Crowdfunding has an angle that thrives on the venerable axiom, “you scratch my back, and I’ll scratch yours.” In this example of crowdfunding, investors fund companies not listed on an equities market for exchange of company shares.
Equity crowdfunding provides investors with equity, instead of investors waiting from profits to materialize. Equity offers investors instant value, as opposed to the flip of the coin share of profits that takes years to enjoy.
How Equity Crowdfunding Began
The United States Congress created the incentive for equity crowdfunding in 2012, with the passage of the Jumpstarting Our Business Startup (JOBS) Act. Enacted in 2013, JOBS accredited investors that made at least $200,000 over the past two years or accrued a net worth-minus the value of the primary residence-of more than $2 million.
Equity crowdfunding quickly morphed into a social media sensation, as investors found alternative means to gain equity via sites such as Facebook and LinkedIn. After learning about equity crowdfunding opportunities from social networking, investors bought shares in fledgling companies by participating in other crowdfunding sites.
The Tip of a Profitable Iceberg
Real estate equity crowdfunding investments topped $600 million during the first quarter of 2015, which represents a nearly 50% increase from the last quarter of 2014. The financial industry raised more than $172 million during the first quarter of 2015, with the technology sector coming in strong at number three of equity crowdfunding industries.
Tips to Make Equity Crowdfunding Work
The success of the equity crowdfunding model depends on the time-tested crowdfunding investment criteria. Investors much conclude the companies they want to receive equity in cover a large market and solve a significant consumer need. Equity crowdfunding investors also must ensure potential equity crowdfunding investments go to companies that demonstrate a competitive advantage unique to the industry. Finally, the management team should comprise industry veterans that have achieved proven successful results in the industry.
Crowdfunding started as a way for investors to divert financial resources into upstarts that had the potential to generate substantial profits. In 2015, equity crowdfunding has emerged as the most popular way for entrepreneurs to raise capital. The fledgling crowdfunding method changes the paradigm for attracting investment angels online by requiring upstarts to give a little back to investors, before the businesses open the doors for customers.
To learn more about equity crowdfunding and how you can make it work for your startup business or investments, contact a professional crowdfunding firm who has experience in equity crowdfunding.