Crowdinvesting 101: A Beginner's Guide

Crowdinvesting allows individuals to invest small amounts of money in projects or companies, making it a more accessible and democratic way to invest.

This concept is often compared to crowdfunding, but with a key difference: in crowdinvesting, investors receive a share of the company or project in exchange for their investment.

The first recorded instance of crowdinvesting dates back to 2010, with the launch of the US-based platform, AngelList, which allowed startups to raise money from a large number of investors.

Investors can choose from a variety of projects or companies to invest in, such as real estate development, renewable energy projects, or early-stage tech startups.

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Crowd investing is a special form of crowdfunding.

It's also known as equity crowdfunding or crowd equity, and it allows anonymous investors to assemble online and follow a specific target.

These targets are financially limited, meaning they're not huge investments, but rather a way for businesses to raise equity with the help of micro-investors.

Businesses, especially startups, can use crowd investing to raise funds without relying on a bank or forming a corporation.

It's regulated and subject to specific laws depending on the country, so it's not a free-for-all.

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The concept of crowdinvesting has been around since 2000 in Russia, where the first known idea for equity crowdfunding was created. This idea aimed to provide small businesses and entrepreneurs with access to funding by offering plans and risk-assessment information to investors, along with policies to protect both parties.

In 2007, a company in Australia launched an equity crowdfunding platform called Enable Funding, which helped fund 176 companies, with almost 80% still trading today. This was followed by the creation of many other platforms, some successful and some not.

The regulation of crowdinvesting varies by country, but a general rule to abide by is the Howey Test, which states that a transaction becomes an investment when there is an exchange of money that expects profits resulting in a common enterprise which depends solely on the efforts of a third party.

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The concept of crowd investing has been around for a while, with the first known idea emerging in Russia in the year 2000. This idea was for a platform that would provide small businesses and entrepreneurs with access to funding.

The first equity crowdfunding platform was launched in Australia in 2007, under the name Enable Funding, which is still operational today. This platform helped fund 176 companies, with almost 80% of them still trading.

The platform was a game-changer for small businesses, allowing them to raise equity without relying on banks or forming a corporation. This new type of investor acquisition on the Internet was a major shift in the way businesses raised funds.

Enable Funding's success paved the way for other platforms, but some of them struggled, especially after regulations were tightened. Some platforms even used their own money to invest, which is a unique approach.

The concept of crowd investing has evolved over time, with many countries implementing specific laws to regulate this type of funding. Today, crowd investing is a legitimate way for businesses to raise funds and for investors to diversify their portfolios.

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Regulation is a crucial aspect of investment crowdfunding. In the US, the Securities and Exchange Commission (SEC) oversees these kinds of investments, while in France, the Autorite des Marches Financiers takes on this role. Each country has its own way of classifying investments, but a general rule to abide by is the Howey Test.

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This test states that a transaction becomes an investment when there is an exchange of money that expects profits resulting in a common enterprise which depends solely on the efforts of a third party. If a transaction passes this test, it has to be registered with the relevant regulatory body for that country.

To protect investors, regulations are in place to prevent inexperienced creators and businesses from taking advantage of them. In the US, for example, crowdfunding platforms must register with the SEC and FINRA to ensure compliance with securities laws.

Here are some key investor protections on crowdfunding platforms:

These regulations provide a safety net, but it's essential to conduct thorough research before investing. Understanding the risks involved and diversifying your portfolio are crucial.

Growth pillars and high churn rates are a major concern for founders looking to raise money. They can be a significant obstacle to growth.

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Recurring revenue is key to showcasing potential growth, and it's essential to clearly state past results and future goals. This will help investors evaluate the business plan more effectively.

A clear customer acquisition strategy is crucial, and it's not just about marketing funnels - it's about consolidating the entire process. This includes extracting feedback from users to improve the product.

A growth plan with realistic goals and results is also vital, and it's essential to have a constant feedback loop to measure progress. This will help founders stay on track and make data-driven decisions.

Customer or partner reviews can make or break a business, so it's essential to showcase satisfaction with your product.

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Crowdinvesting is a type of crowdfunding where anonymous investors assemble online to follow a specific target, with a main difference being that these targets are financially limited.

The crowd appears in the form of micro-investors with clearly defined stakes in the profits, allowing businesses, especially startups, to raise equity without relying on a bank or forming a corporation.

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Investment crowdfunding is regulated and subject to specific laws depending on the country.

You can invest directly in oil and gas projects with EnergyFunders, an online platform that offers highly vetted and objectively reviewed projects that meet extensive checklists.

Accredited investors can participate in EnergyFunders projects with a buy-in, with most projects requiring a $5,000 minimum.

Transparency is key with EnergyFunders, allowing investors to examine all information about the project, including reviews, disclosure statements, and relevant projections.

The SEC's final rules issued in 2016 for the Jumpstart Our Business Startups Act (JOBS Act) allowed for a wider scope of investors to invest via crowdfunding.

Investors can put money into a crowdfunding offering, but there are limits on how much you can invest based on your income or net worth if you're not an accredited investor.

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Crowdinvesting offers a range of funding options, each with its own unique characteristics.

Equity investment crowdfunding allows you to invest in companies, usually early-stage firms, and receive shares in them. You can spend a range of amounts, each with a gradation of percentage stake in the firm.

Debt investment crowdfunding, also known as peer-to-peer lending, involves investing in a firm by purchasing debt, which is expected to be paid back with interest.

Investors in equity investment crowdfunding face risk, given the unpredictable prospects for startup firms. Your equity interest comes with risk, and the value of your shares can go up or down depending on the company's performance.

The secondary market for equity investment crowdfunding shares is not very developed, making it challenging to find a buyer. These shares are often subject to holding period restrictions and may only be sold under certain conditions.

You can use debt investment crowdfunding to lend to entrepreneurs who may have exhausted traditional borrowing options. This can be a good option for those who want to earn interest income, typically higher than other debt instruments.

Investors can mitigate the risk of lending by spreading their microloans across a range of entrepreneurs, projects, and companies.

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FundorsClub is a well-known platform for equity crowdfunding, vetting each investment opportunity with just 2% making it onto the site.

StartEngine is another notable platform that allows both accredited and non-accredited individuals to invest. It acquired SeedInvest in May 2023.

LendingClub and Prosper are microlending platforms that allow for crowdfunded debt financing, where you become a creditor and receive regular interest payments until the loan is repaid.

If you're looking to invest in startups, FundersClub is a great option. It offers a curated list of equity crowdfunding investment opportunities, with only 2% of applicants making it onto the site.

StartEngine is another platform worth considering, as it allows both accredited and non-accredited individuals to invest on its site.

EnergyFunders makes it easy to invest in oil and gas projects, with an intuitive online platform and highly vetted projects that meet strict standards.

LendingClub and Prosper are good choices for crowdfunded debt financing, where you become a creditor and receive regular interest payments until the loan is repaid.

To invest on EnergyFunders, you'll need to be an accredited investor, and most projects require a $5,000 minimum buy-in.

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StartEngine is one of the largest equity crowdfunding platforms in the U.S., claiming to have raised over $500 million for over 500 company offerings since its founding in 2014.

It provides a robust platform with minimum investments as low as $40, and a wide range of startups across multiple industries, from technology and consumer products to health care and renewable energy.

StartEngine offers two ways for investors to participate in the growth of new companies: investing and trading.

Investing typically involves a longer-term commitment as the company grows and develops, while trading offers greater liquidity, allowing you to buy and sell shares potentially faster.

You can browse through different companies, read their pitch decks, and learn about their business models on StartEngine.

The platform is free for investors, though some companies raising money may ask investors to pay all or part of the 3.5 percent processing fee.

StartEngine also offers a premium membership called Venture Club, which costs $275 per year and provides a 10 percent bonus on shares purchased in participating campaigns, along with other perks.

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However, it's essential to remember that investing in equity crowdfunding carries risks, including the potential for loss, and lack of information about potential returns.

Here are some key facts about StartEngine: