Equity Crowdfunding Pros and Cons

Equity crowdfunding presents entrepreneurs with an opportunity to raise capital for their startup or small business. In the past several years, crowdfunding has gained popularity as an alternative to traditional business financing methods. While equity crowdfunding provides entrepreneurs with a wonderful opportunity to raise much-needed capital, it often requires them to allocate a portion of equity in their companies to the investors. Here are the pros and cons of equity crowdfunding.

Lets Examine the Pros and Cons of Equity Crowdfunding

Pros of Equity Crowdfunding

One of the most important aspects of equity crowdfunding is the ability to raise large sums of money for a startup. Reputable online crowdfunding platforms are generating millions of dollars from angel investors and accredited investors. Some entrepreneurs receive as much as $500,000 to $1 million in capital from their crowdfunding efforts. If entrepreneurs present a strong fundraising campaign and clearly outline their business and their strategy, they may gain plenty of interest from investors.

One other advantage of equity crowdfunding is easier investor management. Many entrepreneurs receive capital from several individual investors and must manage the demands of each investor. Equity crowdfunding platforms usually pool the funds into one individual investment, which narrows the reporting requirements of the entrepreneur or business owner into one single contact.

Cons of Equity Crowdfunding

One problem many entrepreneurs face during their campaign is the increased transparency of crowdfunding. Many entrepreneurs are not comfortable publicizing their business ideas or their financial histories for everyone to see.

Another problem with equity crowdfunding is business owners and entrepreneurs must allocate a portion of the equity in their business to the investors. Entrepreneurs must decide if giving up a portion of their businesses is worth it in the long run. It is best to look at the “value play” of the investment, which is the amount of value the business receives in return for a portion of the equity in the business.