Equity crowdfunding in the United States is a blank slate. With equity crowdfunding’s recent legalization in the United States, many companies smell an opportunity to develop technical and financial innovations to help the industry mature.
Equity crowdfunding is much like crowdfunding, which has been popularized in the United States through sites such as Kickstarter and Indiegogo. The difference is that instead of individuals supporting campaigns through donations, numerous investors are purchasing small stakes in startups or small businesses. Critics of crowdfunding worry that the industry will be rife with Ponzi schemes or that having too many investors will hurt startups’ prospects for future funding.
Proponents of equity crowdfunding, however, point to its success in countries such as Australia and Germany. For example, Seedmatch, an equity crowdfunding platform in Germany, allows investors to enter long-term investment contracts where they get equity. Australia, where equity crowdfunding has been legal for seven years, already has a platform for “secondary” sales of unlisted issued securities.
Currently, equity crowdfunding in the United States lacks the organizations and support infrastructure, such as investor verification systems and clearing houses, needed for a thriving equity crowdfunding ecosystem. Read the entire NerdWallet.com blog post.