Revealed: Crowdfunding vs. Equity Crowdfunding

By Crowdability, on Sunday, May 1, 2016

Here’s how crowdfunding works in a nutshell:

Let’s say an independent filmmaker wants to shoot a new movie…

Or an aspiring inventor has an idea for a new product…

They both need capital to get their projects off the ground—but where can they turn?

Historically, they’ve had limited options—they can get a loan from the bank, or they can borrow money from their friends or family.

But now they have a new option: Crowdfunding.

Crowdfunding is an emerging trend where many individuals each make a small financial contribution toward a project—and together, these contributions add up to enough money to get a new project off the ground.

There are two main types of crowdfunding…

There’s “Rewards-based” Crowdfunding…

And there’s “Equity Crowdfunding.”

Let’s look at rewards-based first…

Rewards-based crowdfunding allows donors like you to contribute capital to projects of your choice, and in return, you’ll receive a “reward.”

For example, if the project is a documentary film, the reward might be free tickets to the first screening. Or if the project is a video game, you might receive a free copy of the game.

Two of the most popular rewards-based crowdfunding sites are KickStarter and IndieGogo.

Now, to be clear, if you donate to a rewards-based project and the project turns into a huge financial success, you won’t receive any of the profits. Not a dime.

However, there’s a new form of crowdfunding that fixes this problem…

It’s called Equity crowdfunding.

Equity crowdfunding is similar to rewards-based crowdfunding, but there’s one MAJOR difference..

With equity crowdfunding, when you make an investment, you’ll receive an actual ownership stake in the business you back.

So if you invest in a “start-up” project and it turns into the next Google or the next Facebook, you’ll receive your share of the profits…

And those profits can be substantial:

As just one example… when Facebook went public, its first investor earned 2,000 times his money.

More recently, a robotics start-up called ReWalk raised capital using equity crowdfunding. 14 months later, ReWalk went public on the NASDAQ... and it’s early backers made a 500% return. And these backers are regular investors, just like you!

But to be clear, these types of returns won’t happen every day…

And with the potential for higher returns comes higher risk.

So before you invest on an equity crowdfunding site, take the time to prepare yourself:

Learn about the risks of early-stage investing

Do research on each start-up you’re thinking of investing in…

And if you do invest, only invest a small amount of your total capital.

And here’s something else to keep in mind:

At the moment, equity crowdfunding is only accessible to what’s called “accredited investors.” An accredited investor has a net worth of at least $1 million, or earns at least $200,000 per year.

But if you’re not yet accredited, don’t worry—because equity crowdfunding is about to become accessible to EVERYONE...

You see, a new set of laws is about to pass that will allow ALL investors to invest in start-ups…

It’s called “The JOBS Act,” and we believe it will completely change how America invests.

For more information about Crowdability or for press inquiries, please contact us at [email protected]

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