMe campaigns, nothing at all). SeedInvest—an equity crowdfunding platform—does things differently. I wrote a piece on the differences between rewards-based and equity crowdfunding — to summarize, in equity crowdfunding, the backer isn’t just a supporter, but an investor who receives an ownership stake in the company conducting the raise.
SeedInvest was founded in 2012 by Ryan Feit and James Han, who had been part of the movement to change U.S. securities laws to allow for equity crowdfunding. The result of this movement was the passage of the JOBS Act in 2012, which created the legal framework for companies like SeedInvest to exist.
There’s one notable distinction between SeedInvest and many other equity crowdfunding platforms, however. Most equity crowdfunders require you to be an “accredited investor” to invest. This term refers to someone who either has a net worth of one million USD excluding the value of their primary residence or whose income has been $200K or more over the last two years — essentially, an “accredited investor” is just a wealthy person, not a skill designation.
SeedInvest, by contrast, was the first equity crowdfunder to allow regular folks who don’t qualify as accredited investors to invest in companies on their platform, thus giving campaigners a broader potential investor base. At the same time, SeedInvest connects you to accredited investors as well.
While SeedInvest may be flexible in terms of who can invest in companies on its site, it is decidedly more exclusive when it comes to the companies that can conduct campaigns on their platform. SeedInvest is for business fundraising only, with tech and consumer-facing businesses comprising most of the platform’s successful campaigns.
SeedInvest does extensive due diligence on the companies that apply to use their platform, and by their own estimation, have approved just 1% of startups that have applied thus far. For those looking to launch a crowdfunding raise, SeedInvest is literally a solution for the 1%. Fly-by-night operations and those with big dreams but no business plan need not apply.
Thus far, according to SeedInvest, the company has raised $100M+ for over 150 startups. Let’s delve deeper into SeedInvest.
Table of Contents
In their FAQ, SeedInvest lays out the four things they do for companies that are given access to their platform:
- Simplify and speed up your fundraising process
- Access a network of accredited investors from around the world
- Host virtual fundraising sessions from your desk
- Streamline investor pitches, execution of legal documents, and processing of investments
In order to use SeedInvest to conduct a crowdfunding campaign, you must first create a personal account. Once you do this, you can go through the process of adding your company, at which point the extensive vetting begins.
SeedInvest requires that businesses applying to fundraise on their site meet the following qualifications:
- At least a minimum viable product or prototype
- Proof of concept (includes customer traction or partnerships)
- At least two full-time team members
- A business which has been incorporated in the United States
Note that your business must be U.S.-based in order to use SeedInvest.
SeedInvest further elaborates on the issues they look for throughout the due diligence process:
- Problem or inefficiency being addressed
- Product/service overview, stage of development and anticipated milestones
- Demonstrated traction (e.g. revenue, pre-sales, purchase orders, signed contracts, media coverage, awards, etc.)
- Data to support claims made in marketing materials (e.g. user/customer metrics, signed contracts and agreements, product demonstrations, etc.)
- Growth strategy
- Employees and advisors (including ownership structure)
- Addressable market (e.g. size, growth, penetration, etc.)
- Competitive landscape and industry dynamics
- Exit opportunities
- Intellectual property
- Historical financials
- Financial projections (including error-checking, evaluation of key assumptions and reconciliation to stated growth plan)
- Reference checks (e.g. previous investors, advisors, etc.)
- Investment overview (including determination of key terms, uses of funds, and current and previous investors)
Talk about extreme vetting! To get your company listed on SeedInvest, be prepared to run quite the gauntlet.
Terms & Fees
Here are the terms and fees for SeedInvest’s equity crowdfunding campaigns:
|Funding duration:||No set limit (typical time is 30-60 days)|
|SeedInvest fee:||Explanation below|
|Maximum possible raise:||$30 million|
In keeping with its status as a site for heavy hitters, SeedInvest’s crowdfunding campaigns operate on the all-or-nothing funding model. You designate a funding goal beforehand, and if you don’t ultimately reach that goal, you’re out of luck: no funds for you.
Not a fan of “all-or-nothing?” Other start-up loan options:
|Lender||Borrowing Amount||Loan Term Length||Interest Rate||Origination Fee?||Min Credit Score||Next Steps|
|$1K - $50K||3 or 5 years||8.16% – 27.99%||Yes||620||Apply Now|
|$2K - $35K||3 or 5 years||6.95% - 35.99% APR||Yes||640||Apply Now|
|$25K – $300K||3 – 7 years||0% -15% on first 9 – 15 months||Yes||680||Qualify Now|
As for fees, this is where it gets a bit convoluted. Equity crowdfunding is much more complex than rewards- or donation-based crowdfunding due to the simple fact that equity crowdfunding involves investing, which is much more strictly regulated than anything Kickstarter does. With SeedInvest, the fees depend on your specific offering type. According to the company’s FAQ, these are the costs involved:
- 7.5% placement fee; charged on the total amount raised on SeedInvest in the round, paid only upon the successful completion of your offering.
- 5% warrant coverage or equity; based on the total amount raised on SeedInvest in the round.
- Up to $0 – $10,000 in due diligence, escrow, marketing and legal expense reimbursements.
As you can see, there are considerable costs and fees involved if you complete a successful crowdfunding raise with SeedInvest. More so than with competing crowdfunding services (rewards-based crowdfunders tend to charge about 7.9-8% in total). At the same time, however, you can theoretically raise up to $30 million USD. This is the largest fundraising limit of any crowdfunding outfit I’ve come across thus far. And while there is a 2% payment processing fee, this fee is charged to the investor.
One positive note: SeedInvest states that they “will reimburse up to $3,000 of accounting fees (if applicable) upon campaign launch.”
Additionally, companies that successfully conduct certain kinds of raises can receive additional funding from The SeedInvest Selections Fund. SeedInvest describes this fund thusly:
The SeedInvest Selections Fund is currently investing $200,000 alongside each company that successfully raises capital on SeedInvest under Regulation D. The fund is targeting investments in 50 companies over the next two years and its limited partners are looking for opportunities to make strategic co-investments and follow-on investments.
A footnote goes on to say the following:
Investments by the SI Selections Fund are contingent on the particular deal raising at least $250,000 through the SeedInvest platform under Reg D and are additionally subject to the discretion of the fund managers.
For the right kind of company conducting the right kind of equity raise, the prospect of an additional $200,000 in funding is a tantalizing one indeed.
Here’s a disclaimer I attach to every equity crowdfunder review: Equity crowdfunding is a complex proposition. Consult an attorney if you have any legal questions regarding the process, SEC regulations, etc.
As stated earlier, once you’ve made a personal account and added business details to your profile, SeedInvest will give your business an extensive examination to determine your fitness for their site. Remember: only 1% of businesses get the golden ticket. If your company hasn’t done its due diligence to prepare for scrutiny, don’t even bother.
Sales & Advertising Transparency
SeedInvest’s terms and conditions are all spelled out in their FAQ — no complaints here.
Customer Service & Technical Support
In addition to the FAQ, SeedInvest makes available a number of guides that help you understand offering types, crowdfunding regulations, and the like. SeedInvest doesn’t provide a public phone number or email address, but there is a live chat box that pops up when you access certain pages.
The primary complaint reviewers have about SeedInvest is that the fees are quite high for the industry. However, they note that at least you won’t be charged anything if you don’t successfully complete your campaign (if you’re attempting to raise less than $5 million, that is). For the most part, SeedInvest has been well-received by reviewers. One noted that SeedInvest is great “for small businesses that have a viable operation which has already proven itself lucrative in the marketplace.”
The intended audience for SeedInvest is dramatically smaller than that of Kickstarter or Patreon, particularly on the entrepreneur/business side. SeedInvest is a crowdfunding solution for the rare small business that, in their eyes, is worthy of the attention of its network of angel investors as well as the everyday investors that recently-enacted provisions of the JOBS Act permit to invest in startups. For those precious few strong startups with this particular investor appeal, SeedInvest could be a godsend. It’s not for the little guy/gal, however, which puts some distance between SeedInvest and the very people and projects crowdfunding was originally intended to benefit.
Business Loan Rating Criteria.