Equity crowdfunding for ECPs

October 2019 Expert Tips
crowdfunding By Gilbert Pierre Nacouzi

In a previous Eyezone Business article entitled “How could vision care providers benefit from Crowdfunding“, we drew attention to Crowdfunding (CF) as a business tool for eye care professionals (ECP). We emphasized that CF existed for hundreds or even thousands of years, and we provided a quick explanation of the types of CF. Equity CF that relates to investing has a brief history and while regulators around the world are still working to address its potential risks, it so far proved to have remarkable horizons. Equity CF concerns entrepreneurs as they search for capital at different business stages. While each company has its uniqueness in value proposition, knowing the business development stages that a company faces from the idea to the maturity helps managers formulate informed decision concerning future challenges. In this article, I try to provide a quick overview on equity CF, regulation references in different parts of the world, and its importance at different business development stages.

In equity CF projects, funders act as investors in an early-stage company and receive equity stakes in return to their financial contributions (Mollick, 2014). An early-stage company, although not listed in the stock exchange market yet through equity CF can raise money by the selling securities like shares or convertible notes. While contributors to reward-based CF participate for the sole reason of buying a product or a service at a discount price, investors in equity CF participate for the reason of gaining ownership in a growing company if it turns out to be profitable. Thus, the relationship between the investor and the company does not end after the product has been delivered. Prior to equity CF, only wealthy individual investors, venture capitalists, and business angels were allowed to invest in startups. Equity CF through online platforms has democratized the investment practice by allowing the crowd to participate.

Legislations and Regulations

Equity CF regulation efforts differed in every part of the world. Unlike reward-based CF, equity CF involves issuing and selling securities, therefore submits to stringent rules and regulations. Most equity CF platforms rarely operate beyond their home country market, and the notion of a global leader in equity CF is not yet present. Among the first countries to provide functional legislation were the United States, the United Kingdom, and Italy. Markets are yet awaiting CF disruption of South America, Africa, the Middle East, and Asia (thecrowdfundingcenter, 2019).

Legislators formally established equity CF in the US in 2015 (Title III) three years after the passing of the Jumpstart Our Business Start-ups (JOBS) Act (de la Viña & Black, 2018). The Financial Conduct Authority, the regulatory body in the United Kingdom brought new regulations and requirements for equity CF platforms in 2014. Since 2016, Canada relies on provincial regulators with many different levels of equity CF exemptions (NFCA, 2019). Australia still limits equity CF to public companies while New Zealand legalized it since 2013 with Financial Markets Conduct Act.

In July 2013, the “Commissione Nazionale per le Società e la Borsa (Consob)”, the authority in charge for the security market in Italy issued a new CF regulation that made Italy the first European country to regulate equity CF. The Netherlands ranks third in CF volume in Europe (after Brexit) yet no directive has been initiated exclusively to CF. The Financial Supervision Act deals with all financial regulatory laws in the Netherlands. The European Commission has presented a proposal for regulation on CF service providers that enables platforms to expand activities into other EU nations through the application of an EU passport built on a single set of laws (European Crowdfunding Network, 2019).

In China, the Security Association of China regulates equity CF since 2014 when it issued the first draft regulation that included comprehensible rules for investors, companies, and platforms (Erdenebileg, 2016). The Monetary Authority of Singapore (MAS) regulates CF in Singapore. Under the Securities and Futures Act, MAS grants platforms operating in Singapore a Capital Markets Service License (CMSL). Hong Kong stands for the second largest private equity center in Asia yet no specific equity CF legislation has been issued. The securities and Futures Commission (SFC) of Hong Kong provides licenses on a case-by-case basis (Yiu, 2019).

In MENA region and South Africa legislation specific to equity CF are still scarce. The Lebanese Capital Markets Authority (CMA) attempted to regulate equity CF since 2011 in Lebanon with the issuance of Decision no. 3, which explained all requirements and processes for companies (CMA, 2011). In the United Arab Emirates, the Dubai Financial Services Authority (DFSA) regulates and grants regulatory services to local companies and companies incorporated in the Dubai International Financial Center (DIFC).

Equity CF at different business stages

A sufficient understanding of how to successfully run a business is essential to ensure that a stable stream of capital is forever available whether from conventional or alternative finance. ECPs specifically business owners, managers, and independent practitioners can employ equity CF at different stages of the development of business. Yet, as an expert in both eye health and business, I am fully convinced that it is easy to recommend but much more difficult to implement. Therefore, one cannot expect to find an out of the box solution or a one size fit all system but rather only a continuous dedication to understand the business we are in brings us toward potential solutions. In reference to business strategy, Mintzberg and Waters (1985) famous paper emphasized on that business strategies fall in a continuum delineated by “deliberate” planned and determined strategy at one end and an “emergent” of unintended actions strategy at the other end of the continuum, and very often companies end up in positions they never had planned. A practical way, I suggest, to judge your business attainment is to look at the stages of business development and try to identify the business’ value and stakeholders’ value and figure out the set of skills and actions needed to sustain growth.

Scholars in business management proposed several growth models. Two particular models were Lewis and Churchill’s (1983) model and Scott and Bruce’s (1987) model. Lewis and Churchill indentified five stages of growth of a small business (existence, survival, success, take-off, and resource maturity) and later, Scott and Bruce’s model (inception, survival, growth, expansion, maturity) has been extensively traced from Churchill and Lewis’s work. Before looking at every stage, it is important to understand that equity CF is applicable at early stages as well as later stages (even for listed companies). Even when conventional finance like venture capital and financial institutions are available, entrepreneurs prefer equity CF because of the wide exposure to new investors enabled by online web 3.0 platforms technology, the higher power of control over a great crowd of shareholders, and the ability to build a community of investors who will be brand ambassadors at the same time.

Stage I, “Inception”: The first stage is a pre-revenue stage where funds are raised to support an idea, a product, or a business model. At this early stage, the entrepreneurs’ main issues include obtaining customers and attaining economic production. At “inception” stage, businesses are risky and have high chance of failure. The main sources of finance that an equity CF campaign should target are friends, relatives, suppliers, leasing companies, and peer equity CF project managers on the same platform and within the entrepreneur’s social media circle.

Stage II, “Survival”: Having reached the second stage, a company now has a tested prototype with a clear business plan. Revenue might be available but the company might not be profitable. At this stage, the entrepreneur’s main issues include increasing revenues and controlling expenses. The main sources of finance that an equity CF campaign should target are suppliers, and potentially new customers in the social media circle of early investors and ambassadors.

Stage III, “Growth”: The Company has enough customers to support an operational business model that generates continuous revenues assuring stable growth. At this stage, the entrepreneur’s main issues include managing growth and ensuring resources. The main sources of finance that an equity CF campaign should ensure aside retained earnings are new partners and new customers in the social media circle of early investors and ambassadors. A practice that has built a strong brand over the years and is not inclined for a leveraged buyout could very much think of equity CF as an alternative to growth capital.

Stage IV, “Expansion”: At this stage, the entrepreneur’s main issues include the ability to finance growth and maintain control over operations. Besides retained earnings, the main sources of finance that an equity CF campaign should ensure are new partners and new customers in the social media circle of early investors and ambassadors. At this stage where long-term debt is needed, interest-based CF is to be considered to optimize capital structure.

Stage V, “Maturity”: At this stage, the entrepreneur’s main issues include controlling expenses maintaining productivity and ensuring niche marketing in the case where industry declines. At this stage equity CF has less usage than previous stages because companies rely on retained earnings and long-term debt.

To conclude, new technological breakthrough (Web 3.0) gave birth to a new class of asset that provided opportunities for increased innovation in financial tools and increased entrepreneurship around the world. While prehistoric forms of CF relied solely on “group funding”, today’s CF relies on “group funding” and Web 3.0 social networking that is revolutionizing our ways of allocating time and finance (Dresner, 2014).


CMA (2011). Decision Number 3: Crowdfunding. Retrieved from: https://cma.gov.lb/wp-content/uploads/2017/03/Decision-No.-3.pdf

de la Viña, L. Y., & Black, S. L. (2018). US Equity Crowdfunding: A Review of Current Legislation and A Conceptual Model of the Implications for Equity Funding. The Journal of Entrepreneurship, 27(1), 83–110. https://doi.org/10.1177/0971355717738600

Dresner, S. (2014). Crowdfunding: a guide to raising capital on the Internet. John Wiley & Sons.

Erdenebileg, Z. (2016). Better Together: The Potential of Crowdfunding in China. Retrieved from: https://www.chinabusinessreview.com/better-together-the-potential-of-crowdfunding-in-china/

European Crowdfunding Network (2019). Country Crowdfunding Factsheet. Retrieved from: https://eurocrowd.org

Lewis, V. L., & Churchill, N. C. (1983). The five stages of small business growth. Harvard business review, 61(3), 30-50.

Mintzberg, H., & Waters, J. A. (1985). Of strategies, deliberate and emergent. Strategic management journal, 6(3), 257-272.Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study. Journal of business venturing, 29(1), 1-16. doi:10.1016/j.jbusvent.2013.06.005

NFCA (2019). Equity Crowdfunding Regulations. Retrieved from: https://ncfacanada.org/equity-crowdfunding-regulations/

Scott, M., & Bruce, R. (1987). Five stages of growth in small business. Long range planning, 20(3), 45-52.

The Crowd Funding Center (2019). Reports and data. Retrieved from: https://www.thecrowdfundingcenter.com/

Yiu, E. (2019). Hong Kong issues equity crowdfunding licence to AngelHub in boost fintech ambitions, start-ups. Retrieved from: https://www.scmp.com/business/companies/article/3007897/hong-kong-issues-equity-crowdfunding-licence-angelhub-boost

About the author

Gilbert Nacouzi is the owner of Optic Nacouzi, as well as, an Optometrist, Doctorate Researcher in Entrpreneurship, and Data Scientist. He studied BSc Optometry, MBA Healthcare Management, DBA Doctorate researcher in Business Administration. Email him at gilbert@nacouzi.com or follow him on LinkedIn and Facebook.