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Equity crowdfunding is a method for businesses to raise capital without incurring new debt by offering shares to a large number of investors, often starting from as little as $100. This funding method occurs on online platforms where businesses can present their pitches and financial information to potential investors, who in turn receive equity ownership in the business rather than rewards or debt repayment obligations.
Equity crowdfunding platforms are regulated online venues where businesses can sell shares to numerous investors. Some notable platforms include WeFunder, Fundable, CircleUp, Republic, MicroVentures, StartEngine, Netcapital, SeedInvest, and Mainvest. These platforms facilitate businesses in raising capital by offering:
Advantages
Disadvantages
Regulated by the federal government, equity crowdfunding must adhere to specific rules. These include working with an SEC-registered broker or funding portal, accepting no more than $5 million annually, and limiting individual nonaccredited investor contributions based on income. The JOBS Act also plays a crucial role in regulating investor participation and protecting their interests by setting funding and investment limits.
Successful campaigns generally feature a compelling pitch, effective marketing, realistic financial projections, and strict adherence to regulatory requirements. These elements help businesses attract and secure the necessary funding while maintaining transparency and building trust with potential investors. Successful campaigns often result in significant business growth and can offer substantial returns to investors, enhancing the overall value of the company.
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