5 Questions About Equity Crowdfunding You May Feel Silly Asking — But Shouldn’t!
- May 29, 2020
- Posted by: Kirsten Campbell
- Category: Blog
For many people, the prospect of investing seems daunting and unattainable. Isn’t investing only for rich people? Not anymore! Because of the JOBS Act, which legalized crowdfunding online after the 2008 recession, everyday people were given the opportunity to own shares in a company and begin building generational wealth. Don’t let a lack of knowledge hold you back.
1. Isn’t equity crowdfunding the same as ‘regular’ funding portals like Kickstarter?
No. The Kickstarter model that you might be familiar with is rewards-based crowdfunding, which means that investors get stuff in exchange for their money. Equity crowdfunding investors instead own ‘shares of stock’ or some other securities, owning a piece of the company itself.
2. How does equity crowdfunding relate to Wall Street?
Equity crowdfunding is Wall Street adjacent because it lives in the same financial ecosystem — they’re both Federally regulated — but it’s a separate garden. And since equity crowdfunding is not regulated the same as typical Wall Street, there’s no need for a broker or investment fees, nor do you have to be an accredited investor.
3. What’s the first step I should take towards investing in equity crowdfunding?
Educating yourself. Most of us weren’t taught about financial literacy or investing by parents or school, so it’s up to us to fill in those knowledge gaps. Luckily, the internet has plenty of free articles and courses that help address the specific areas relevant to you.
Here are a few to get you started:
- Are You A Total Beginner When It Comes To Investing? Here Are 3 Things You Should Know
- The Beginner’s Guide To Understanding OTC Stocks
- Financial Literacy: A Series of Good Habits
- Lotteries are Predatory: Reallocate your Powerball Spending to Increase your Financial Stability
- Robinhood Isn’t The Only Equity Investment Option Available to Eager New Traders
4. How does equity crowdfunding compare to venture capital?
Venture capital generally serves millionaires, while equity crowdfunding serves everyday people. The VC community is strongly motivated to keep startup valuations low for as long as it suits them in order to make more on the upside. Equity crowdfunding gives non-accredited investors the ability to participate in these ventures specifically when they are affordable.
Equity crowdfunding was designed for small businesses to access funding from small investors. VC money is usually only enjoyed by the elite.
5. My grandpa says gambling is the same as investing, is he right?
Well now, your grandpa is probably a lovely fellow, but perhaps don’t take investment advice from him. Gambling and investing are polar opposites. In order to be successful at investing, there needs to be a strong sense of discipline and a baseline of knowledge about markets, industries, key sectors and regulatory policies. Both are necessary in order to make an educated and informed decision regardless of the environment or circumstance. Gambling however, is based on pure luck, and it’s designed so players will rarely beat the house. A lot has changed since your grandpa’s last economics lesson.