Democratizing Investment Industry: Equity VS Debt


Orange Crowd Funding Button on Computer Keyboard. Internet Concept.

The sharing economy platforms became the new black: Airbnb, Zipcar, Etsy, Uber, Kickstarter, Peerby, LendingClub, Prosper…Peer-2-peer keeps democratizing investment industry – we are witnessing the disruptive power of online collaboration and the new laws (JOBS Act Title III – non-accredited investors can invest in businesses) are opening new doors. Back in 2010, crowdfunding started off with $880 million in funding. This number increased to $6.1 billion in 2013 and then to $16.2 billion crowdfunded in 2014. And 2015 is set to double the numbers with $34.4 billion, according to the crowdfunding industry report by Massolution. In comparison, the VC industry invests an average of $30 billion each year. There are approx. 1,250 crowdfunding platforms worldwide and their number will dramatically increase with the JOBS Act Title III fever – but many fail to see the obvious and still focus on equity crowdfunding.

When it comes to funding, there are two dominant options: equity and debt. In equity-based financing, investors fund a business in exchange for equity shares in the company and normally get a return only if the business is acquired or goes public. Unfortunately, less than 1 out of 10 companies get acquired or go public, and there is always the chance that the value of purchased shares could fall below the original purchase price.

On the other hand, revenue sharing is a unique form of investment that provides an alternative for investors. Instead of owning a share of the company’s stock investors receive monthly/quarterly/annual payment that is based on the company’s revenue. In other words, investors lend money for a percentage of the revenues of the business. The best part of this approach is that there is no need to agree on a valuation of the business and the returns come in sooner as compared to waiting for the business to exit.

Revenue sharingWith market instability, rounds of convertible notes raised under different valuation, and lack of exit strategy, profitable and growing businesses have one great thing – a growing stream of revenue. At StartWise, we use revenue-sharing investment – which enables individuals to invest in companies they care about in return for a fixed percent of company’s quarterly revenue. The company pays its investors until they have received a multiple return on their investment. Using this approach, you as the consumer get to decide  the next best product in the market – and profit together with the business.

StartWise and Colorado share one common love – supporting great businesses. After all, Colorado is well known for its entrepreneurial nature.