Invest Money

Invest in equity crowdfunding

Investing in equity crowdfunding is an investment option that only became available a few years ago. For many years this kind of investment was restricted by law to registered investors only. However today, with the boom of crowd-fueled business models, investing in early-stage companies has become available to virtually everyone thanks to the so-called equity crowdfunding platforms.

The idea is simple. Early stage companies need money to grow. You (and many other people) have some money you are looking to invest. So why not give your money to one of those companies in exchange for a piece of the company itself?

Imagine having invested in Facebook in the early days? Amazon? Airbnb? Uber? Well you couldn’t have legally done so back then, but you can now invest in the Googles and Teslas of the future thanks to this new funding model.

How much can you earn investing in startups?

This is a high-risk high-return kind of investment. Investing in an early stage company has the potential to be the investment of a lifetime, but there is also a reasonable chance that you won’t see a dollar back, not even your initial investment.

The worst-case scenario is easy to imagine. You invest in a company, the company burns through all its investment without becoming profitable, they fail to secure any more investments, they go bankrupt, you lose all your money.

On the other hand, if you put your money on the winning horse the potential is astonishing. Let’s look at what investing in some of today’s largest companies back when they first went public (the only time you could start investing in them back then) would have meant:

  • A $100 investment in Nike in 1980 would be worth $6,071,467 today.
  • A $100 investment in Microsoft in 1986 would be worth $148,416 today.
  • A $100 investment in Starbucks in 1992 would be worth $26,620 today.
  • A $100 investment in Amazon in 1997 would be worth $120,596 today.
  • A $100 investment in Netflix in 2002 would be worth $33,308 today.

Not bad right?

Limits and other considerations

Even though recent law changes have allowed for equity crowdfunding to become a reality the government still doesn’t want people going crazy chasing the next unicorn and go broke in the process, so they’ve set some limitations. Before being able to invest in equity crowdfunding you’ll need to provide some information about yourself, including your annual income, which will determine how much you are allowed to invest in equity crowdfunding platforms.

Another point worth considering is that even though you are buying stock of the company you are investing in, this stock cannot be traded like stock from a public company, so you are most likely going to have to hold on to your investment until the company either goes public or gets acquired.

Last but not least, remember that only a tiny percentage of companies that start manage to get acquired or go public, and from the ones that do go public only a small percentage see the incredible growths that the companies mentioned before have achieved. So be smart and don’t put all your eggs in the same basket. Even if you find a company you think is going to knock it out of the park, diversify your investment, maybe shoot for other companies in the same sector as you never know which one will actually become the industry leader, target several sectors with potential and also explore other less-risky investment options to diversify your portfolio.

Some equity crowdfunding platforms to start your research

If you want to dive dipper into equity crowdfunding here are a few platforms worth taking a look at (although a Google search will probably give you even more options).