Back to Basics: A Beginner’s Guide to Equity Crowdfunding for Your Startup
- July 2, 2020
- Posted by: Kirsten Campbell
- Category: Blog
What is it?
Equity crowdfunding is akin to virtually knocking on doors in your community and raising money from each person, to ultimately invest in your startup or development stage company. In return for their investment, these people receive a slice of ownership (ie. equity) in your company.
Who’s doing it?
Startups. Development stage companies. Small and micro businesses. Underrepresented groups have flocked to Federally-regulated equity crowdfunding platforms like TruCrowd, Inc to raise money for their companies, but it welcomes everyone who wants to participate.
Why they’re using it
Two reasons: 1) Because most entrepreneurs have no hope of receiving venture capital funding, since 98% of it goes to homogeneous white guys. 2) Accessing money from Angel investors has become increasingly more difficult and Vulture Capital is painfully expensive!
Equity crowdfunding offers an easier, cheaper and more inclusive route to funding young companies and startups.
Equity crowdfunding was designed for small businesses to access funding from everyday, mom and pop investors.
Where does equity crowdfunding happen?
Why isn’t equity crowdfunding more mainstream?
While equity crowdfunding is accessible globally, it’s relatively new to the US, since it was enacted through the JOBS Act, which was designed to jumpstart the economy after the 2008 recession. It’s been steadily gaining momentum and has already pumped nearly $1 billion into local economies since its inception.
What’s next for equity crowdfunding?
It seems as if the Feds have taken notice of its success and have recently given two affirmative nods for: 1) an expansive increase to the funding cap – from $1.07M to $5M, and, 2) an easing of the rules to assist small business access capital easily during this health crisis to help offset the economic devastation from the pandemic. This is fantastic news because more funding for startups (diverse ones, no less) is a shot in the arm to the communities they serve. For each dollar spent at a small business, 67% of it stays in the local community and successful crowdfunding companies are a “proven jobs engine”, which create and support on average, a total of 54 direct and indirect jobs.