Equity crowdfunding pros and cons

Equity Crowdfunding is set to grow in the next few years as small businesses and startups find it easier to
raise money. Through equity crowdfunding, many investors put money into a company in exchange for an ownership stake. This shift in crowdfunding efforts can generate many great opportunities for entrepreneurs and investors. However, this change is not without any downsides. Below are some pros and cons I put together. Check them out:

Equity crowdfunding for entrepreneurs

  • Pros

    • Most companies are able to raise up to $1,000,000 each year.
    • Low barriers to invest suggest more money is available and may not be difficult to find.
    • Investors may become company fans, selling the idea to everyone.
  • Cons

    • Financial statements and legal documents are costly.
    • Little to no access to quality mentorship.
    • Platforms take a percentage of the money raised.

Equity crowdfunding for investors

  • Pros

    • Greater potential return with an investment in a startup.
    • No accredited investor requirements of $200,000 annual income or net worth of $1,000,000.
    • Ability to investment in startups in different industries.
  • Cons

    • Most investors will be able to invest up to $2,000 each year; higher earners may invest more.
    • Low share of ownership can mean less decision-making influence.
    • Investor priorities may differ greatly as many members are inexperienced.
Person and stocks

Image by Geralt (Pixabay)

It’s only a matter of time before more investors and entrepreneurs try equity crowdfunding. I think it will likely skyrocket in early 2017. How come? As it turns out, Indiegogo added this service to its existing platform that boasts 15 million monthly visitors. The real question is whether or not it’s main competitor, Kickstarter, will follow Indiegogo and enter the arena to compete fiercely head-on.

If you were to launch a company, would you give equity crowdfunding a chance? Let me know what you think (Tweet me).