Like the small businesses it was designed to help, equity crowdfunding is still in its start-up stage. But the U.S. Securities and Exchange Commission reports that it’s rapidly growing into a viable source of financing – and a new investment option for those who want to own a piece of an early-stage company.

Equity crowdfunding allows investors to become part owners of companies by trading their investment for shares of private stock. As with traditional crowdfunding, investments usually take place through a funding portal like Kickstarter, StartEngine or Republic. Investments may also be made through a broker-dealer’s online platform.

There are 45 such portals registered with the Financial Industry Regulatory Authority (FINRA), according to the SEC, but the top three account for about two-thirds of all offerings and proceeds raised. Wealthforge lists Reality Mogul, AngelList and FundersClub as the top three platforms.

Signs Of Success

While equity crowdfunding is still relatively small, it’s showing signs of success. Companies such as Beta Bionics, which is developing a bionic pancreas, and craft beer company Hopsters Brewery each raised $1 million in crowdfunding campaigns. Beta Bionics recently raised $63 million through Series B equity financing.

In fact, a majority of crowdfunding campaigns have been successful, according to a new analysis by the SEC, which found that the success rate for crowdfunding companies increased from 58.9% in 2017 to 63.9% in 2018.

The SEC estimates that 1,351 offerings took place between May 16, 2016 and December 31, 2018. Offerings that were completed raised an average of $208,300 and a total of $107.9 million. The number of investors participating in successful offerings increased from 77,558 in 2017 to 147,448 in 2018.

While the U.S. market for equity crowdfunding is still small, globally equity crowdfunding has raised $2.5 billion, according to

Regulation Crowdfunding

Equity crowdfunding has been growing since it was first allowed by the passage of the JOBS Act in 2011. Initially, only accredited investors were allowed to participate. To be an accredited investor, a person must earn more than $200,000 a year ($300,000 for couples) or have a net worth exceeding $1 million, excluding a primary residence.

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