Community Rounds: Decoding the Red-Hot Trend of Equity Crowdfunding

Private funding has drastically slowed over the past year.

Especially in and around sports verticals:

The 20% YoY decrease can be attributed largely to capital constraints, high interest rates, and regulatory scrutiny.

This has further fueled the emergence of community rounds.

Let’s Dive In 👇

A Community Round is when a startup lets its customers, users, & fans invest alongside VCs and angel investors.

In a community round (also known as equity crowdfunding) investors exchange cash for a security interest in the startup.

This allows startups to raise funding to fuel their growth and gain dedicated life-long customers (with an upside stake in the company succeeding).

Better Terms: Startups set their own terms.
Customer Loyalty: Startups can raise from their community and gain dedicated lifelong customers.
Dual Marketing: When you market your raise, you’re likely to acquire new customers who are also dedicated investors.
Nearly anyone can raise: Nearly any legitimate company can raise through equity crowdfunding (whereas VCs pass on 99/100 companies they look at).
Relatively Cheap & Easy: Many platforms charge a flat rate + a small percentage of the amount raised. Startups typically dedicate between 15-25% of the amount raised to marketing costs and fees associated with a raise.

Regulatory Burdens: Issuers are required to file a yearly audit and provide yearly updates.
Difficulty Raising: There are often dozens of companies raising on crowdfunding platforms. Not all issuers are successful.
Limited Amount Raised: Through Reg CF, issuers can only raise $5 million per year.
Investor Limits: While anyone can invest, many retail investors are limited to a maximum of a couple of grand worth of investments.

All in all, the pros far outweigh the cons.

I think more sports companies should think about equity crowdfunding.

5 of the most popular sites to do a community round on:

People love sports. A LendingTree survey found that sports fans plan to shell out $664, on average, this fall.

Fans spend hundreds of dollars yearly on tickets, travel, tailgating, fantasy, betting, and even taxes for stadiums (with no equity upside).

But thanks to the democratizing of finance, this is now changing. We’ve even seen it with investing in athletes.

Fans investing in teams is starting to become a reality. Why not a cool company helping to transform the sports landscape?

Community Rounds:

supercharge word-of-mouth
create a “community” dynamic
ultimate alignment between customers
provide access to a more diverse set of investors
can help take sports companies to the next level (and possibly even save startups struggling to get VC money)

The best startups make a product that users love so much they want to own part of the company themselves.