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:

private funding by sector chart 2020 to 2023

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.

  • Levels: $5M raised
  • Sunday Golf: $1.1M raised
  • Blue Wire: $100k raised in a few days
  • and many other sports startups

Let’s Dive In 👇

What Is A Community Round?

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

Equity Crowdfunding visual

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).

Pros of Community Rounds

  • 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.

Cons of Community Rounds

  • 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.

More Sports Community Rounds

I think more sports companies should think about equity crowdfunding.

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

  1. StartEngine
  2. Wefunder
  3. Republic
  4. NetCapital
  5. DealMaker

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

average spending on sports by gender

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.

Going Forward

I think community rounds are going to continue picking up steam (especially in sports).

Think about it…

If you’re a sports fan and a cool company in the space is backed by VCs, sports owners, and several athletes, what do you think is going to happen?

sports angel investors

Thousands of these fans, customers, and users (who are used to dropping $100 on a parlay) are now likely to put $100 into a startup.

This style of fundraising is going to become the norm for lots of amazing companies.

Excited to see it pick up steam in sports.

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