If you’ve heard the term “crowdfunding” before, it was likely in the context of a Kickstarter campaign or a GoFundMe page. At the most general level, crowdfunding refers to a financing model in which small sums of money are collected from a large pool of people by companies or businesses.
Equity crowdfunding uses this same model, but instead of offering products or perks, funders receive a percentage of ownership, a financial stake in the company, or the right to future revenues with an aim to earn a return from the companies’ growth.
The change finally occurred in May 2016, when the U.S. Securities and Exchange Commission enacted Title III of the JOBS Act, often referred to as “Regulation Crowdfunding,” or “Reg CF” for short. Under Title III, most of the population could invest in private businesses for the first time.
The rules stated that 1) entrepreneurs can now raise a little over $1.07 million in a 12-month period from non-accredited investors alike and 2) investors can invest a limited amount per 12-month period based on their income and net worth.
Ultimately, it is your decision regarding whether to make a Crowdfunding investment. The best way to feel comfortable that you are making the right decision is to conduct your own research. Start by requesting information from the Company. You should seek independent legal, accounting, and financial advice on your potential investment. If you still have questions or need additional information, you can ask direct questions of the Company in the discussion section of the company’s listing page.
While Crowdfunding investments are highly speculative, and each investment may result in a
loss, there are also many benefits of Crowdfunding. Investing small amounts across multiple
companies spreads out your risk and is called diversification. An investment in a single
company limits your portfolio and places your investments’ success entirely on one company’s performance.