Back to Basics: A Beginner’s Guide to Equity Crowdfunding for Newer Investors
- July 9, 2020
- Posted by: Kirsten Campbell
- Category: Blog
What is it?
Equity crowdfunding can be a savvy alternative to investing in the stock market and another investment option for Robinhood users. Because no matter who you are, a newbie to investing or a seasoned investor in the public markets, there was a time where only accredited investors and the rich had the opportunity to invest in private companies before they went public.
This is what equity crowdfunding is for investors. Federally regulated funding portals that offer the average person an opportunity to invest in a young company and receive a slice of ownership while it’s still affordable and way before it goes public.
Who’s doing it?
The average crowdfunding investor is between 24 and 35 years old and tends to invest around $1000. These investors are everyday people, likely part of the 300 million non-accredited investors that are typically excluded from early Wall Street opportunities in America.
Equity crowdfunding isn’t for Robinhood or stock market investors that are looking for ‘get rich quick’ day trading alternatives. This was enacted to give early opportunities to everyday people to invest alongside accredited investors.
Why they’re using it
Equity crowdfunding serves as an attractive, stable alternative from the volatile public markets and a starting point for investors looking to secure ownership in startups, support small businesses, and build generational wealth.
Going beyond just a cash infusion, equity crowdfunding is an investment in your community. It fosters financial dignity and is a “proven jobs engine,” which is critical for economic recovery. For context, 67% of each dollar spent at a small business, stays in the local community and successful crowdfunding companies create and support on average, a total of 54 direct and indirect jobs. Robinhood and Wall Street don’t typically boast those stats.
Where does equity crowdfunding happen?
All equity crowdfunding happens via federally-regulated online portals, such as truCrowd.com or Fundanna.com, to name a couple notable ones. Investing from the comfort of your sofa is becoming the new norm and investments can start as low as $10.
Why haven’t I heard of equity crowdfunding yet?
Likely because it was enacted through the JOBS Act, designed to jumpstart the economy after the 2008 recession, making equity crowdfunding relatively new to the US consumer. And fortuitous timing, as it’s seemingly being leaned on heavily amid the pandemic to get money to small businesses lacking PPP.