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Top 5 Equity Crowdfunding Platforms for Investing your Money

Equity Crowdfunding is becoming one of the hottest trends in investing and could be ready to explode higher!

Just one year after passage of Title II of the JOBS Act, a total of 534 companies successfully met their crowdfunding goal for equity participation. More than $200 million in equity capital was raised, averaging a little over $400k per company.

The industry is developing quickly and crowdfunding platforms for equity investing are popping up everywhere.

The crowdfunding revolution is happening across all 50 states, the District of Colombia and Puerto Rico. Even in states where equity crowdfunding just opened up to regular investors, intrastate crowdfunding has been developing as an alternative for small business funding and crowdfunding investing.

In a world of private equity and startup investing where average annual returns top 24%, the potential to put your money to work has never been higher!

Among crowdfunding sites, you have those focused exclusively on donation-based funding and those crowdfunding platforms for equity investing that offer an ownership right to the company. After years of waiting on rules from the Securities & Exchange Commission to allow regular investors the opportunity to invest in equity crowdfunding projects, the government finally enacted Regulation A+ and Crowdfunding Investing Title III over the last few years.

We’ve yet to see many equity crowdfunding platforms take advantage of the new rules to bring in regular investors but that could change very soon.

So just how big could crowdfunding for businesses get? The chart below, from census data, presents U.S. households by income in 2013. Even if we assume a market of households with $50,000 annual income and above, allowing regular investors into equity crowdfunding investing will increase the market’s size by more than ten-fold.

What's waiting for crowdfunding in 2017 and where should you put your money to get the highest returns?

How big could equity crowdfunding investing get?

Equity Crowdfunding Investing and Regulation A+

Equity Crowdfunding Investing Potential

The U.S. market for angel investing and startup financing reached nearly $50 billion in 2012. On top of this, lenders granted 20.3 million small business loans worth $159.3 billion bringing the total to nearly $210 billion from just three avenues of small business funding.

With the passage of Regulation A+ and equity crowdfunding investing through Title III, the potential pool of investors to equity crowdfunding could grow more than ten-fold. If just 10% of small business funding goes through crowdfunding, the market would total $21 billion.

The number of crowdfunding platforms for equity investing, and similar sites that offer different models of investment, seem to increase by the day but a few stand out with some institutional knowledge and a strong platform. Success in crowdfunding and investing will depend on the market's knowledge of the resources.

One of the biggest beneficiaries to the crowdfunding boom has been real estate investing. Real estate crowdfunding platforms have benefited from the lack of lending by traditional banks and investors that need higher returns.

Returns on equity crowdfunding are likely to mirror those in angel investing and venture capital, older forms of private investing that have been open to wealthy investors for decades. Angels and venture capitalists have earned an annualized 24% on their equity investments according to a study by Willamette University.

Here's my five top picks for equity crowdfunding platforms for investment.

Equity Crowdfunding Platforms for Equity Investing

RealtyShares

RealtyShares is my favorite equity crowdfunding portal for real estate crowdfunding. The real estate portal has funded more than $200 million in properties which have returned 10.75% annually, easily beating the return on the S&P 500.

What I like about real estate crowdfunding is that, unlike investing in REITs where you only get an ownership in the fund, you get direct ownership in the properties.

RealtyShares underwrites investments through a strict process and only about 5% of submitted deals are approved so a lot of the analysis work and due diligence is done for you. After an application is submitted, deals are screened for the management team, their track record and finances. The property project is then analyzed on a set of due diligence checks including financial, legal and location.

Equity Crowdfunding Investment in Real Estate

Equity Crowdfunding Investment in Real Estate

Investors pay a max fee of 2% on their account and get instant diversification by investing in different property types across the country. Returns are distributed on a monthly or quarterly schedule depending on the property.

Click for more information about investing on RealtyShares.

Crowdfunder.com

The site reports 75,811 investors and 15,805 companies for $130.5 million in investments. The average size of equity projects is $1.6 million, mostly through seed funding and initial rounds of financing. The company has been operating in the U.K. for quite some time and has a good archive of articles and media from which to learn.

Crowdfunder is probably the largest and most established crowdfunding platform for equity investing.

Crowdfunder is an all-or-nothing platform and campaigns are recommended to set multiple rounds of financing. This increases the likelihood that you will get funded through earlier rounds with smaller amounts but it also increases the risk to investors. Companies looking for seed funding or proof-of-concept may still be years and multiple financing rounds away from any sales or profits. Campaigns are able to set their own deadline up to the 60-day maximum.

A monthly fee starting at $299 is charged on all projects. Crowdfunder charges a 5% fee on successfully funded campaigns. Payments are only offered through Amazon Payments which charges a 2.9% fee and a $0.30 transaction fee.

Realtymogul

One of the new crowdfunding sites dedicated to real estate investment, Realtymogul reports more than $39 million investments across 98 properties since its launch in 2013. Realtymogul is not necessarily one of the crowdfunding platforms for equity investing but a crowd platform for real estate investing.

Crowdfunding real estate projects carry different levels of risk and return than start-up investing. Returns are not likely to be as high but cash flow will likely be sooner and more regular than with start-up financing. As with equity crowdfunding, only accredited investors are allowed to invest until final passage of the JOBS Act.

real-estate-crowdfunding-sites

Equity Crowdfunding Real Estate Sites

The site provides a breakdown of property types for funded projects with residential and retail commercial properties accounting for a large proportion of the total. The site also allows projects to raise debt financing through loans.

Fundrise

Fundrise is another real estate investing platform that reports 34,152 members and 12% to 14% average return based on the projected gross returns for each funded offering on the site.

Minimum investments start as low as $100 per project and less than 5% of offering solicitations from real estate developers are approved by the site. The lock-up period for investments appears to be shorter with the site claiming a 1 – 5 year lockup on most investments.

Unlike Realtymogul, Fundrise offers direct public offerings to investors which means you are investing directly in the real estate project. Since it is a direct offering, Fundrise has to go through a lengthy SEC application process for each project so that may slow the number of offers available. I interviewed the co-founder of Fundrise about a really interesting feature on the site, Guaranteed Funding for Real Estate Crowdfunding campaigns.

fundrise equity crowdfunding platform crowdfunding investing

FundersClub

The site touts more than 11,000 accredited investors and $22 million invested over 100 companies. After a company submits an application for review, a committee reviews the application for growth metrics and viability. A panel of investor members, composed of angel investors and entrepreneurs, then reviews the documents in a vetting process.

Top equity crowdfunding platforms equity crowdfunding investing

Best Equity Crowdfunding Platforms for Investing

Projects are launched in ‘watchlist’ mode before investing can take place to allow potential investors to perform their own due diligence. The minimum investment is $3,000 and fewer than 3% of reviewed companies are selected to go up on the site.

Fundersclub recently celebrated its two-year anniversary and disclosed a 47.9% unrealized net IRR over the period. It may be a little early to get too excited since the return is unrealized and most venture funding needs at least three to five years to exit and provide a return. The statistic is compelling though and it appears the site offers investors a good opportunity to piggy-back on deals vetted by other players.

EquityNet

EquityNet has helped 20,000 investors fund more than $250 million to nearly 30,000 companies since its launch in 2005. EquityNet owns several patents for its crowdfunding technology, including one for analyzing enterprise risk and one for its marketplace solution. The strong intellectual property could help the site grow rapidly as the JOBS Act is implemented.

EquityNet seems to go a little farther than others in helping business owners develop their plan. The site offers business planning software that is pretty detailed and user-friendly. The software also helps owners develop professional reports and graphics to communicate with investors.

For investors, EquityNet offers a different model from other sites. Investors are able to contact entrepreneurs directly and invest directly in the projects off-line.

It still feels a little like the old west for equity crowdfunding and the crowdfunding platforms, even for accredited investors with experience in start-up financing. The years ahead are bound to bring changes in regulation, how companies communicate with investors and how platforms connect the two. Just like the old west, it will be the early settlers that make the most money, getting in on the best deals and finding the best equity crowdfunding platforms for investment.

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About Joseph Hogue

An investment analyst by profession, I run two blogs (Crowd101 and PeerFinance101) in personal finance, peer lending and crowdfunding. I've been on both sides of the table as a lender and a borrower and am excited to be a part of the peer movement. With the power of the internet, people are helping other people manage debt and raise money in ways never before possible.

Comments

  1. I’m a big fan of crowd funding. I’d like to get more involved in crowdfunding opportunities. I’m glad a came across this site. Thanks for sharing some additional crowdfunding sites that I can use in the future.

  2. Bovelender says:

    Thank you for the list provided here There is absolutely no doubt that the equity crowdfunding is really one of the most effective ways to raise the capital now a days.This list should prove to be pretty helpful in this direction.

  3. Hello, I am in the process of raising series “B” investments via EquitytNet. My partner and I along with our lawyer have decided that Title II is best suited for our monetary needs. We are aware of the 506(D) forms and per-State reporting that is required under this rule. We are looking to raise $2MM which we believe will take our company through breakeven and the end of dilution. The thing that isn’t spelled out in any sites and is almost impossible (without a spare week) to parse out of the SEC documents is: “Testing the waters”. I understand this part in the context of the Title IV (A+) regulations but I’m talking about a classical “test the waters” with any offering. Let me cut to the chase: Can a company going down any of the other 4 Crowdfunding methodologies virtually “test the waters” by the act of placing your company’s product and financial information, its business plan and its offering documents and then wait for a communique that goes all the way through an investor saying (perhaps not writing) that they wish to invest? In Short, are all the legal preclusions laid out in these laws not in any effect until signatures and monies are exchanged? If No, then is there a truncated method to see the response on the company and its product.

    • Thanks for the question Charles. All the crowdfunding regulations are effective on posting the campaign since it is so hard to determine or limit who in the public will be a able to see the campaign. When someone comes to you to invest, you must qualify them as accredited or regular investor. There’s a lot of legal requirements and you really do need a crowdfunding or securities lawyer to handle the filings. I usually recommend testing the waters with a rewards based crowd campaign first if possible.

  4. Hi Joseph, Thanks fro your work on this. Any suggestions on equity crowdfunding for non profits? We have a strong nonprofit looking to buy a building and also fund scientific research. BTW we are launching a new website this month.

    • Good question Blake but I’m not sure equity crowdfunding would even be possible for a non-profit. The idea of equity participation is to have a share in the profits of the company. Non-profits would need to raise money through either a charitable crowd campaign or a rewards-based campaign.

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