Starting today, small companies can raise up to $1 million from ordinary investors through what are called “crowdfunding portals.” These portals are different from sites like Kickstarter. As one of the portal sites SeedInvest explains on its website:
“Kickstarter promises rewards for successful projects in the form of anything that is not monetary, whereas equity crowdfunding, as its name suggests, promises a financial slice of the pie when it comes to startup and small-business investment.”
So in other words, instead of just getting, say, a t-shirt, by investing through one of these portals, you get an actual equity stake in a small company that’s looking to raise money and grow. You own a piece of the company. And you can make money by selling that stake down the road if it appreciates in value.
It used to be that to buy shares in a company that’s too small or young to be publicly traded, you needed to be what’s called an “accredited investor.” That means you had to be pretty wealthy.
But as part of the JOBS Act in 2012, Congress decided there should be a way for ordinary Americans to invest in small businesses or startups too. To protect investors though, there are new rules surrounding the process.
If you’re a small business owner looking to raise money this way, you have to go through a registered broker dealer or a funding portal that’s been approved by regulators. Some of these new portals include NextSeed, SeedInvest, and Wefunder.