Equity Crowdfunding: How to Invest In Private Companies

Investing in private companies before they IPO can mean some serious cash in the long run.  Want to know how you too can invest in private companies?  The answer, equity crowdfunding platforms.  And we've found the best!

When it comes to investing, we are always talking about how to invest in the stock or bond market.  But secretly, what we really want to know is how we could've invested in Amazon before it became Amazon.  

Previously, doing such a thing wouldn't be possible for your average retail investor.  But, with the advent of the internet, things have become more accessible to people all over the world.  And, the passing of the JOBS Act in 2012 by the Obama administration made it possible for equity crowdfunding to exist.

Now, with equity crowdfunding platforms and apps on the rise, virtually, anyone can invest in these privately held companies.  

So the question is, which platform offers the best services, the best companies, and the best terms for you.  We'll take a look at the top 4 below.

What is Equity Crowdfunding?

When you think crowdfunding, I am sure the first thing that comes to mind are popular platforms such as Kickstarter and GoFundMe.  But regular crowdfunding is different from equity crowdfunding.

With regular crowdfunding platforms, you have the opportunity to support a cause, a dream, or an entrepreneur with a project.  And those sites give entrepreneurs and ordinary people a chance to raise money to help with a troublesome situation or to make a dream come true.  In return, you may get a small gift, discounts, access to the product once it's made, or a simple "thanks".

However, equity crowdfunding is a bit different.  Equity crowdfunding is the offering of ownership in private companies to ordinary people, or retail investors.  It gives owners of private companies a chance to raise capital, or money, for their businesses.

With this kind of crowdfunding, you are actually making an investment.  In exchange for the money you invest, you own a portion of the company.  However, this does not mean you will start making money soon, as you might if you invested in dividend stocks.

Your payout comes when the company is sold or when it makes its Initial Public Offering, or IPO.

Is Equity Crowdfunding Risky?

Long story, short.  Yes.  Equity crowdfunding is risky.  Very risky.  To a certain extent, it is more risky than simply investing in the stock market.

After all, you are investing in, for the most part, start-ups.  Companies that were recently started just a few years ago and who are still trying to make a name for themselves.  These are not tried and true companies that have been around for decades. 

As we all know, life is unpredictable.  So anything could happen.  If the company goes under you will lose all of your investment.  But if it succeeds, you could be in for a BIG payout.

In the end, it will come down to weighing the pros and cons for your situation.  As a general rule, you should never invest more than you can afford to lose.  And never invest money that you are going to need in the next few years.  

Why?  Because these kinds of investments are not liquid.  So getting a payout from your investments can take years, or decades.

Why Should You Invest in Private Companies?

So you might be thinking... given the risks, should I even bother with investing in private companies?

Well, first and foremost, investing in private companies could result in huge financial wins.  Just think, if you had invested $1000 in Amazon's IPO, you'd be a millionaire.  So what if you had invested that same amount even earlier? Before they IPO'd?

In deciding whether to invest in a private company through equity crowdfunding platforms, ask yourself these questions:

• Do you want to discover a company before they make it big?
• Are you interested in the chance of having a huge payout when your company IPOs? And you don't mind the wait?
• Do you have extra money just lying around that you've been wondering what you should do with it?

It's Not Just About Financial Gain

Although we do tend to talk money a lot on this blog (it is a personal finance blog after all!), sometimes investing isn't about the money that you'll make.  

When you invest in a company, you are helping to bring that company's vision to the world.  So your investment could help financially support companies who want to make the world better.  

I've seen many start-ups promoting more eco-friendliness and sustainability.  In addition, I've seen companies whose innovative technologies could help bring better healthcare to 3rd world countries.

So when you consider investing in a company, hopefully you'll pick the ones that align with your beliefs and ones that will promote a better way to do business.

The Top 4 Equity Crowdfunding Platforms

There are quite a few equity crowdfunding platforms available nowadays but we have waded through all of them to bring you the best of the best.  Not only are these the most popular platforms but they happen to have the most innovative, unique companies.

Microventures

Microventures is an equity crowdfunding platform for accredited investors (who've made at least $200k yearly for the past two years) as well as retail investors.

They host some pretty unique companies on their platform, and the companies are vetted before being allowed to raise money.  The minimum to invest starts as low as $100 for some of these companies.  

Unlike most crowdfunding platforms, they also offer the ability to sell the securities you purchase to someone on the platform who wants it.  You'll have to sign up to start investing.  But the sign up process is pretty straightforward. 

Republic

With this popular equity crowdfunding platform, you can invest in start-ups, crypto, real estate, and video games (believe it or not!).  Republic is an equity crowdfunding site I've used a few times and, personally, I like them.

The regulation crowdfunding companies are all vetted by Republic.  And for each listing, they show you the industry as well as if the company has women founders, black founders, veteran founders, etc.

Plus, in addition to owning shares in the private company, many companies on the platform give investor perks.  So, depending on how much you invest, you can get exclusive investor swag, free classes or products, and more.

Feel free to head over to the site just to see what kind of companies you can invest in.  Then if you do want to invest, it is pretty easy to sign up.

WeFunder

Another top competitor in the equity crowdfunding space is WeFunder.  Wefunder is a certified Public Benefit Corporation.  On their platform you can invest in start-ups and small business.  It is easy to sign up and you can get started investing with just $100.

Similar to the Republic platform, companies may offer special perks in addition to shares in the company.  These perks can include exclusive investor goods or special early access or discounts on the company's products.  

They also have tags on the company listings to let you know which companies have female founders, minority founders, are venture backed, and more.

StartEngine

Founded in 2014, StartEngine is another platform I've used and, quietly, I like it better than Republic.  It has a sleeker and more professional look, it's advised by Mr. Wonderful from Shark Tank, and it consistently out-raises other top platforms such as WeFunder and Republic.  Also, StartEngine has recently decided to acquire SeedInvest so now it will be even bigger than ever.

As an equity crowdfunding platform, StartEngine offers you the chance to invest in start-ups, small businesses, and even collectibles!  What's more, they have a trading platform where you can buy and sell those private securities.  

This gives your illiquid investment the chance to be more liquid.  Meaning, you may not have to wait forever to see profits from your investments.  (*Note: If there is not active market on the platform, it might be hard to sell.)

It has a valuation of $1.32 billion and, unlike many of its other competitors, you can invest in the platform itself!  They provide regular updates on how the company is doing and are always checking in to get customer opinion.

Also, they have a Bonus Members program where you can receive up to 20% bonus shares every time you invest.

Like many of the other sites, you can easily head over to their page and see what kinds of companies you can invest in.  Then if you want to sign up and start investing, it is pretty easy to do so.

If you use my referral link, when you fund your account with at least $250, we will both get shares of StartEngine! 😉

Raising Capital on StartEngine

If you, or someone you know, is looking to raise money for their company, StartEngine is a probably the best option around.  Companies on their platform typically out-raise all the other crowdfunding platforms.  In 2021, companies raised over $252 million dollars.

StartEngine also has dedicated teams to help you create your landing page, market, and file your SEC documents.  To register your company with them and begin raising money, use this link. (Not the one above. This one is a referral link for businesses.)

Bonus: PeerRealty

For those of us interested in investing in real estate but may not have the capital to do so, PeerRealty offers the perfect solution.

It is a crowdfunding platform specifically dedicated to investing in real estate.  They offer regular investors the opportunity to connect with developers and invest in high-quality real estate deals.  

With PeerRealty, you can get started investing for as little as $5,000.  They apparently have low fees and great bankruptcy protection.  However, according to this review site, their due diligence could use some work and, last year, they did not have any open deals.  So they might be having sourcing problems.

As always, do your own due diligence when investing.  If this site doesn't work for you, there are plenty of other sites out there.

All in All

Although equity crowdfunding is risky, the potential gains can be huge.  And now, regular investors like you and me have an opportunity to invest in private companies.  

Deciding whether to invest all comes down to your risk level.  Is the high risk worth the high rewards?  Of course, remember, never risk anything you can't afford to lose.

And, make sure you properly vet the companies first!  If you're like me and think everything is cool, exercise caution and maybe share your thoughts with someone you trust before investing.

Happy Investing!