While there are a host of new platforms and a few positive stories, the industry is still waiting to fulfill its potential of giving small-money investors the chance to support early stage companies. But the idea is gaining momentum.
Kickstarter made it easy to support an aspiring entrepreneur. Now Americans can take it one step further: Don’t just support an entrepreneur, invest in them. In May of 2016, Title III of the JOBS Act went into effect, making it legal for anyone to invest in a private company, opening up investing in willing startups to any American. Now, you don’t need a million dollars to join a fundraising round, you can help a company you believe in–and get a small ownership stake–for just $500.
A wide range of platforms have sprung up to help facilitate this transaction. But while it’s been nearly a year since the new law was passed, equity crowdfunding hasn’t skyrocketed. Manny Fernandez, a Silicon Valley angel and founder of DreamFunded, an equity crowdfunding site for accredited and non-accredited investors, says that a lack of information, awareness, and some common misnomers have prevented the space from flourishing.
However, Bawa warns: “Not all platforms have stringent diligence processes, so investors should investigate the level of diligence each team undertakes prior to making an investment of any kind.”
Bottom line, investing is a risky business, particularly in early-stage companies, and equity crowdfunding doesn’t mitigate that risk. What it does do is make it easier to tap into new pools of capital, says Fernandez of DreamFunded: “I really want to make it easier for people to raise money who are not connected to the Valley, and equity crowdfunding has the means to do that. You don’t have to be sitting here [in the Valley] to find deals or fundraise anymore.”