Recently, I came across this pretty cool social media app called, Fanbase. If you haven't heard of Fanbase, it's a black-owned social media app that allows creators to monetize their content as soon as they join. (Click here to watch Social Proof Podcast's interview with Fanbase founder, Isaac Hayes III.) While this conversation isn't about Fanbase, Fanbase is a perfect example to dive into this conversation on equity crowdfunding. In just a couple of months, Fanbase founders were able to raise over 2 million dollars to fund this project. The kicker, none of it came from Venture Capitalists!
In today's world, raising capital for a business can be a daunting task, especially for underrepresented minorities. In fact, last year, Black Founders only got 1% of VC Funding across the US.
However, there might be a new-er way to address this!
If you haven't heard of equity crowdfunding, it allows businesses to raise funds from a large number of individuals who each contribute a small amount of money. In return, these individuals receive a share of the business and its profits. In other words - instead of 1 accredited investor putting thousands into a business as an angel investor, or a VC firm putting millions into a business, a large group of investors with smaller amounts of capital can pool their money together to make large investments.
Those millions raised (and still being raised as of 3/29/2023) by Fanbase was done using this method. This method of fundraising has been gaining popularity in recent years, and for good reason.
While gaining in popularity, I think one thing being left out of the conversation is the democratization of investment opportunities it provides. Equity Crowdfunding allows people who may not have the financial means to invest large sums of money to still be able to invest in potentially lucrative ventures. This is especially important for the Black community, as historically, access to capital and investment opportunities has been limited (we know all of the reasons and policies behind this and won't go into them in this article).
In my opinion, equity crowdfunding has the potential to bring about social change and address the racial wealth gap. I was recently talking a VC who also runs a angel investment group that uses the equity crowdfunding model. In that conversation, this person stated something to the effect of, "we need more underrepresented angel investors who then find some success and become general partners at VC firms. From there, they have the opportunity to create substantial generation wealth and become limited partners that fund your favorite VC firms. This is how we address the wealth gap."
Whether or not Venture Capital or Limited Partnership is the end goal here, I think equity crowdfunding may be that first introduction to angel investing in our community and a substantial opportunity to build wealth and address the racial wealth gap. Additionally, it can allow our communities to invest in the founders that look like us in efforts to keep the wealth in our community and fund the businesses that are MPAKT-ing and guiding our community. Let me know what you think down below. I've been feeling pretty passionate about this lately but would love to hear your thoughts! Side note, I spoke with Daniel Smith of Keepingly recently who shared that he had reached out to nearly 80 VCs to fund his platform for helping homeowners. Listen to that conversation here.
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