Most people have heard of crowdfunding sites and probably have an uncle in a basement whose board game idea is launching on such a site. While crowdfunding serves a purpose, there are some glaring differences between it and investment crowdfunding, also known as microinvesting. We wanted to highlight some high-level differences to dispel common myths associated with microinvesting. 

To give you movie-style context, crowdfunding and microinvesting are less like the second half of Step Brothers…

And more like the first part of the movie…

The indignant look on Will Ferrell’s face says it all. Here are the primary differences between the two:

CROWDFUNDING

Who’s investing?

  • Anybody, it’s open to the public
  • People who want cool rewards or to see the idea/project come to life
  • Minimum buy-in depends on the campaign but can be as low as a few dollars

What can backers get?

  • It’s going to be reward-based, so different perks depending on their contribution
  • No ownership in the company

Is it a donation?

  • Technically, yes. Some might invest for the rewards, and many companies offer a product. But unlike a true pre-order, there is no guarantee of the product or the option for a refund. 

What types of companies are on these platforms?

  • Creative arts projects like music albums, board games, etc.
  • Business ideas: prototypes and cool videos, but rarely revenue-generating.
  • Some early phase startups

MICROINVESTING

Who’s investing?

  • ANYBODY. Wealthy folks and average joes, accredited or retail investors – everyone has a seat at the table. 
  • People who want to invest locally and boost their community’s local economy
  • The buy-in amount depends on the campaign, but it can be as low as $100 
    • Note: some campaigns may have higher minimum investments
    • Note #2: Investments can range from $100 up over $100,000+

What can investors get?

  • Potential returns. There is risk involved because this is investing.
  • Depending on the offering structure investors may get:
    • Immediate or future ownership in the company with equity, SAFE, or convertible note offerings
    • Principal plus interest payments for term loans
    • A share of the company’s sales with a target return for revenue share agreements
  • Additional rewards and unique perks for some campaigns
  • And with Vicinity, the multiplier effect from dollars circulating locally instead of going far from home

Is it a donation?

  • No. While there may be a variety of community and social impact reasons for participating, investors have a chance at financial returns if the company is successful. 

What types of companies are on these platforms?

  • Small Businesses
  • Real estate developments
  • Startups

If you have questions, drop us a line at info@vicinitycapital.com.