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Hey everyone 👋
When a company says it’s crowdfunding, the immediate question that crosses my mind is: why are you in this position and should I be worried about the health of your business?
But it strikes me how unfair that viewpoint is.
I never draw the same conclusion when a friend or colleague tells me they’re thinking about raising funds, via VCs or Angel investors, for their start-up.
And so this week, I want to take you into the world of equity crowdfunding and the merits of it as an investment opportunity.
I’ll be covering:
What is Equity Crowdfunding? 🤷🏼♀️
How can you make money from crowdfunding investments? 💵
How to get started in equity crowdfunding?
How much money would you be worth if you invested in Uber or Revolut at their early funding stages? 😳
Notable companies that undertook equity crowdfunding 📝
The downsides and upsides to equity crowdfunding
Tools, resources and further reading 📚
p.s. here’s some of the other alternative investment guides so far. I publish a new guide every two weeks.
What is Equity Crowdfunding? 🤷🏼♀️
You’ve probably heard the term “crowdfunding” before, likely in the context of a Kickstarter campaign or a GoFundMe page.
At the most general level, crowdfunding refers to a financing model in which small sums of money are collected from a large pool of people (the crowd).
Equity crowdfunding uses this same model, but instead of offering products or perks, funders receive a percentage of ownership, a financial stake in the company, or the right to future revenues or crypto-assets with an aim to earn a return.
To avoid any confusion, the other two other types of crowdfunding are:
Reward-based crowdfunding 🛍️
This is when you contribute money and get a reward or product in return. This is mostly used for creative campaigns, and there are often different levels of rewards, or perks, that correspond to pledge amounts. Think Kickstarter and Indiegogo.
Donation-based crowdfunding 🤲🏼
This is when a funder contributes to a campaign without expecting any perks or value in return. This is mostly used to fund charitable causes, like funding to build a school in an underdeveloped region, or personal expenses, like helping pay a friend’s medical bills. Think GoFundMe, YouCaring and CrowdRise.
Legal stuff…
It’s worth pointing out crowdfunding is legal and since 2016 non-accredited investors in the US can invest in private small businesses and start-ups.
Prior to 2016, investing in a private company was illegal unless you were an ‘accredited investor’ i.e. you were very wealthy.
If you’re a non-accredited investor, there’s some rules about how much you can invest, which is all based on net worth.
This calculator will give you a sense of how much you’d be able to invest in Reg CF (Regulated Crowdfunding) deals over a 12-month period.
How can you make money from crowdfunding investments?
Investors in equity crowdfunding typically receive a return on their investment through the following methods: