Investment crowdfunding is like a GoFundMe for businesses, but instead of just donating our money so someone else can form a company, we actually become shareholders in that company. Or, if the company wants to go the debt route instead of the equity route, they can pay investors interest payments over time instead of issuing them shares.
Pretty cool, right? It’s a great way for entrepreneur types to get a lot of little investments from a lot of people. Over time, those little investments can add up to a big honkin’ wad of capital.
It’s also a great way for wannabe business creators to gauge interest in their wannabe business model. If they try to crowdsource investment from, say, 10,000 people, but only two people invest (and it’s their mothers), then they can use that information to decide whether it’s worth moving forward with their plans.
We should stop here and mention that, while anyone can donate to a GoFundMe, there are some restrictions on who can invest in crowdfunded investments. For the most part, we have to be an accredited investor, which means we either need to be a bank or other type of financial institution, or we have to have a reliably hefty household income of at least $200k a year, every year. So that narrows the pool of potential investors a wee bit. Nevertheless, there are exceptions to that rule, so if we’re bound and determined to put some money into that sweet new venture we saw on SeedInvest, we should check the rules and see if we qualify.