In order to protect the public from fraud and debt, the Securities and Exchange Commission (SEC) required startup investors to have a certain income or level of assets. New changes from the SEC have reformed those requirements* and now allow anyone to become an investor in selected crowdfunding initiatives. There are still some rules in effect to protect the public, such as an individual not being able to invest more than 10 percent of his or her net worth and startups not being allowed to raise more than $50 million. Now that the playing field has opened up, you’re probably wondering how you can start supporting small businesses by investing your money for a share of the company. Here’s what you should know to begin investing:
Find the Right Platform
Just like there are platforms for rewards-based crowdfunding, like Kickstarter and Indiegogo, there are many platforms that are likely to specialize in investment crowdfunding. Crowdfunder, which was founded in 2011 and is located in Venice, CA, allows businesses to raise funds online through accredited investors. Once the new SEC changes go into affect, anyone will be able to use Crowdfunder to invest in a business. Another popular platform is AngelList, which lets startups find investors as well as employees through its recruiting feature. Some platforms cater to specific industries as well, like Realty Mogul, which is a real estate crowdinvesting platform founded in 2013. There’s a good chance that many of these platforms will open up beyond accredited investors at some point in the near future. When you get started as an investor, make sure you shop around and choose a reliable platform that supports the type of business you want to invest in. To start, check out this post on the top 10 equity crowdfunding platforms for startups.
Find the Right Business
Once you’ve found the right platform, you need to find the right company to invest in. Of course, just like other investments, your financial goals are likely to dictate much of where you would want to invest. Are you looking for long-term or short-term gains? What’s your appetite for risk? How well are your investments diversified? Most importantly, if you’re new to investing, then you should definitely find an expert who can walk you through the process. One of the promises of many of these platforms is that you’ll have the opportunity to invest in local businesses and/or other companies that you want to support. Of course, it should be assumed that any investment in a startup, equity crowdfunded or otherwise, is likely to be risky.
Make a Smart Investment
Making a smart investment means researching the site you’re using, researching the business you’re investing in, and knowing the right amount to invest. When it comes to the company you want to invest in, it may be a good idea to look at its business credit report and see if it is a reliable company, if it has been in business and isn’t just starting. You might also want to consult someone, like your accountant, about your finances so you can invest the right amount of money. You should also research the industry for the business you’re considering to get a better idea of whether or not the company is offering something new or solving an important problem. Having detailed information can help you determine whether or not you could see returns on your investment down the road.
There’s a lot to consider before investing in a startup, but opening equity crowdfunding to the public could be a great opportunity for businesses to get better access to funding. We’ve produced a number of events, videos and educational resources you can access on our Access to Capital crowdfunding page!
Learn more about equity crowdfunding in these articles:
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