You may be wondering how start-ups are funded and it mostly relies on the participation of individual investors. Equity crowdfunding can sometimes be seen as the factor that changed how investments are conducted in business. This involves reaching out to individual investors who put in a certain amount of money in order to get an agreed upon stake in the company in question. There are many different up and coming companies that will receive their funding through equity crowdfunding.
Accredited Investors
The first thing to consider in terms of equity crowdfunding is the amount of accredited investors that are readily able to put money into a business. Although you may assume that many people would put money into a venture, in all actuality, many people are uncomfortable with investing in start-ups. In order to be considered as an accredited investor you must have: a net worth of $1 million or more, $200,000 worth of annual income, and at least $300,000 worth of joint annual income with your wife or husband. This means that there are approximately 8.7 million accredited investors in the United States with only 3% of these people investing in start-up businesses.
The Popularity of Equity Crowdfunding
Over $393 million has been raised via equity crowdfunding websites to date with over $90 million raised in 2014 alone. The money was raised by active investors from over 26 countries and the average investment was approximately $25,350. Predictions have estimated that over $10 billion will be raised this year from equity crowdfunding, with 8.31% of businesses raising over $1 million. A great advantage to using equity crowdfunding is that it provides your business with the opportunity to make more quarterly sales. Businesses experienced an increase of 351% in quarterly sales after receiving support from equity crowdfunding.
Platforms for Equity Crowdfunding
There are hundreds of different websites that can be used for equity crowdfunding. With that being said, only a handful of them have become successful over the years. All of the equity crowdfunding websites that are within the top 10 such as OurCrowd and AngelList have invested over $203 million together with over 460 start-ups who received investments. Out of the 10 platforms, 6 of them has raised more than $20 million for more than 343 companies, 2 platforms raised between $10 million and $20 million for over 64 companies, and 2 platforms raised between $1 million and $10 million for approximately 55 companies.
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