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Funding FinTechs: From Mere Users to Equity Investors

Within the burgeoning alternative finance industry, reserving equity crowdfunding rounds exclusively for customers is emerging as a popular method of fundraising. Startups and scale-ups alike are offering their customers exclusive access to investment, in exchange for a tangible reward in the venture they are funding. Crowdfunding has made it possible for a regular customer to invest in a potential unicorn and reap profits at a level only previously enjoyed by the tight-knit group of venture capitalists. The customer can eventually realize returns through a liquidity event such as a trade sale, secondary market transaction, or an initial public offering (IPO).

The drive to host exclusive crowdfunding rounds is due to companies wanting to reward customers for being pivotal to their growth and offering them the opportunity to profit monetarily from their expansion. This has a few parallels to Initial Coin Offerings (ICOs), where initial users are invited to be investors, in exchange for tokens generally hosted on a blockchain. Equity crowdfunding, however, treats the customer – an integral part of a company’s story – as an investor: a marketing tool for the product. By offering customers a stake in the business, a company creates numerous brand ambassadors, cultivating closer ties with their users.

Armed with a community of investors, these crowdfunding rounds can reach a large number of existing and potential customers, creating information cas ...

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