Equity crowdfunding puts investing in the hands of the average person. It’s grown extremely popular as a result, with the global crowdfunding market predicted to be worth $25.8 billion by the end of 2026. In 2019 alone, the crowdfunding market was valued at $12.27 billion, reflecting an extremely high growth potential. To illuminate you on the potential of this investment strategy, we’ll take a closer look at equity crowdfunding, including its pros, cons, and how to get started.

What is Equity Crowdfunding?

When we say equity crowdfunding, we’re talking about when groups of people (crowds) place money into private, unlisted startups in exchange for financial securities from that company. Traditionally, startups could only receive funding from wealthy investors, such as business angels and venture capitalists. Now that startups can pitch their products and services online, companies can also target the average person, opening themselves to bigger opportunities for financial growth.

One example of a successful crowdfunding project was the microdistillery Ironclad. In 2017, the Newport-based company offered shares on the funding platform First Democracy VC, hoping to generate revenue for a tasting room and equipment. One hundred fifteen investors pooled in to contribute $58,656, helping Ironclad to reach its minimum goal. Though equity crowdfunding relies on small contributions from a large group of people, a wide reach can turn the investment strategy into something very lucrative.

Benefits of Equity Crowdfunding

Equity crowdfunding can offer your business many advantages. For one, crowdfunding requires decent skill in marketing. You will need to first expose the idea of your product or service to any potential customers. This way, you can get an interest check that can determine how well your product will be received before even having to invest funds in production. At the same time, the effort you place into promoting your product will help you get your company’s name out there. And when you get investors, you also get a network of individuals who can provide valuable input to your business, such as advice, expertise, and customer referrals.

As we previously mentioned, equity crowdfunding opens your business up to more investment opportunities. No longer do you have to pitch your ideas at shareholder meetings in hopes of impressing someone from your small network of investors. Instead, you can pitch your products or services directly to potential customers.

How to get started with equity crowdfunding

After you’ve selected your crowdfunding platform, the first thing you need to do is create a crowdfunding pitch. This is what you’ll present to future investors to sell them on the idea of your product. Typically, every crowdfunding pitch will need a product, funding goal, time frame, as well as a plan for production, shipment, and financing. To make sure your pitch covers all sides of the operation, seek help from a financial advisor. Professionals who have studied financial services at a bachelor’s level or higher will have expertise in sales, marketing, management, and business law, and will be able to assess whether your goals are achievable. They can help you make adjustments to your plan to maximize profitability and improve feasibility.

Once you’ve created your pitch, it’s time to take it to the internet. Reach out to investors on your crowdfunding platform of choice. You can also spread the word on social media sites like Twitter, Facebook, and Instagram. Good knowledge of online marketing is necessary for this purpose, which means it would help to seek the guidance of professionals with backgrounds in social media marketing. These professionals will know what kind of posts to create and when to schedule them to maximize engagement from audiences. By monitoring analytics, they can study patterns and trends and use them to guide your social media campaign for the future.

Investment does not have to be limited to the select few with existing wealth and network connections. With equity investing, both new businesses and small-time investors get different benefits: startups get wider access to funding, while small-time investors finally get a stake in the growing business market.

By Annie Cooner