Most financial institutions see the starting phases of a company as risky business. Unless you’ve already got the cash on-hand to pay the interest on a loan, you can pretty much forget about it. This causes a new business to look for some venture capitalist cash, but unless more than $5 million is being raised, most VCs won’t touch a project.
This is where equity crowdfunding can be a great tool. It is especially beneficial for women and minorities who can produce incredible results in their industries, yet not receive enough respect from lenders to get the cash that is needed.
Equity Crowdfunding Could Level the Playing Field
The benefit of equity crowdfunding is that it really does provide equal opportunities. Forget about wage gaps, culture gaps, or any other problematic gap in today’s business world. Women and minorities get the same opportunities as Cacuasian men do. Current crowdfunding structures have already proven that women especially are better at the fundraising process than men. That’s good news for crowdfunding.
The only problem is that crowdfunding can never be a mature way to bring in equity until the SEC publishes Title III rules and that probably won’t be until at least 2016. Entrepreneurs are excluded from current crowdfunding unless they’ve got accredited investors in their circle or a crazy good product or idea that could be a major moneymaker. The only other option is being a friend or family member of the business owner right now.
This Are Hundreds of Millions of Dollars At Stake
Equity crowdfunding has barely tapped into the potential that it can provide. Hundreds of millions of dollars have already been contributed or committed to women-led companies with a 1 in 4 success rate for crowdfunding campaigns. Keep in mind that means accredited investors only.
On a platform like CircleUp, where women successfully close campaigns at a rate that is 21% higher than men, the potential of equity crowdfunding is clear. Some agencies have raised their crowdfunding portfolios by 500% or more in the last 12 months because of the successes that have been seen. These are baby steps.
When non-accredited investors can get involved and entrepreneurs can raise up to $1 million every year in those funds, the economy will explode with growth. This is why the equity crowdfunding market must begin maturing right now. As the information shows, the best way to do that is to put a woman in charge.