Everyone’s out to build a better mousetrap, but investment vehicles have changed very little since the creation of mutual funds years ago. Sure, there have been little innovations like online trading and other avenues, but nothing has really shook up the investment world until now. We’re talking about equity crowdfunding, and it’s showing the potential to deliver ROIs that are 30 – 40% higher than annual returns for traditional investment platforms.
What Is Equity Crowdfunding?
Crowdfunding is nothing new, although it has blown up in recent years to cover fundraising for everything from independent film production to financing your niece’s senior class trip. The idea is to go public with a worthy cause using one of the public fundraising platforms and offer some reward to those who help finance your endeavor. The reward can be anything from owning a percentage of a film to a signed copy of a book you helped get published.
Equity crowdfunding takes this premise one step further to offer public, joint ownership in ventures like building projects or investing in an unlisted startup. For example, the H Street NE Corridor in Washington, D.C. is jointly owned and built by 175 people from Virginia and the DC area who invested as little as $100 each in the project, making it the first crowd-sourced real estate venture in the country.
How does it Work?
Crowdfunding combines the idea of buying shares in a publicly traded company on the stock market with opening a Kickstarter account. You’re betting on the success of a young enterprise while getting in on the ground floor, when shares are more affordable. This is a solid option for innovators with good ideas but no access to capital as well as investors looking for a good bet.
There are two types of investment crowdfunding: startup and follow-on funding, which is used to finance business growth. Your investors don’t have to be well-heeled or have a stack of disposable cash to jump in on a project, either. Investments are usually for smaller amounts, so they’re not facing undue risk. This type of investing is good for novice or modest investors or for those who just believe in dreams and want to be part of helping business innovators reach for the stars. All you need to get started is:
- Locate a financial adviser or group that handles investment crowdfunding
- Determine your financial goals
- Choose your type of investment from real estate, construction or business startup
Risk is limited, but you’ll gain leverage by pooling resources with a larger group of investors. This allows you to get the buying power of a big bank without paying the big fees that go along with it. All reputable financial advisers will deal only in SEC-regulated eREITs and eFunds.
One of the best examples of this type of investment funding was the 3 World Trade Center construction in 2015, which was made possible by bonds issued through a company called Fundrise. Fundrise reviews show that this company was a pioneer in investment capital crowdfunding, but they’re by no means the only ones. Ask an investment professional online or in your local area for more information.
