How It Works

There are four different types of crowdfunding: rewards, donation, debt and equity. Debt and equity crowdfunding are sometimes combined and known as investment crowdfunding. To run a successful crowdfunding campaign, issuers need to capture the attention of a large number of backers and convince them that their company or project is worthy of investment.

Rewards-based crowdfunding involves individuals contributing money to a project or business in exchange for a reward, think hat, bumper sticker or some kind of service, rather than a financial return on their investment.

Donation-based crowdfunding involves individuals donating money to a cause or project without receiving any financial return on their investment, such as GoFundMe.

In the United States, Equity and debt- based crowdfunding falls under Regulation Crowdfunding (Reg CF), which is regulated by the United States Securities & Exchange Commission. Equity-based crowdfunding involves the sale of securities, such as a percentage of the business, to raise capital for a business or project. Investors hope to receive a financial return on their investment, either through the sale of their securities at a later date or through the receipt of dividends or interest. Debt-based crowdfunding involves individuals loaning money (capital) to a business in exchange for repayment plus interest over time. For a company in need of additional funding, debt-based crowdfunding can be an attractive alternative. Debt crowdfunding requires issuers to have a predictable cash flow to ensure paying back the loan on schedule.

Investment crowdfunding, also known as equity or debt crowdfunding, is a way to source money for a company by asking a large number of backers to each invest a relatively small amount. In this model, individuals who provide funds become owners or shareholders and have a potential for financial return, unlike in the donation model. This became possible when Title II of the JOBS Act went into effect in September 2013 for accredited investors. Nonprofits generally cannot utilize equity markets.

On April 5, 2012, President Obama signed a landmark piece of legislation called the Jumpstart Our Business Startups Act (JOBS Act), allowing entrepreneurs to go to the crowd and publicly advertise their capital raises. In 2016, Title III of the JOBS Act was signed and went into effect. Title III of the JOBS Act is also called Regulation CF, or Reg CF.

Title III of the JOBS Act outlines Reg CF, an offering allowing private companies and entrepreneurs to raise up to $5 million from individuals. Reg CF allows companies to raise funds online from their early adopters and the crowd. Investors receive a security interest in the company they have backed, typically equity.

In 2015, the UN expanded upon their 8 Millennium Goals with new, more ambitious and broader reaching goals known as the Sustainable Development Goals. These goals are intended to act as a blueprint for a sustainable, positive and fair future for all. There are 17 different global development goals, which can be viewed by clicking here.

FundingHope reviews all companies to ensure they pass the eligibility requirements to raise capital on the platform. This review process screens for companies which may pose additional risk to investors. Before companies can continue through onboarding, they must submit an application which will be reviewed by the FundingHope team. When determining eligibility, some of the factors we consider are:

• Revenue
• Product, service, or business
• Customer engagement
• Team
• Founder experience
• Industry
• Offering terms
• Market traction & growth
• Marketing budget
• Company mission
• Previous funding
• Principal place of business
• Addressing UN Sustainable Development Goal(s)

The criteria listed above are only the soft criteria we consider. FundingHope takes a holistic approach when evaluating these different factors. We always aim to ensure that investor protection will not be compromised. Once a company’s application is approved, companies will be notified that they are eligible to continue through the review process.

FundingHope welcomes companies addressing at least one UN Sustainable Development Goal (SDG), and that are located or operating in distressed, at-risk, or rural zip codes on its platform regardless of industry. However, certain industries and products are not allowed.

Companies engaged with the sale or manufacturing of the items below are prohibited from listing on FundingHope:

• Weaponry
• Pornography
• Discriminatory Material
• Illegal Business
• Cannabis and Cannabis Derived Products
• Tobacco
• Political Campaigns
• Companies that Compromise the FundingHope Mission
• Investment Companies
• Cryptocurrency, Cryptocurrency Mining Companies, and Non-Fungible Token (NFT) Companies

Investment crowdfunding can be an excellent source for entrepreneurs to seek capital. It allows entrepreneurs to reach out to the ‘crowd’, including their friends, family, and customers to ask for relatively small amounts of money, as opposed to traditional equity or debt funding. Through investment crowdfunding, entrepreneurs and small business owners are able to generate interest in the opportunity through a campaign hosted by an intermediary, such as FundingHope, while also reaching out to customers, friends and family, networks, others interested in their business model. FundingHope sets itself apart by supporting issuer companies with marketing that attracts a new ‘crowd’ of potential to the opportunity. This takes some of the heavy lifting off the issuer entrepreneur. At FundingHope, we recognize that entrepreneurs and small business owners are stressed enough and should be able to focus on growing their own business. An “all-in” cost estimate for a $1,000,000 investment crowdfunding campaign under Regulation Crowdfunding ranges from $60,000) to $150,000 on the higher end (6% – 15%), not including fees charged by the crowdfunding intermediary. Many of the fees can be deferred until the closing.

The all-in cost estimate to launch and investment crowdfunding campaign includes:

• Accounting Fees: $3,000 – $8,000
• Legal Fees: $3,500 – $20,000
• Marketing: $5,000 – $50,000
• Regulatory Filings & Fees: $1,000 – $7,500
• Shareholder Management: $1,000 – $2,500
• Ongoing Reporting: $2,500 – $7,500 per year
• Other Costs: : 2% – 5% of money raised

Issuers can also expect to pay the crowdfunding portal 7.5% of money raised.

The Howey test is a legal test used to determine whether an investment contract exists and whether securities laws apply. The test is named after a U.S. Supreme Court case called SEC v. W.J. Howey Co., in which the Court set out a four-part test to determine whether an investment contract exists. The four elements of the Howey test are:

• There is an investment of money.
• The investment is made in a common enterprise.
• There is an expectation of profits from the investment.
• The profits are to be derived from the efforts of others.

If all four elements are present, the investment is considered to be an investment contract and is subject to securities regulation. The Howey test is used by the U.S. Securities and Exchange Commission (SEC) to determine whether a particular investment is a security and whether it must be registered with the SEC. The test is also used by the courts to determine whether a particular investment is a security and whether it is subject to securities laws.

Our mission is to empower entrepreneurs and small business owners in distressed, at-risk, and rural communities.

A debt offering refers to any time one entity or person borrows money from another with some promise of repayment. In the case of crowdfunding, “issuing debt” means borrowing from the crowdfunding investors. A loan contract includes specific agreed repayment terms, such as interest on the borrowed money, the term over which the loan will be paid back, whether the debt is “secured” (meaning there are collateral assets available as a backup in the case of failed repayments) or not, and other rights and obligations of the borrower and lender during the life of the contract. It is important for investors to note that the issuer may default on the debt agreement and investors can lose everything they have invested.

An equity offering refers to any time a business sells an ownership share to a person or other entity. Equity can take many forms, such as common stock, non-voting shares, preferred shares, and even a Simple Agreement for Future Equity (SAFE). It is common for crowdfunding issuers to offer preferred, non-voting shares, with repayment to their investors via dividends. Equity investors may also receive a return on their investment when their shares are resold (for example if the entire company is bought out by a third party), or repurchased by the issuing company. Returns on equity may be explicitly planned, for example via a predetermined dividend schedule, or may be variable based on the success of the business. It is important for investors to note that they must hold equity securities for a minimum of 12-months, and even after the 112-month period, it may be difficult or impossible to sell the securities.

A convertible note is a debt instrument that is convertible into shares of the issuer or another entity. They offer investors the downside protection of a debt instrument and the upside potential of an equity investment, but in return typically offer lower interest rates than straight debt instruments. Convertible notes can be very risky investments. This is because if the firm does not find another investor who can give them a good valuation, then they will be bound to repay the notes with cash.

Yes, you can! However, each security type would need to be offered as a separate listing on the FundingHope marketplace with separate Form Cs filed with the SEC.

There are many business, legal, and financial reasons you may choose to issue debt, equity, a combination of the two. FundingHope does not provide investment advice and you should consult with your legal counsel and professional financial advisor before deciding!

FundingHope doesn’t charge investors to invest in projects, but we do charge investors a transaction fee. For payments made by bank ACH, wires, or checks, FundingHope charges investors a transaction fee of 2%, with a minimum of $8 and a max of $100.

In the United States, equity crowdfunding is regulated by the Securities and Exchange Commission (SEC) under Regulation Crowdfunding (Reg CF). FundingHope considers all qualified investors on the FundingHope platform to be Bridge Builders – people who are helping us bridge the gap between impact investing and growing cleaner, healthier, safer communities.  To invest in equity crowdfunding campaigns on FundingHope, an individual must meet the following criteria:

Anyone can invest in a Regulation Crowdfunding offering.  Because of the risks involved with this type of investment, however, you may be limited in how much you can invest during any 12-month period in these transactions.  If you are an accredited investor, then there are no limits on how much you can invest.

Accredited investor. An individual will be considered an accredited investor if he or she:

• earned income that exceeded $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the prior two years, and reasonably expects the same for the current year,
• has a net worth over $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence)), OR
• holds certain professional certifications, designations or credentials in good standing, including a Series 7, 65 or 82 license.

A spousal equivalent means a cohabitant occupying a relationship equivalent to that of a spouse.

If you are a non-accredited investor, then the limitation on how much you can invest depends on your net worth and annual income.

If either your annual income or your net worth is less than $124,000, then during any 12-month period, you can invest up to the greater of either $2,500 or 5% of the greater of your annual income or net worth.

If both your annual income and your net worth are equal to or more than $124,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is greater, but not to exceed $124,000.

Naming your investment crowdfunding campaign is an important step because the name should be catchy, easy to remember, and ideally convey something about the nature of the investment opportunity. Here’s a list of names that could be used for such a campaign:

• Invest in the Future of _____________
• Revolutionary ________ Technology
• Imagine a ____________ World
• Digital Marketplace for __________
• Rethink ____________
• Invest in Your Friendly Neighborhood __________
• Your Chance to Own a Piece of ____________
• The Breakthrough ________________
• Intelligent ______________

Or consider using your company tagline.

These names aim to mix the concept of community or crowd with the financial aspect of investment, suggesting both a group effort in funding and the potential for shared success. Remember to check for trademarks and domain availability if you decide to use any of these names as part of your campaign to ensure they are unique to your campaign.

A SAFE (“Simple Agreement for Future Equity”) is an agreement between the investor and the company in which the company generally promises to give you a future equity stake in the company if certain trigger events occur.  Not all SAFEs are the same and the very important terms governing when you may get the future equity may vary across the SAFEs being offered in different crowdfunding offerings.  Despite its name, a SAFE may not be “simple” or “safe. Learn more about the potential increased risk of investing in SAFEs on the SEC’s website at: https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_safes