Crowdfunding, one of the many byproducts of the digital age, has seen a surge in popularity in the last decade.
Everything from Oculus VR headsets to the Exploding Kittens card game has been funded by passionate internet communities eager to see a company, product, or creative project reach its full potential. While startups have been crowdfunded before, a new regulation could make it the go-to fundraising method for early-stage startups. That means virtually anyone with cash to burn could become an investor.
⚔️ Big Picture
- Equity crowdfunding is bigger than ever. According to equity crowdfunding platform StartEngine, companies raised a record $72.9 million in Q3 this year. To date, companies have raised $410.5 million through Regulation Crowdfunding.
- This week, the Security and Exchange Commission (SEC) updated its rules on Regulation Crowdfunding, which decides, among other things, how much money startups and other businesses can raise from non-accredited investors (regular people).
- The previous limit was $1.07 million, but now businesses can raise up to $5 million per year using equity crowdfunding. And anyone who invests gets a piece of the company. Even VCs are buzzing about it on Twitter.
- Under the old SEC guidelines, the limit was nearly five times lower, but that wasn’t the only barrier for entrepreneurs to get cash. Many were confused about the fine print when it came to equity crowdfunding.
- The guidelines, which date back to 2016 as part of the JOBS Act, deterred many entrepreneurs and investors from participating — for example, amateur investors didn’t have voting rights like their professional counterparts. Now, platforms are making it easier for investors to have a say in the companies they’re putting money into.
⚡ Get Ahead
The quickest way to gain access to all those amateur investors is through an equity crowdfunding site — no, not Kickstarter or Indiegogo (those investors get rewards from the projects they help finance as opposed to company shares). There are a couple of equity crowdfunding sites for entrepreneurs to take advantage of, including Wefunder, SeedInvest, StartEngine, NetCapital, and Republic. Wefunder dominates around 38% of the market, making it the largest site.
Wefunder CEO Nicholas Tommarello is confident about the new guidelines. “Before companies needed to do a bunch of compliance work to get their accounting in order, and only then figure out if people wanted to invest in them,” he told TechCrunch. “With these new rules, founders can get solicitations for people to invest in them, and if they get the investments then they can do the accounting work, so it’s much easier for them to get funding without taking any risk.”
If you’re looking to become an amateur investor, all you need is a minimum of $100 to put into a startup on Wefunder, though the median investment is $250. The platform vets startups before they can post on the site, dispelling a common myth that equity crowdfunded startups are low quality. So what are you waiting for? Get investing!