Equity-based Crowdfunding

In investment model of equity crowdfunding, start-up offers to investors a piece of the company in exchange for their money. Equity funding is commonly known to exist, with private equity, venture capital, and angel investing having long-standing roles in growing businesses. Equity crowdfunding differs significantly from these conventional methods in that it offers participation to a broad spectrum of potential investors, some of whom may also be present or potential consumers, rather than building a one-to-one relationship. Equity crowdfunding accomplishes this by using an online platform to connect businesses with potential angel investors.

Key Features

Here are some key features the entrepreneur needs to consider when fundraise through crowdfunding:

You will need to establish the conditions, decide how much you want to sell, the price, and the manner in which investors will be compensated. To effectively estimate a project, you need to have good competence.

A success fee as well as any necessary legal or administrative costs for the issuance are typically the costs associated with seeking equity financing using a crowdfunding platform. Additional legal and consulting expenses could apply.

You can have many tiny co-owners instead of a few huge investors since many people can invest. Usually less expensive than having a stock market listing.

You must create a business strategy and financial predictions to demonstrate that your company is ready for financing. Additionally, you should have an effective communication strategy in place so that potential investors can simply access and comprehend the most crucial details about your business.

The platform often performs due diligence to make sure that start-up is qualified to be listed for fundraising and the investor may choose to request more information about business.

There are significant legal considerations, the costs of which you shouldn't be disregarded. These considerations include disclosure and legal documents, shareholder annual general meetings, processing of corporate rights, yearly reports, and decision-making processes.

Being listed on a crowdfunding platform usually involve a heavy legal work to be done, the good crowdfunding platform should have it’s own legal contractors network and automated system which make this process smooth and easy on both the start-up and the investor

Pros for Investors

In case that you made good deals, you could have

• Source for passive income
• Highly profitable long-term investment
• Contribution to impactful mission (the start-up which you invest in might be on a mission to make something very beneficial to people)

Cons for Investors

Th Problem with the crowdfunding platforms for non-specialist investors that it might be difficult for you to make a good investment decision because you don’t have the experience or the team to help you with these decisions. So, you might end-up making bad investments and losing instead of earning.