What is equity crowdfunding?Jan 03, 2022
Firstly, let’s split this up. What is equity? It represents a shareholder’s stake in a business. For example an investor who holds 20% of the shares in a business therefore owns 20% of that business. What is crowdfunding? Well pretty much exactly as it says on the tin - funding your business from a ‘crowd’.
Put simply, equity crowdfunding is a process where multiple people, or ‘the crowd’, can invest in companies in exchange for shares in that company (a private company, one that is not listed on the stock exchange). By buying shares in a business, investors become part owners of that business.
Equity crowdfunding democratises investment, meaning pretty much anyone can invest in a crowdfunding campaign. Investors/shareholders can invest as much or as little as they like (most platforms allow investments from as little as £10 to quite literally as much as is available). Investors then have partial ownership in that company and stand to get a return on that investment should the company do well. On the other hand, if the company fails, investors will likely lose all of their investment.
Equity crowdfunding is different to other crowdfunding methods such as rewards-based, or donation-based crowdfunding. As a model, it provides a capital-raising method by offering potential financial returns on investment. It gives investors skin in the game.
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