Background:
Most people think Crowdfunding = Kickstarter, your akward cousin asking for money on facebook so he can turn his vacation into a movie. That’s not what we’re talking about here.
You can also use crowdfunding platforms to actually invest in startups, real estate, and portfolios of loans online.
The 2012 JOBS Act law created three new different kinds of allowed investment crowdfunding, but so far only two of them have actually been enacted by the SEC.
The first is called a “506(c)” private offering, and follows TitleII of the JOBS act which was enacted in September 2013. It lets companies publicly advertise investment opportunities via online crowdfunding platforms and other forms of advertising, but they can only actually raise money from Accredited Investors (individuals with $1m+ net worth excluding their home or $200k+ annual income).
US Accredited Investors can invest in 506(c) startups and real estate investments on these websites:
Source: Investment Crowdfunding Platform Directory at CrowdExpert.com
The second kind of investment crowdfunding created by the JOBS act and allowed by the SEC as of June 2015 is called a “Regulation A+” offering. This allows companies to raise up to $50mil from both accredited and unaccredited investors.
What can I invest in?
Startups and other businesses.
Real Estate
P2P/Marketplace Lending
Other
How do I get started?
Well first look around and try and figure out if you’re rich or not. If you are, then put down your caviar for a second and go ahead and check out the accredited investor only crowdfunding platforms. Make an account, and start browsing different investment opportunities.
Otherwise, first ask yourself if you really ought to be investing what little money you have in risky startups, and then go and check out the Reg A+ investment crowdfunding websites, make an account, and start browsing the different investment opportunities.
What do I actually get?
How do I actually make money?
That’s not so easy. Crowdfund investing in startups is like a miniature version of being a Venture Capitalist or Angel investor. You are buying a share in a company today, hoping that company will be the next Uber or AirBnB or Tesla. When a startup is successful it often gets acquired by a larger company, and then those shares you own get bought for many times what you originally paid for them, or if the company is really successful they have an IPO, and then the shares are converted to stock that trades on the stock market (technically it’s way more complicated than that, but that’s the basic idea). When you invest in a startup on an investment crowdfunding site, you’re betting on the small chance that it’s worth 100x more in 10 years. (So don’t invest all your savings in startups, just the fun part that you can afford to lose.)
The returns from Real Estate Crowdfunding and Peer-to-Peer Lending Crowdfunding are much more regular and predictable, but still somewhat risky.
What’s next?
The big thing on the horizon is the SEC eventually, no one knows when, finalizing the rules for TitleIII Crowdfunding, which is the one that’s actually called “Crowdfunding” in the JOBS Act. This is designed for smaller investors and smaller companies.