What Is Equity Crowdfunding? What You Need To Know
Equity crowdfunding, at its very basic, is the democratized version of traditional equity funding, which was, and still is, the domain of large equity companies.
With equity funding, money is poured into businesses as startup or ongoing capital. In exchange, the equity company becomes part owner of the company with ownership being expressed in the form of stocks or other form of ownership.
With equity crowdfunding, the money is pooled to raise a large amount that enough to invest in business.
If you search for it online, you will see that there are many crowdfunding websites. They pose as investment vehicles for ordinary people who only have small amounts of money to invest.Many of them are tied to specific industries.
If you look closely, there are those that invest in solar panels, just as there are those that focus in the property markets.
If you are interested in investing, the first thing you need to do is examine the business model and the ROI structure, that is, how the amount of money you invest generates profit.
As an example, we found a crowdfunding website that is raising money to buy and manage property. Investors can get in for as little as 20 British pounds. The income from rent is divided among the investors. Of course, how much each investor makes is commensurate to his investment amount and the property he chooses to invest in.
There are crowdfunding websites that focus only on raising capital for ideas on new businesses. Perhaps the most popular among them is indiegogo. Like the real estate crowdfunding website we mentioned earlier, you only need a small amount to invest and profit. However, your ROI model depends on the businessman who is trying to raise capital.
Some want to raise money for a bar or restaurant and some of them offer free drinks or free food to investors on top of returning the investment money.
Aside from solar panels, real estate properties and startup ventures, there are other industries you can get involved in through the crowdfunding model.
Crowdfunding has only been around for a few years and yet we have seen a surge in the number of websites that offer it. Should you invest your money in crowdfunding? That depends on you and your appetite for risk. Although it is not as risky as trading in stocks and forex, crowdfunding isn’t without its risk.
The property you choose might not have enough tenants to generate profit from rent, for example.
If you are new, start with the industries you know and find out if there are crowdfunding websites for it. This will definitely eliminate some of the risk.
Before signing up for any website and parting with your money, though, make sure to thoroughly do research on the company behind the crowdfunding website. Is it registered with the government and has a business permit? Also, check if it has a physical address you can verify and a landline number you can call.