What is equity crowdfunding vs traditional crowdfunding?

Traditional crowdfunding allows individuals to give money to startups and charitable organizations. In return for the donations, companies typically provide early access to the company’s products or other perks. Kickstarter, GoFundMe, and Indiegogo are some of the most popular crowdfunding sites used by entrepreneurs and philanthropies. These sites make it easy for companies to connect with future customers and donors. However, they won’t receive equity or dividends.

On the other hand, equity crowdfunding allows companies to raise money online from investors, circumventing traditional funding through banks and private equity. It allows anyone to easily purchase ownership in a company, outside of the stock market. Since it involves securities, it’s subject to SEC regulations.

Wefunder and Republic are two widely-known equity crowdfunding portals that allow the “crowd” to invest as little as $100 in exchange for shares at a pre-determined stock price. There are compelling companies from almost every industry, and many go public at a later date.

Traditional Crowdfunding Equity Crowdfunding
For individuals and charities For companies and investors
Products/perks for donations Ownership in the company
Kickstarter, GoFundMe, Indiegogo Wefunder, Republic
No equity or dividends Shares at fixed price
Connect with customers/donors Entrepreneurs control funding
  Companies may go public later
  Subject to SEC regulations
  Use SEC registered transfer agents
  Agents protect investments
  Facilitate recordkeeping

Equity crowdfunding allows entrepreneurs to maintain control of the funding process. It gives investors access to companies, not on traditional stock exchanges. On the downside, these investments are riskier for investors.

It’s highly recommended that you invest in companies that utilize a stock transfer agent, and here’s why…

  • The most reputable companies utilize an independent SEC registered transfer agent
  • Transfer agents act as a gatekeeper protecting your investments from malicious actors
  • Transfer agents facilitate the intricate shareholder recordkeeping and reporting requirements provided by regulators.
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