{"id":5577,"date":"2016-04-11T00:38:58","date_gmt":"2016-04-11T05:38:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/starting-a-business\/what-is-equity-crowdfunding.html"},"modified":"2026-06-18T01:53:00","modified_gmt":"2026-06-18T06:53:00","slug":"what-is-equity-crowdfunding","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/what-is-equity-crowdfunding.html","title":{"rendered":"What Is Equity Crowdfunding?"},"content":{"rendered":"\n
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What Is Equity Crowdfunding?<\/h1>\n\n
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\n By FindLaw Staff<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last updated\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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Key Takeaways<\/h2>\n

Equity crowdfunding is a form of fundraising where a startup exchanges small amounts of capital from a large pool of investors for an ownership stake, typically through an online intermediary. Under the JOBS Act, this process allows businesses to secure vital financing directly from both accredited and non-accredited individuals.<\/p>\n\n <\/div>\n <\/div>\n<\/div>\n\n\n

Raising the capital necessary to successfully launch a small business<\/span> is perhaps the most difficult hurdle for most entrepreneurs<\/span>. Common options include maxing out multiple credit cards<\/span> or taking out bank loans, both of which present personal financial risks. Venture capitalists<\/span> and angel investors<\/span>, meanwhile, are focused on multimillion-dollar investments in companies poised for rapid growth.<\/p>\n

With the advent of equity crowdfunding<\/span><\/a>, however, even individuals with just a few hundred dollars to invest can get in on the game and take an ownership stake (however small) in the company. Below is an overview of this emerging area of business financing<\/span><\/a>, which is well-suited to smaller businesses typically passed over by larger investors.<\/p>\n

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The Basics of Equity Crowdfunding<\/span><\/h2>\n

At its essence, “crowdfunding” is a form of fundraising<\/span> in which a startup<\/span> (or even just an individual) raises small amounts of capital from a large pool of investors, typically through an online intermediary. Many of these intermediaries, such as Kickstarter<\/span> and GoFundMe<\/span>, are limited by the inability of companies to offer equity in exchange for contributions. Instead, they typically offer unique rewards that correspond with the funding level. For instance, someone making a modest contribution toward the publication of a book may receive a signed copy of the book once it’s in print.<\/p>\n

Equity crowdfunding<\/span>, on the other hand, is a type of crowdfunding<\/span> that involves an exchange of capital for equity. As with traditional equity investors, those investing through an equity crowdfunding<\/span> intermediary risk losing their money entirely but also may see exponential returns. What’s different is the crowdfunding platform<\/span>, which allows direct interaction between the company and the investors, and the size of the investments.<\/p>\n

Equity Crowdfunding<\/span> and the JOBS Act<\/h2>\n

On September 23, 2013, the Securities and Exchange Commission<\/span> (SEC) enacted rules under the Jumpstart Our Business Startups<\/span> (JOBS) Act<\/a> that paved the way for companies to sell securities (equity) through crowdfunding. Companies may raise up to $5 million — in aggregate — through crowdfunding campaigns<\/span> in any 12-month period<\/span>. As of this writing, the SEC allows accredited and non-accredited investors<\/span> to participate. An \u201caccredited investor<\/span>\u201d can be a person or an entity (company).<\/p>\n

An accredited person:<\/p>\n