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Crowdfunding—formally called Regulation Crowdfunding (Reg CF)—allows companies to raise smaller amounts of capital directly from the public through online platforms.

This is what many people think of as “equity crowdfunding.”

 

How Crowdfunding Works

• Companies can raise up to $5 million per year

• Anyone (not just accredited investors) can invest

• Offerings take place on SEC-registered crowdfunding portals

• Minimums are often extremely low (sometimes $100)

Common crowdfunding assets include:

• startup equity

• revenue-sharing deals

• local business investments

• real estate crowdfunding platforms

• niche products or prototypes

 

Benefits for Investors:

• Very low entry point

• Great learning tool for newer investors

• Potential exposure to early-stage companies

• Transparent online disclosures

• Community-style investing—investors support brands they believe in

 

Considerations and Risks:

• Startups have a high failure rate

• Shares are often very illiquid

• Limited financial history for many issuers

• Potential for dilution in future funding rounds

 

Crowdfunding works best when investors treat it as a small, experimental allocation, not a core portfolio holding.