What is Equity Crowdfunding?

Equity crowdfunding is the exchange of shares (equity) in your company to investors for capital. These shares are not available on the stock market but the transfer is regulated by the federal government and carries some strict rules. These regulations include working with certified brokers, limits on the amount of funds that are raised, and public disclosure of certain business documents and transactions.

How Equity Crowdfunding Works

Equity crowdfunding works similar to debt crowdfunding, except instead of receiving small loans from multiple private lenders, businesses sell shares (or partial ownership) of their company in exchange for capital.

How to Get Equity Crowdfunding

Equity crowdfunding is obtained through approved online platforms. The business manager/owner will sign up for one of these platforms, outline their intentions to potential investors and what amount of equity they are offering, and set a goal. Once the goal is reached, the funds are released and the business is able to fulfill their needs. Investors will then earn profits based on the amount of shares they hold and the amount of revenue the business earns.

Benefits of Equity Crowdfunding

The benefit of equity crowdfunding is that it is not a loan and does not require repayment or interest. Businesses can raise more capital through multiple sources than it might from a single investor. Additionally, multiple investors may have access to resources a business owner may not have.

Drawbacks of Equity Crowdfunding

The drawback of equity crowdfunding is that business owners must give up partial ownership of the company through selling shares. This means they owe part of the profits to their investors and the investors may have a say in the direction of the company.