Firstly, let's look at the standard equity campaign, which is the most common and straight-forward. In an equity campaign, a company raises funds by offering shares in their company to investors. The reasoning is that in order to raise capital to launch an idea or product, a company opens up part of its capital to get it off the ground. This is why most equity campaigns involve new startups or companies launching a new product or service.
At MyMicroInvest, we provide a unique solution to the equity campaign. The problem most companies encounter is that having a large investor base is incredible when it comes to promoting the product, but when it comes down to the accounting, having such a large pool of small investors increases workload and complexity. MMI’s solution is MyMicroInvest Finance SA, this is an investment vehicle which issues its own securities called Participative Notes (or Equity-Linked Notes). The result of having this investment vehicle in place is that the company only has one large shareholder on paper, which provides a simple accounting structure. At the same time, it allows a broad ownership of this vehicle, which helps build immense public support. This solution sets MyMicroInvest apart from others, and allows us to maximise benefit for both investors and entrepreneurs. A return on this investment is reached when the company management either buys back its shares or when the company is sold to another company and the shareholders are bought out. MyMicroInvest has made sure that the investors receive the opportunity to exit the investment at the first possible opportunity.
Secondly, a debt campaign is an offering of debt or a loan made from investors to a company. Through the nature of debt, this campaign is more suitable for companies that can provide a history and ability to pay back the money. This campaign is less common but more popular amongst investors because of the reduced risk profile.
At MyMicroInvest, we use the same investment vehicle as in an equity campaign. The company pays of its debt repayments to the MyMicroInvest Finance SA, which in turn pays back the individual investors. A debt offering, while providing a safer investment does limit the investor to a set payback. The success of the business isn’t reflected in the investment. The benefit for companies of holding debt from a large collection of investors rather than from a bank is that the active stake investors have in the company, turns them into the best ambassadors. This type of financing also empowers consumers to choose which project is worthwhile, giving the ability to fund projects, which are too unconventional to receive credit from banks. A return on this investment is reached when all the coupon payments are made as well as the principal investment at the end of the term.
The last type of campaign featured on MyMicroInvest, is a convertible campaign. In this campaign, the company starts a debt campaign, where it offers debt notes to the investors. In contrast to a regular debt campaign, however, these debt notes include the possibility to be converted in a set amount of shares in the future. For further details, click here to read more. This type of financing offers the stability that comes with a debt obligation while offering the opportunity to profit from success experienced by the startup. This is why a lower interest rate is usually paid on a convertible than on a pure debt offering. The return on this investment can be reached either by treating it as a debt repayment and then the return is reached at the end of the term. Otherwise, if converted the return is reached similar to an equity offering, when the startup has an exit, whether a buy-out or buy back.
Which one is best ?
Each campaign has its benefits and drawbacks both for the investors and the company. Through our investment vehicle, MyMicroInvest tries to facilitate an easier crowdfunding campaign while maintaining and maximising the benefits for both the investor and entrepreneur. As an entrepreneur, you should take into account the project’s characteristics when deciding whether to fund it through an equity or debt campaign or try the best of both worlds by offering a convertible campaign. As an investor, you should minimise your risk not just by opting for the safer choice, the debt campaign, but by using the magic of diversification, to hold a portfolio that offers the highest possible reward for your risk.