Equity Crowdfunding: A Growth Engine for America

Americans spend a whopping $70 billion per year on the lottery.

That’s bigger than the entire U.S. venture capital industry!

Imagine if instead of wasting money on lotto tickets, Americans invested that money in startups and small businesses.

Starting May 16, we’ll all have the opportunity to invest as little as $100 in promising young companies.

If equity crowdfunding catches on like I believe it will, there will be a lasting and positive impact on the economy.

Capital will flow to businesses supported by the public. Jobs will be created. And diligent investors will be rewarded.

In short, ECF could very well be the growth engine America needs.

ECF: An Oasis in a Funding Desert

Over the last few decades, bank loans to small businesses have slowed to a trickle.

Alternative financing companies have picked up the banks’ slack, but their loans come with high costs. According to The Wall Street Journal, Kabbage, a popular online lender, makes loans at rates that average around 39% annually…

These nonbank lenders like Kabbage now make up 26% of all business loans in the U.S.

Credit cards are another popular (and bad) way to fund a business. In 2015, an estimated $445 billion was racked up by small businesses on credit and charge cards.

Crowdfunding Capital Formation

This is why I believe equity crowdfunding is so important.

It’s a sustainable way for small companies to get funded.

Instead of paying 12% to 50% a year on loans, founders can sell small stakes in their businesses to hundreds, even thousands of investors.

Needless to say, it’s a lot easier to run a company without crippling debt.

And having hundreds of investors on board can do wonders for a young company.

Think about it from a local perspective. Thanks to ECF, you may soon have the chance to invest in a neighborhood restaurant, shop or craft brewery.

For an example, let’s use the craft brewery. So pretend a small brewer near you has an amazing line of beers.

It wants to expand capacity to meet demand and decides to raise money via equity crowdfunding. You invest.

You’re now more likely to buy the product, recommend it to a friend and frequent establishments that stock it. Now imagine thousands of your fellow investors doing the same, and adding value in countless other ways.

It’s not far-fetched. In fact, this exact scenario has already played out in the U.K. Four years ago, BrewDog was a small craft brewer.

Then it decided to try equity crowdfunding. Since then, the company has raised four rounds of capital from more than 40,000 investors! Annual revenue has grown from almost nothing to more than $61 million, and the company is solidly profitable.

BrewDog is now the fastest-growing food and drinks company in the U.K. for three years running. Today the business employs 580 people. And early investors have done extremely well.

Now think about this “crowdfunding effect” on a global level.

I believe within a few years we’ll see tens of billions of dollars being invested in small businesses through equity crowdfunding.

Imagine thousands of entrepreneurs raising money this way… with the public deciding who gets funded, not a bank committee.

It’s going to be incredibly powerful.

Stay tuned.

Adam Sharp
Founder, Early Investing