Equity crowdfunding is where people invest at the beginning of a company and in turn obtain shares in the company.This is also one of the crowdfunding mode to kickstart your project.
A share holder holds a part of the company and gains if the company gets a profit .At the same time loses the investment made, if the company loses.
The (Jump Start Our Business) Jobs act was introduced to bring regulations in equity funding.As soiliciting individual money from public is illegal.These regulations make sure that equity crowdfunding is carried through a registered-dealer.
The buyer should make sure that the valuation of shares is appropriate as start-ups tend to quote a higher value initially.
The amount of time that is required to sell these shares is quite long the company has to devolp and come to a point where you can sell these shares.
If these are the hurdles of an investor it is not easy for the start-ups too. The Company has to come up with financial disclosure and follow SEC rules which tend to change.
If the company does not reach the target funding then the company has to return the money received.This will affect the reputation of the company at a very early stage.It is a hit or miss situation.
But unlike debt crowdfunding where certain amount interest has to be paid equity crowdfunding is far simpler in this acpect.
Any start-up waiting to kickstart their project should understand that the way they market their idea will drive the investor’s mindset.And choosing which stream of crowdfunding is up to the start-up depending on your organizational structure.