Equity Crowdfunding - Everything You Need To Know About
Assume you have a promising startup idea in mind. You find that you have all of the necessary expertise and human resources to launch this venture, except for the funds! So what will you do? The first option is to go to the bank and request a loan. Unfortunately, the bank does not trust your idea is viable and hence refuses to lend you money.
But, you are still very much optimistic about the success of your startup. So what are the other ways to get business finance? That is where equity crowdfunding or Reg CF comes into play. Crowdfunding for startups has become a widespread practice among entrepreneurs in the past few years.
But, what exactly is equity crowdfunding? How does it benefit businesses or startups, and how can one be part of crowdfunding for business or invest in startups? Let’s find out the answers to all of these questions in the following sections.
What Is Equity Crowdfunding?
Equity crowdfunding, also known as crowd-investing or Regular CF, is a financing approach in which investors receive ownership in a firm in exchange for funds. In other words, equity funding is designed to assist businesses in raising capital by selling shares to an investor in exchange for investment.
This approach allows startups to receive the necessary financial help to launch or grow their business while also allowing investors to invest in startups and acquire a stake in the company. In addition, equity crowdfunding is a potential alternative to more rigid forms of raising capital since it allows companies to conduct business or build business models on their own terms without having to worry about bank policy and regulations.
Overall, equity crowdfunding or Reg CF allows firms to raise more capital while also allowing the public to invest in promising startups with little to no hassles. Investors may easily find companies online, while companies can also get the funds in most cases. Now you’re probably wondering, “How does equity crowdfunding work?” Let’s find the answer to that question as well in the next section.
How Does Equity Crowdfunding Work?
As a startup, you can launch Crowdfunding for Business using a variety of online & trusted crowdfunding platforms/websites such as Fanvestor.com. These platforms not only provide a structure for collecting investments, but they also provide additional features and services such as support, marketing, and multiple payment methods.
However, to be on a safe side, it is expected that you always select equity crowdfunding platforms that are registered with the Securities and Exchange Commission (SEC). The securities regulation safeguards investors by ensuring that they have access to the information they need to make an informed decision and that issuers are held accountable for any misrepresentations or fraud.
Besides, it is also worth noting that both firms and investors are prohibited from investing and receiving investment above certain limits in equity crowdfunding. For example, companies are limited to raising $50 million in investment, while individuals are limited to specific investments to prevent them from being “overly excited” about investments.
5 Steps of Equity Crowdfunding
Here is the most common 5-steps process of equity crowdfunding followed in most countries or in the most platforms.
1. Join a registered equity crowdfunding platform. (For example: FanVestor)
2. Give a pitch about your startup idea.
3. Provide additional key information, such as your sources of income and expenses.
4. When the campaign reaches its goal, the funds will be released to you.
5. In exchange, investors will receive shares.
Moreover, there are several advantages of equity crowdfunding, such as the ability for startups to raise a substantial sum of money in a short period. Another advantage of equity crowdfunding is that management has no pressure or intervention from investors, allowing them to function without pressure and on their own terms and strategies.
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