Equity Crow Funding Organization

Like traditional crowdfunding through such platforms as Kickstarter and GoFundMe, equity crowdfunding allows entrepreneurs, early-stage companies, and nontraditional investment funds to raise substantial amounts of money. Each contributing individual gives a relatively small amount – typically at least $1,000, but sometimes less.

The key difference is that equity crowdfunding is an investment arrangement. During an equity crowdfunding round, an entity issues equity – shares of company stock – to participating investors on a proportional basis. Less frequently, early-stage crowdfunded companies may raise money through a combination of equity and debt, or debt only. However, debt arrangements are more common for later-stage companies.

In any equity crowdfunding round, the entity’s valuation is a function of the dollar amount raised against the amount of equity offered, independent of company fundamentals. For instance, a funding round that raises $1 million in exchange for 20% of a company’s total share count values that company at $5 million.

If the company or entity grows, each investor’s stake may appreciate in value. When a successful company sells itself to another firm or launches an IPO, shareholders may realize a substantial return on their investment. On the other hand, shareholders in unsuccessful ventures stand to lose part or all of their investment.