Crowdfunding (Equity)
Equity crowdfunding is a method of raising capital in which a large number of individuals — the crowd — each invest small amounts of money in exchange for equity ownership stakes in a company, typically through an online platform that aggregates investors and manages the transaction process. In the United States, equity crowdfunding is regulated by the SEC under rules established by the JOBS Act.
Equity crowdfunding is distinct from other forms of crowdfunding — such as rewards-based crowdfunding (Kickstarter, Indiegogo) or donation crowdfunding (GoFundMe) — in that investors receive a financial stake in the company rather than a product, a reward, or nothing in return for their contribution. This distinction means that equity crowdfunding is subject to federal and state securities laws, which require disclosure of material information to prospective investors and impose restrictions on who can raise capital and how.
The Jumpstart Our Business Startups (JOBS) Act, signed by President Obama in April 2012, was the landmark legislation that created the legal framework for equity crowdfunding in the United States. Title II of the JOBS Act allowed companies to publicly solicit accredited investors for private placements under Regulation D, Rule 506(c). Title III, implemented through the SEC's Regulation Crowdfunding (Reg CF) rules effective May 2016, opened equity crowdfunding to non-accredited investors for the first time, subject to investment limits and company disclosure requirements. Title IV established Regulation A+, which allows companies to raise up to $75 million (as of a 2021 limit increase) from the general public through a streamlined version of a public offering.
Equity crowdfunding platforms in the United States include Wefunder, StartEngine, Republic, and Mainvest, each of which operates as a registered funding portal or broker-dealer under SEC rules. These platforms host company offering pages that include a Form C disclosure document — the Reg CF equivalent of a prospectus — containing financial statements, business descriptions, risk factors, and use of proceeds.
From an investor education standpoint, equity crowdfunding in startups and early-stage companies involves substantial risk. The vast majority of startups fail, and equity crowdfunding investors typically hold highly illiquid positions — there is no secondary market comparable to a public stock exchange for most crowdfunding securities, meaning investors may need to hold their positions for years or indefinitely. The investment limits imposed on non-accredited investors under Reg CF are designed to limit the amount any individual can lose, but they do not eliminate the fundamental risk of investing in early-stage ventures.