What is Equity Crowdfunding?

For entrepreneurs seeking capital and investors seeking promising opportunities, equity crowdfunding provides a unique financial arrangement. By crowdsourcing investment rather than donations from a broad base of enthusiastic individuals, small businesses attract the capital they need to grow their company and investors get true ownership in companies they believe in.

Entrepreneurs believe in themselves and their companies but need capital to achieve their goals. Though this capital can be sourced from friends and family, angel investors, venture capitalists, and accredited investors, each of these resources presents its own disadvantages and challenges, including lack of access, regulatory restrictions, and intrusive oversight.

Equity crowdfunding lets business owners offer equity to a nearly unlimited pool of investors via specialized crowdsourcing platforms. They can communicate their mission, enthusiasm and passion to attract funding from people who want to buy their way into their company’s future. As the company prospers, so too does the investor’s share: should the company go public or be acquired, each investor benefits in proportion to the amount that they invested at the time of the equity crowdfunding.

Equity crowdfunding was made possible by the JOBS (Jumpstart Our Business Startups) Act signed into law in 2012. Created to expand the options for small businesses to obtain funding, it loosened federal regulations on who entrepreneurs could turn to for funding, thus allowing them to obtain much-needed cash in exchange for proportional shares in their businesses.

The JOBS Act makes it possible for non-traditional, lower budget investors to participate financially in new ventures as shareholders, while at the same time providing entrepreneurs with a more relaxed, engaged approach to raising capital.

Specialized equity crowdfunding platforms have been created to connect potential investors with companies seeking funding. While each of these platforms operate using slightly different business models, all facilitate business owners’ ability to amplify their message, recruiting and building funding as well as a fan base eager to spread the word about companies and products they believe in.

Crowdfunding has made an immeasurable impact on the ability to raise a lot of money fast, whether for startups or for charitable causes. Where various companies have made it possible for small-dollar givers to make a collective difference, adding equity to the calculation shifts contributors from donors to investors with the potential for significant returns.

Equity crowdfunding invites even modest investors to participate in the creation and growth of exciting new ventures that they believe in, using both financial resources and their own powers of persuasion.

Equity crowdfunding has proven to be a boon for start-ups, for small and medium-sized businesses, and for the overall economy. It has created a new class of investors who are also dedicated enthusiasts, rooting for success and advancing the company’s brand and messaging.

This unique financial arrangement empowers ideas and energy, permitting entrepreneurs to be more proactive in their pursuit of funding. It enables faster and easier access to capital that can be used for cover working and operating needs, for growth and expansion, and even for the costs of going public, a step which creates and attracts even greater numbers of equity investors.