Investments are risky, and a good rule of thumb is to never invest more than you are comfortable to completely lose. Regulation Crowdfunding allows the average person to invest in startups, often with small investment minimums, some as low as $100. In this blog, we will define Regulation Crowdfunding (Reg CF), the potential benefits and risks of investing smaller capital amounts, and how to find these investment opportunities.
What is Regulation Crowdfunding?
Regulation Crowdfunding (Reg CF) came out of the JOBS Act of 2012. This opened investment in non-publicly traded companies to non-accredited individuals, those who do not meet certain income and net worth requirements outlined by the SEC. Reg CF investment opportunities are typically offered by early-stage startups between seed and Series A funding and are available for the public to invest.
Reasons to Consider Regulation Crowdfunding Investing
Many investors derive satisfaction from supporting a particular industry, business, or product in which they believe. With Regulation Crowdfunding, investors can access private offerings, an investment type previously limited to accredited investors.
Additionally, the potential reward when investing in Reg CF can be greater than an investor may typically find in the stock market. Investing in private companies provides the opportunity for an investor to come in on the ground floor, making the potential reward from an acquisition or IPO greater than investors who invest in subsequent rounds. However, subsequent funding rounds have the possibility to affect an investment through dilution, where a company adding new equity shares decreases the value of the existing shares, diluting the ownership percentage, and potential reward from an exit event.
Regulation Crowdfunding Investment Risks
While Regulation Crowdfunding can be a good start to investing, it also has its unique cons not found in traditional investment types. Micro-investing can be a great place to get started with investing, but it is unlikely to provide consistent returns and alone will not be enough to fill an investment portfolio. The potential risks of Reg CF investing are great, including total loss of capital, illiquidity, a longer holding period before seeing a return, and the possibility of the company never reaching an exit event such as an acquisition or IPO.
How to Find Regulation Crowdfunding Offerings
Regulation Crowdfunding offerings are available through intermediaries registered as Broker-Dealer Platforms or Funding Portals. As a registered Broker-Dealer, MicroVentures regularly has multiple Regulation Crowdfunding Offerings available on our Offering Page. Don’t forget to log in to your account to see available Reg CF opportunities.
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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.
