Fundraising for Startups: Venture Capital vs. Crowdfunding (With a Spotlight on SPVs)
At Torino Accounting Group, we specialize in helping technology-based startups navigate the complexities of fundraising, venture capital (VC) investment, equity crowdfunding, tax structuring, and investor readiness. A common question we receive from founders is: Should I raise capital from venture capitalists or through crowdfunding? Each route has its own advantages and challenges, and we help startups put the right pieces in place to ensure their success from a tax, accounting, HR, and investor perspective. Special Purpose Vehicles (SPVs) have also become a critical tool for simplifying investment management and attracting institutional and high-net-worth investors.
Venture Capital (VC) Funding
How VC Funding Works
Venture capitalists (VCs) provide funding in exchange for equity in high-growth startups, expecting high returns upon scaling or exit through an acquisition or IPO. VCs typically invest in scalable tech startups with strong market potential.
Pros of VC Funding
Large Capital Injections – VCs can provide significant funding ($1M+), enabling startups to scale quickly.
Strategic Guidance & Networking – Many VC firms offer mentorship, industry connections, and operational support.
Follow-on Investment – Once a VC invests in a startup, they will likely participate in future funding rounds.
Credibility Boost – VC backing signals strong growth potential and attracts additional investors and partners.
Cons of VC Funding
Equity Dilution – Founders must give up ownership stakes (typically 10%-30% per round).
Loss of Control – VCs often require board seats and influence over strategic decisions.
High Growth Pressure – VCs expect rapid scaling and a clear exit strategy.
Lengthy Process — Raising VC funding takes 3 to 6 months and requires due diligence, legal agreements, and negotiations.
VC Funding Costs
Legal & Compliance Fees: $10,000 – $50,000
Investor Due Diligence Costs: Varies per firm
Equity Given Away: Typically 10%-30% per round
Crowdfunding (Rewards-Based & Equity-Based)
How Crowdfunding Works
Crowdfunding allows startups to raise funds from a large pool of individual investors via online platforms. There are two primary types:
Rewards-based crowdfunding (Kickstarter, Indiegogo): Backers contribute funds in exchange for products, perks, or early access.
Equity Crowdfunding (StartEngine, Wefunder, Republic, SeedInvest) involves investors providing capital in exchange for company shares.
Pros of Crowdfunding
Minimal Equity Dilution (Rewards-Based) – No need to give up ownership in rewards-based crowdfunding.
Market Validation – Crowdfunding campaigns test demand and generate customer interest.
Brand Awareness & Community Building – Engaging with early supporters builds a loyal audience.
Faster Fundraising (Compared to VC) – Campaigns can be launched within 4 to 8 weeks.
Cons of Crowdfunding
Smaller Funding Amounts—Typically raise between $50K and $500K, with some equity crowdfunding campaigns reaching $5M+.
Marketing & Outreach Intensive – Requires significant promotion, PR, and content creation effort.
Public Disclosure – Campaigns are public, revealing financials and business plans.
Regulatory Complexity (Equity Crowdfunding) – Must comply with SEC regulations, including due diligence and investor disclosures.
Crowdfunding Costs
Platform Fees: 5%-10% of funds raised
Legal & Compliance Fees: $5,000 – $20,000 (for equity crowdfunding)
Marketing & PR Costs: Varies; typically $10,000+
Special Purpose Vehicles (SPVs) & Their Role in Fundraising
What Is an SPV?
A Special Purpose Vehicle (SPV) is a legal entity created to pool multiple investors into a single investment. Instead of adding hundreds of individual investors to a startup’s cap table, an SPV acts as one entity, simplifying equity management and attracting institutional investors.
How SPVs Help in Crowdfunding & VC Funding
Cap Table Simplification—Instead of managing many investors, the startup deals with the SPV as a single shareholder.
Attracts Institutional Investors – High-net-worth individuals and firms prefer investing through SPVs to consolidate risk.
Better Governance & Voting Rights – The SPV manager represents investor interests without complicating decision-making.
Cost & Timeline of Setting Up an SPV
Estimated SPV Setup Costs and Annual Fees
FAQs: Fundraising for Tech Startups
1. Should I choose VC funding or crowdfunding for my tech startup?
VC funding is ideal if you need $1M+ and strategic mentorship. Crowdfunding is a better option if you prefer faster fundraising without giving up control. Many startups combine both methods to maximize capital.
2. How can an SPV simplify fundraising for my startup?
An SPV pools multiple investors into one entity, reducing cap table complexity and making your startup more attractive to VCs and institutional investors.
3. What are the biggest challenges in raising VC funding?
Raising VC funding is highly competitive and requires significant due diligence. Founders must be prepared to give up equity and control in exchange for funding.
At Torino Accounting Group, we help tech startups navigate the complexities of fundraising, venture capital structuring, SPV setup, and regulatory compliance. Whether raising through VC funding, crowdfunding, or considering an SPV, we provide expert guidance on tax planning, accounting, HR, and investor relations to set you up for success.
Would you like assistance structuring your fundraising strategy, financial projections, or investor compliance? Contact us today!
