Startengine Crowdfunding Inc.
05/09/2024 | Press release | Distributed by Public on 05/09/2024 10:50
What Is Equity Crowdfunding
What Is Equity Crowdfunding?
Equity crowdfunding has emerged as a transformative force in the world of finance, offering individuals and businesses alike new avenues for raising capital and investing. In this blog post, we will delve into the intricacies of equity crowdfunding, exploring its benefits, regulatory landscape, and the current state of the private securities marketplace.
The Rise of Equity Crowdfunding
Crowdfunding, in its various forms, has been gaining traction for over a decade, with platforms like Kickstarter and Indiegogo revolutionizing the way individuals and small businesses can raise funds. However, the introduction of equity crowdfunding has taken this concept to new heights, allowing investors to directly participate in the growth and success of the companies they support.
According to a report by the University of Cambridge and the World Bank, the global crowdfunding market reached $304 billion in 2018, with equity crowdfunding accounting for a significant portion of this figure. In the United States, the equity crowdfunding market has experienced remarkable growth, with the total amount raised through this method reaching $239 million in 2020.
The Regulatory Landscape
Equity crowdfunding is subject to a robust regulatory framework, primarily governed by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). The Jumpstart Our Business Startups (JOBS) Act, enacted in 2012, paved the way for the legalization and regulation of equity crowdfunding in the United States.
Under the JOBS Act, companies seeking to raise capital through equity crowdfunding must comply with specific requirements, such as:
- Offering securities through a registered broker-dealer or a funding portal that is registered with the SEC and a member of FINRA.
- Providing detailed disclosures about the company, its business, and the offering, including financial statements and risk factors.
- Adhering to investment limits based on the investor's net worth and annual income.
- Ensuring that the total amount raised does not exceed the regulatory cap, which is currently set at $5 million per 12-month period.
These regulations are designed to protect investors while fostering a thriving equity crowdfunding ecosystem.
The Benefits of Equity Crowdfunding
Equity crowdfunding offers a range of benefits for both entrepreneurs and investors:
- Access to Capital: Equity crowdfunding provides entrepreneurs with a new avenue to raise funds, particularly for small and medium-sized businesses that may have difficulty securing traditional financing.
- Democratization of Investing: Equity crowdfunding allows everyday investors to participate in the growth of private companies, democratizing the investment landscape.
- Diversification: Investors can diversify their portfolios by investing in a range of private companies, potentially reducing their overall risk.
- Transparency and Regulation: The regulatory framework surrounding equity crowdfunding ensures a level of transparency and investor protection, fostering trust in the market.
Conclusion
Equity crowdfunding has emerged as a powerful tool for entrepreneurs and investors alike, transforming the way capital is raised and invested. As the private securities marketplace continues to evolve, the role of equity crowdfunding is likely to become increasingly significant, offering new opportunities and challenges for all participants.
By adhering to the strict compliance requirements set forth by FINRA and the SEC, equity crowdfunding platforms and issuers can maintain the integrity of the market, ensuring that investors are protected and that the industry continues to thrive.
Sources:
University of Cambridge and World Bank. (2020). The 2nd Global Alternative Finance Market Benchmarking Report. https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/the-2nd-global-alternative-finance-market-benchmarking-report/
Crowdfund Insider. (2021). https://www.crowdfundinsider.com/2021/01/170982-239-million-was-raised-using-reg-cf-during-2020-amount-could-double-in-2021/