Equity crowdfunding might sound like a big, complicated thing, but it’s actually a smart, modern way for businesses to raise money by giving everyday people the chance to invest.
It’s not just for big companies or high-powered investors anymore.
Thanks to new laws and technology, small businesses and early-stage startups can offer a slice of ownership in exchange for capital. It’s like giving your biggest supporters the chance to grow with you.
What is equity-based crowdfunding?
Equity-based crowdfunding is when a business raises money from a group of people online, and in return, those people get a small piece of ownership in the company. Instead of going to just one big investor or a bank, you’re inviting your customers, fans, or community to invest and grow with you.
It’s different from other types of crowdfunding where people donate or get a reward like a t-shirt or early access to a product. In equity crowdfunding, supporters become actual shareholders, they’re part of your journey for the long haul.
This all became possible thanks to a law called the JOBS Act. It opened the door for regular folks, not just accredited investors, to take part in early-stage investments. That means more people can back the businesses they believe in, and more companies can raise capital without the old barriers.
How equity crowdfunding works for early stage companies
Equity crowdfunding might seem high-tech, but the process is pretty straightforward once you break it down. First, your company creates an offer, basically a simple pitch explaining what you do, how much money you’re raising, and what investors will get in return. You decide how much ownership you’re willing to share and what the minimum investment is.
Then, you choose an equity crowdfunding platform to host your campaign. These platforms are like digital storefronts where potential investors can learn about your business and decide if they want to invest. You’ll need to share some financial statements and fill out paperwork with the Securities and Exchange Commission (SEC) to stay compliant, especially if you’re raising more than a small amount.
Once your campaign goes live, you start spreading the word. People can visit your page, review the offer, and invest right there online. If you meet your fundraising goal within the 12-month period allowed, you get the funds and your new investors officially become part-owners of your business.
Equity crowdfunding vs. angel investors and venture capital
Equity crowdfunding isn’t the only way to raise money, but it’s definitely one of the most accessible. Let’s compare it to two more traditional paths: angel investors and venture capital.
Angel investors are usually wealthy individuals who put their own money into startups they believe in. They can bring valuable experience and connections, but they often expect a say in how you run things. Venture capital (VC) firms are even bigger. They invest large sums in exchange for a big chunk of your company, and they usually want fast growth and a clear exit strategy.
With equity crowdfunding, you’re still giving up a piece of your company, but you’re doing it on your own terms. You can keep control, raise smaller amounts, and choose your investors from your own community. Plus, it’s often a faster, more personal process.
Each option has its place, but if you’re an early-stage company looking to raise money without giving up too much power, equity crowdfunding is worth considering.
The role of online platforms and broker dealers
Online platforms are where the magic of equity crowdfunding really happens. They’re the places people go to learn about your campaign, ask questions, and invest. Think of them as digital marketplaces, except instead of shopping for products, visitors are exploring investment opportunities.
These platforms do more than just host your page. They help make sure your campaign meets all the legal requirements, process investor payments, and provide tools to manage your raise. Some also help with marketing and promoting your offer to a wider audience.
Now, depending on how much money you’re raising and how your campaign is set up, you might also need a broker-dealer. That’s a licensed professional who makes sure everything follows securities laws. Some platforms already include this in their service, while others may ask you to bring your own.
The key here is picking the right platform for your business, one that aligns with your values, offers solid support, and connects you with the right kind of investors.
Benefits of using equity crowdfunding to raise money
Equity crowdfunding opens up a world of possibilities, especially for small businesses and startups that might not have access to traditional funding. One of the biggest benefits is the chance to raise capital without giving up control to just one big investor. You spread ownership across a group of supporters who believe in what you're building.
It also turns your investors into ambassadors. Since they have a stake in your success, they’re more likely to share your story, use your product, and cheer you on. That kind of grassroots energy is hard to find anywhere else.
Another big plus? Visibility. Most platforms have built-in audiences, so your campaign can attract people outside your existing network. It's both a fundraising and marketing opportunity rolled into one.
And lastly, it's efficient. The process is more transparent and streamlined than old-school fundraising, and it can help you build strong relationships from day one.
Risks and limitations of equity-based crowdfunding
As exciting as equity crowdfunding is, it’s not without its challenges. One big thing to keep in mind is equity dilution, every time you give away shares, you’re giving up a bit of ownership. If you're not careful, it can add up fast and affect how much control you keep over your company long-term.
There’s also the pressure of compliance. You’ll need to follow SEC rules, keep your financial statements in order, and stay on top of investor updates. It’s manageable, but it does take time and attention, especially if this is your first time raising money.
And not every campaign is a guaranteed success. If your story isn’t clear, or if you don’t have a strong plan to market your raise, it might fall short. Plus, once the campaign ends, you’re responsible for keeping investors in the loop, answering questions, and building trust.
It’s all doable, but it’s important to go in with open eyes and a solid strategy.
Is equity crowdfunding right for your business?
Not every business is built for equity crowdfunding, and that’s okay. The right fit depends on where you are and what you’re hoping to achieve. If you're an early-stage company with a strong mission and a loyal community, this type of fundraising can be a great match. It lets you raise capital while building a deeper connection with your supporters.
You'll want to be comfortable sharing details about your financials, growth plans, and operations. Equity crowdfunding is public, you’re putting yourself out there, and that transparency is part of what builds trust with potential investors.
It’s also worth thinking about your bandwidth. Managing a campaign and communicating with investors takes time and energy. But if you’re ready to engage and tell your story in a real, compelling way, it could be the right move for you.
How to prepare a successful equity crowdfunding offer
A strong equity crowdfunding campaign starts with preparation. First, get your financials in order. Investors want to see clear, simple statements, things like your revenue, expenses, and projections. Even if you’re early-stage, having organized numbers builds confidence.
Next, create a pitch that tells your story. Why does your business matter? What problem are you solving? Keep it human and relatable, people don’t just invest in ideas, they invest in the people behind them.
Be clear about what you’re offering. How much equity are you giving up? What’s the minimum investment? Set expectations from the start so investors know exactly what they’re getting into.
And don’t forget the marketing plan. Even the best campaigns need visibility. Think about your audience, how you’ll reach them, and how you’ll keep the momentum going.
When you bring all these pieces together, you’re not just asking people to invest, you’re inviting them to believe in what you’re building.
Regulatory considerations and the JOBS Act
When equity crowdfunding became legal in the U.S., it was thanks to the JOBS Act, a law designed to help small businesses grow by making it easier to raise capital from the public. One part of the law, called Title III, opened the door for everyday people, not just accredited investors, to invest in startups.
But with that opportunity comes responsibility. If you're raising money this way, you’ll need to follow rules set by the Securities and Exchange Commission (SEC). That means filing certain forms, sharing key financial documents, and sticking to specific limits on how much you can raise in a 12-month period (currently up to $5 million).
Depending on your campaign size, you might also need a third-party broker-dealer or a financial review from a CPA. These steps help protect investors and make sure your offer is transparent and fair.
It might sound like a lot, but once you understand the basics, it’s manageable, and well worth it if you’re serious about scaling your business.
Your campaign starts here
If you're thinking about launching an equity crowdfunding campaign, you don’t have to figure it all out alone. At Harness, we’ve helped countless organizations, from scrappy startups to seasoned nonprofits, navigate the world of fundraising with tools and strategies that actually work.
Our platform makes it easier to engage supporters, track donations, and build long-term relationships. With our fundraising expertise and personalized support, you’ll have everything you need to turn interest into investment. Whether it’s setting up your offer, managing your campaign, or keeping investors updated after the raise, we’ve got your back.
