Is equity crowdfunding a good idea?

Like all aspects of investing or starting a business, there is risk involved with equity crowdfunding. It may provide much-needed financial relief, especially in the early stages of business development. However, you sacrifice a great deal of time and effort to secure the funding and you’ll need to find the right crowdfunding platform to work with. 

What are the benefits of equity crowdfunding?

There are numerous benefits of equity crowdfunding, including: 

  • It can be a way to finance your business when other traditional methods aren’t available, such as getting approved for a business term loan
  • You don’t have to repay the debt
  • You can raise more money if you work with more investors
  • You control how much equity to offer to the investors, which keeps you in control of your ownership
  • It helps build excitements around the launch or use of your product or service 
Can equity crowdfunding only be used once to raise funds?

You can raise up to $5,000,000 per year in a 12-month period to raise funds through equity crowdfunding. You can also return for a second or third round of funding if needed, as long as you don’t exceed the maximum amount of funds allowed. 

How does equity crowdfunding work for investors?

Investors receive a percentage of ownership, a financial stake, or future revenues in a company in exchange for cash. 

What are the risks of equity crowdfunding?

Risks of equity crowdfunding exist for both the company and the investor, including:

  • High risk of failure: A startup is quite risky and statistics show there is a high probability of failure for new ventures. 
  • Equity dilution: The more investors you have, the more the shares of the company are diluted
  • Long payoff time: For the investors, it can take years to see any results from their investment.
  • Investors want a say: For the company, you may have investors that want to get involved in your company operations.
  • Time-consuming: An enormous amount of time is needed to select a platform, create a presentation, and work with a campaign to raise the funds.
  • Rules and regulations: There are numerous rules and regulations that must be followed by both the company and the investors.

About the Author

Sara Coleman

Sara Coleman

Freelance Financial Writer

Freelance writer with several years of experience covering personal finance topics such as insurance, loans, credit cards, budgeting and more.

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