Last updated on December 6th, 2023 at 09:32 pm
In general, crowdfunding refers to the process of raising capital for an organization with the assistance of the public. It can be done through a social media platform, an online forum, or a dedicated crowdfunding website. However, equity crowdfunding takes it to a whole new level.
In this case, a public investor gets a proportionate slice of equity of a company or a business venture in exchange for their investment. Previously, most business owners used to raise such a fund by borrowing from their family or friend circle. Sometimes, they had to apply for a loan as well.
However, now, with the opportunity of crowdfunding, they have an additional option. But is it rewarding for an investor, or will it be risky in some way? Let’s find out.
Table of Contents
Risks of Investing in Equity Crowdfunding
Investing in equity crowdfunding can be both rewarding as well as risky. However, we will talk about the uncertainty first, prior to the positive stuff.
1: A Higher Risk of Failure.
With venture capital or funding, an investor will still have the opportunity to get a small part of their money back. However, that won’t be possible in the case of crowdfunding. Hence, if you are thinking about investing in an organization, make sure to research how they plan to progress the business. The more you know about them, the better.
A business, which has come through Equity Crowdfunding, tends to take quite a lot of time to grow properly. Now, as an investor, you will probably want to get your money’s worth as soon as you can. However, unfortunately, that’s not going to happen in this case. Yes, it may burst out in blossoms after some time. But there’s no guarantee that it will do so.
3: Security of the Platform.
The security of the crowdfunding platform, especially a newly-created one, can be susceptible to hacking and cyberthreat. Therefore, it’s best not to opt for them. Instead, you can opt for a more popular option or website, such as Kickstarter. They are much better and more efficient in that aspect and have been updating their website relentlessly to avoid any such problem.
Rewards of Investing in Equity Crowdfunding
Now, let’s talk about the benefits of equity crowdfunding.
1: Excellent Return on Investment.
The core risk of equity crowdfunding is quite high. Hence, the potential of earning a fair bit of money will also be a part of your investment proceeding. Oculus Rift is an excellent example of it. When the project began, Oculus Rift raised around USD 2.4 million through Kickstarter, the most popular crowdfunding portal.
However, recently, it was bought by Facebook (or Meta) after paying USD two billion. Can you guess how much the investors have gained from their investments?
2: Greater Satisfaction.
Investing through an equity funding proceeding can provide the investor with the satisfaction of investing in a large-cap or blue-chip company. This is because, in this case, the person will be able to choose to focus on the idea or business that resonates well with them.
For example, if you are an environmentally-conscious individual, you can choose to opt for an organization that’s developing technology to reduce pollution. Equity crowdfunding, in general, offers much more avenues for someone who wants to go for a targeted investment approach rather than a generalized one.
3: Job Creation.
Equity crowdfunding can help an organization’s owner build their business from the ground. It can help them create more job opportunities in the country and ensure that their nation will get stronger in a business segment.
Small and medium-sized businesses (SMEs) are the linchpin of any country’s economy. But, due to the current condition of the market, most of them are unable to go on and give a boost to their business. Therefore, if you want to be a part of their emergence, you can do it through crowdfunding.
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The Final Say!
Equity crowdfunding, in general, is like a coin. There’s a good and a bad part associated with it. Hence, it will be on you to find something that seems like an inevitable success to you. Do proper research, look for the security of the platform, and be confident in your approach. The better your proposition is, the higher your chance of succeeding will be.