Equity Crowdfunding is a simple process. A group of people offers financial support for an early stage unlisted company. In return, they acquire shares in that company. Thus, the supporters become shareholders. They gain partial ownership of a company and profit from its success. If the company fails, the investors lose some or all of their investment; however, if successful, they earn more than what was put in.
Equity Crowdfunding for businesses has its advantages. It also has some disadvantages as well. Offering shares of the company can be an attractive alternative instead of taking out a traditional loan. That being said, a potential investor has to consider all pros and cons before investing.
- No credit check or collateral required.
- Investors can serve as advisors for the entrepreneur.
- A great business idea is more important than the money in the bank.
- Funding sourced from many investors increases the potential to raise larger sums of cash.
- Simplified accounting and financial reporting because the pool of funding includes a single investment.
- An entrepreneur does not need to budget for loan payments.
- A successful crowdfunding campaign can persuade particular people to invest, not to mention attract potential customers. As a result, it helps to establish a brand.
- Investors try to influence a company.
- Companies must supply investors with detailed information about their services.
- Most equity crowdfunding platforms charge a monthly fee (from 7% to 12%) and payment fee (from 3% to 5%.) These costs make equity crowdfunding expensive.
- The guidance of an accountant is often necessary.
- It can take some time to get funding.
How to Obtain Equity Crowdfunding
Many of equity crowdfunding platforms are available online. Entrepreneurs have to choose one and prove that their idea is worth funding. They have to prepare a presentation to persuade their potential investors. Usually, it includes marketing and project plans, financial projections, and a captivating video.
Equity Crowdfunding Sites
Many online platforms offer help for people who don’t have financial support. Money is necessary to bring ideas to life. Equity crowdfunding websites are an appealing option. Here are a few equity-based crowdfunding sites. AngelList is a US site for raising equity or debt investments for startups. Fundable is an investment crowdfunding platform. It offers both rewards-based and equity-based campaigns for small businesses. Early Shares is an equity crowdfunding platform funding American small businesses. CircleUp is an equity-based crowdfunding platform located in San Francisco. Crowdfunder is a global social network for small businesses, startups, and social enterprises. Seedrs is one of the crowdfunding websites for discovering and investing in seed-stage startups.
Equity crowdfunding is not a perfect financing model. Despite its flaws, it can be an attractive alternative. This argument convinced many successful startup founders to take a chance. The good examples of the highest funded equity crowdfunding projects are Paradox Interactive, Crowdcube, goHenry, JustPark, and much more. Thus, there is no harm to try!