What Is Equity Crowdfunding?
How everyday people buy shares in private companies online, and how it differs from the crowdfunding you already know.
Short answer
Equity crowdfunding is a way for many people to invest in a private company online, in exchange for shares or other financial interest. Instead of raising from a few venture funds, a company raises from a crowd, often its own customers and community. In the U.S., most equity crowdfunding uses Regulation Crowdfunding (Reg CF).
What equity crowdfunding is
Equity crowdfunding lets a private company sell shares to the public through an SEC-registered online platform. Investors put in money and receive an ownership stake, not a product or a donation. It became possible for everyday investors when the 2012 JOBS Act opened private-company investing beyond venture funds and the wealthy. Most U.S. raises run under Regulation Crowdfunding, or Reg CF. For the full walkthrough, see our complete guide to equity crowdfunding.
How it works, in four steps
1
A company lists an offering
It files its Form C with the SEC and lists on a registered funding portal.
2
Investors review the raise
They read the raise page, the disclosures, and the terms of the deal.
3
Funds go into escrow
Investors commit money, which is held safely until the raise closes.
4
The raise closes
If it hits its target, funds are released and investors receive their shares.
Equity vs. rewards vs. donation crowdfunding
Equity crowdfunding is different from the crowdfunding you already know. The difference is simple: what you get back.
Equity crowdfunding
Rewards (Kickstarter)
Donation (GoFundMe)
What you get
Ownership shares
A product or perk
Nothing financial
Can it gain value?
Yes, and it can lose value
No
No, it is a gift
Who can invest, and who can raise
Almost anyone can invest in a Reg CF offering, accredited or not, subject to limits based on income and net worth. On the other side, startups and small companies raise this way, most often under Reg CF, to bring their customers and community onto the cap table. See how the exemptions compare in Reg CF vs Reg A vs Reg D.
Benefits and risks
For investors
Upside
Access to early-stage companies and real ownership if they succeed.
Trade-off
The shares are illiquid and you can lose your entire investment.
For companies
Upside
Capital plus a community of owners who root for you.
Trade-off
Dilution and public disclosure obligations.
Frequently asked questions
Is equity crowdfunding legal?
Yes. It has been legal for everyday U.S. investors since Regulation Crowdfunding took effect in May 2016, under Title III of the 2012 JOBS Act.
How is it different from Kickstarter?
Kickstarter is rewards crowdfunding: you get a product. Equity crowdfunding gives you shares, so you own a piece of the company and share in its success or failure.
How much can I invest?
It depends on your income and net worth. Non-accredited investors have SEC limits across all Reg CF offerings in a 12-month period. Accredited investors have no Reg CF limit.
Can I lose my money?
Yes. Most early-stage companies fail, the shares are hard to sell, and you can lose everything you invest. People invest anyway for the chance to back a company early, own a real stake in something they believe in, and share in the upside if it succeeds. Read the risks, and why people invest in startups, before you invest.
Do I own part of the company?
Yes. You receive securities such as shares or a SAFE that represent an ownership interest, though the exact rights depend on the security.
Key takeaways
Equity crowdfunding means investing in a private company for shares, not rewards.
Most U.S. raises use Regulation Crowdfunding (Reg CF).
It is open to everyday investors, accredited or not.
You get real ownership, and real risk of loss.
Read the disclosures and diversify before investing.
Keep reading
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Investors can explore live raises today. Founders can bring their own community onto the cap table.