Across the world, there are an estimated 4.7 billion people with the means to invest in the private capital market. While this may be a rough estimate, it provides a good starting point for understanding the reach of potential investors worldwide. And, thanks to the rise of online crowdfunding platforms, it is easier than ever for these potential investors to make their investments. Through these platforms, both retail and accredited investors can invest small sums of money in startups looking to raise capital through the JOBS Act exemptions.
This can be risky, but it can also be very rewarding if the startup is successful. The general principle of investment risk is to never invest more than you can afford to lose. But, with smaller individual investors, people who can only afford to lose a little are no longer excluded from these opportunities. However, any reputable equity crowdfunding platform has strict compliance standards that ensure that the companies being funded are legitimate and compliant with all securities laws, thus, reducing some risks to the investors. When both funding portals and issuers adhere to all compliance requirements, the risks of losing money to fraud or incompetence. Still, investors must keep in mind that regulations are unable to protect them from changes in the market.
The Landscape of Funding Platforms
In the United States, there are over 70 FINRA-regulated crowdfunding platforms that companies can choose to utilize for their offerings. Being a FINRA-registered platform ensures that funding portals are following FINRA regulatory oversight and reporting requirements, introducing a layer of protection for investors against fraud. Before choosing to invest, potential investors should check with FINRA to ensure the funding portal is regulated.
Equity crowdfunding is a relatively new phenomenon, but it has already impacted the startup ecosystem and companies have already raised more than $1 billion using RegCF alone since the JOBS Act was enacted in 2012. By allowing companies to raise capital without an IPO while allowing investors to leverage the power of the Internet to capitalize on up-and-coming companies, everybody wins.
In 2021 alone, equity crowdfunding raised over $500 million for companies. This means that businesses have a wide range of short- and long-term investment sources to choose from seeking capital to grow and support their business objectives. With equity crowdfunding, various industries can benefit from improved access to capital, while investors can prosper from getting in with a company on the ground floor.