StartEngine raises $5.5M for equity crowdfunding

With firmer SEC rules in place, equity-based crowdfunding is becoming a viable alternative to VC

Investors are betting on a new kind of investing.

Equity crowdfunding platform StartEngine announced today that it has raised $5.5 million in funding from SE Agoura Investment LLC, an investment affiliate of philanthropist and software entrepreneur Aubrey Chernick.

The Los Angeles-based company is one of a growing class of equity-based crowdfunding platforms that enable entrepreneurs to build campaigns to raise up to $50 million in capital for their business ideas. Unlike sites like Kickstarter or Indiegogo, where contributors are either purely donating toward a cause or receiving various rewards, equity-based crowdfunding platforms actually give investors securities (equity or debt) in exchange for their capital.

StartEngine makes money by charging companies raising capital a flat $100 administration fee per investor, regardless of other factors.

More and more of these kinds of platforms have been popping up recently (and now thriving) thanks to an October ruling by the Securities and Exchange Commission (SEC) that companies can raise capital by leveraging their equity. The rules, which are somewhat complex, go into effect this May.

Other equity-based crowdfunding platforms include Fundable, Crowdfunder, WeFunder, and many others serving niche markets.

StartEngine says it's different from other equity-based crowdfunding platforms in that it utilizes changes to US securities regulation known as “Regulation A+”, which became effective in June 2015. This opens up investment opportunities to investors that don't meet the "accredited investor" mark, and it allows companies to "test the waters" by speaking with investors and gauging interest in non-binding meetings.

On its website, StartEngine showcases several successful and up-and-coming campaigns on its platform, such as the one for Elio Motors, a new startup hoping to deliver an affordable, fuel-efficient, and fun-to-drive "transportation alternative" to the American market. Another spotlighted campaign is for DogLand, a dog-centric social media app that has already reserved over $600,000 "in non-binding indications of interest" toward its goal of $1 million.

Because of the growing popularity of services like StartEngine, there’s also an expanding debate over whether crowdfunding could be the preferred future model of investing. While venture capital is typically the route most mainstream startups go to raise capital (and, ideally, to pick up knowledgeable board members and partners), more and more entrepreneurs are trying out crowdfunding to get their ideas off the ground.

StartEngine will use its newly announced investment to expand the platform and to grow its marketing campaigns to get the word out. Obviously, they’re going to be a big proponent that crowdfunding is a powerful, legitimate, and viable way for startups to raise capital, especially if going the VC route doesn’t sound attractive.