How To Invest in Startups On Crowdfunding Platforms

The enactment of Regulation Crowdfunding (Reg CF) in May 2016 revolutionized America’s startups and startup investing by dramatically expanding opportunities for small businesses and tens of millions of small investors around the world.

Today, non-accredited investors have easy access to several equity crowdfunding platforms in the United States and abroad where startup businesses present themselves to investors who have the opportunity to back them. 

There’s a potentially big upside to an investment if a company listed on a crowdfunding site succeeds and is acquired, goes public, or goes through another exit event. But many more startups fail than succeed, so the investing risks shouldn’t be taken lightly. 

This guide will walk investors through investing in startups on crowdfunding platforms, including how and where to start, as well as the potential risks and benefits. 

Background

Reg CF’s roots go back to the Jumpstart Our Business Startup Act of 2012, also known as the JOBS act, which essentially exempted equity crowdfunding transactions from having to be registered with the Securities and Exchange Commission. 

The SEC finalized Reg CF rules in 2015 and they currently permit a company to raise up to $5 million in a 12-month period by selling securities through crowdfunding offerings. 

Crowdfunding transactions may not be required to register with the SEC, but they must take place on a platform such as a crowdfunding website or through an intermediary such as a broker-dealer that is registered with the commission. Companies must also make disclosure information available.

Startups raised $343.6 million using Reg CF in 2024, down 18% from $423 million in 2023, according to crowdfunding data site Kingscrowd. The total number of projects listed was 1,408, which was less than 3% lower than 2023’s 1,448. However, the average investment size in 2024 was $1,500, a 26% increase on 2023’s $1,190.

How Does Equity Crowdfunding Work?

Equity crowdfunding is a way for individual investors, including non-accredited investors, to back private early-stage startups, and in exchange receive shares of the company, i.e. equity. They can invest through the many different SEC-approved equity crowdfunding websites available.

A startup raising capital with an equity crowdfunding platform can post information about its business, its fundraising goals, and the terms surrounding investments in the company.

Potential investors review a startup’s profile, business plan, valuation, and terms. If the company grows and the shares increase in value, and it has an exit event, such as getting acquired or going public, investors can profit.

What Are Some Equity Crowdfunding Sites?

Investors can choose from many different equity crowdfunding platforms to invest in startups. Most of them require a minimum investment of $100. Some of the best-known U.S. platforms include:

Wefunder

It’s the biggest platform, both in the number of campaigns and the amount of money raised, according to startup data and analytics site Kingscrowd. In 2024, 329 startups conducted crowdfunding campaigns on Wefunder, raising $99.4 million between them. The average check size was $1,200, according to KingsCrowd.

StartEngine

Backed by Kevin O’Leary of Shark Tank, StartEngine is the second-biggest crowdfunding platform in terms of dollars raised, and the third-biggest in terms of startups. In 2024, 232 companies crowdfunded capital on the platform, raising $85.6 million between them. The average investment was $1,700. In 2023, StartEngine acquired another crowdfunding platform, SeedInvest.

DealMaker Securities

In 2024, 69 companies went to DealMaker, raising $48.9 million, which was the third-biggest total raised by startups on an equity crowdfunding platform in 2024. The average investment was $1900, according to KingsCrowd.

Republic

Republic had the fourth-largest number of crowdfunding companies, 65, in 2024, and the fourth-biggest amount of capital raised, $15.56 million. Sectors that have been represented on its platform include artificial intelligence, technology, Web3, climate, and crypto startups. The average Republic check was $1,500.

Honeycomb Credit

This Reg CF site is slightly different in that investors make microloans to startups. Honeycomb had the second-highest number of companies that listed on its platform, 303, and they raised $9.8 million between them. The average check was $1,000, according to KindsCrowd.

Other crowdfunding sites of note include Net Capital, Issuance Express, Dalmore Group, Angel Funding, and SMBX.

U.S. investors can also invest in some international crowdfunding sites, including Seedrs and Republic Europe in the United Kingdon, Tudigo and Wiseed in France, and Startupxplore in Spain.   

Investment Limits

There are caps on how much money non-accredited investors are allowed to invest in all Reg CF offerings over a 12-month period.

If a non-accredited investor’s annual income or net worth is less than $124,000, then their investment limit is the greater amount of either $2,500, or 5% of the greater amount of their annual income or net worth.

If a non-accredited investor’s annual income and net worth are equal to or more than $124,000, then the investment limit is 10% of the greater amount of their annual income or net worth.

No matter the amount of their annual income or net worth, a non-accredited investor may not buy more than $124,000 worth of securities in a 12-month period, Spouses are allowed to calculate their net worth and annual income jointly. 

While crowdfunding sites are open to all investors, and most startups companies listed on those sites are open to non-accredited investors, there are some startups that limit investments to accredited investors.

How Do You Start Investing Through Equity Crowdfunding Platforms?

After choosing a crowdfunding platform, investors need to sign up, provide proof of identity and residency, and link their bank account or credit card. Some sites ask if you are an accredited or non-accredited investor.

To qualify as an accredited investor, an individual must either have a minimum annual salary of at least $200,000, or assets of more than $1 million, not including the individual’s primary residency. To qualify as an individual with a spouse, the minimum annual salary required is $300,000, or assets of at least $1 million, not including the couple’s primary residency.

Next, investors need to study and analyze the startups on the crowdfunding site. Listings typically show a pitch deck, a funding goal and valuation, how much equity in the company investors will get from their investment, and investor rights surrounding issues such as voting and dividends.

It’s essential for potential crowdfunding investors to carefully evaluate a startup. That means researching the members of the founding team, the market opportunity, how mature the company is and whether it’s just in the idea stage or generating revenue through sales of its products or services, and whether the valuation is realistic.

After identifying a startup to back, investors need to click the “Invest” button on the platform’s site, choose how much to put down, sign the online investment agreement, and deposit the funds. They can expect to receive a confirmation email and digital share certificate, or a convertible note, once the round closes. Investors can also sign up for quarterly or annual updates.

Is Equity Crowdfunding Right for Me?

Equity crowdfunding has the potential to be extremely lucrative, but it’s also extremely risky.

Consider an example where a startup is raising $500,000 at a $5 million valuation. An investor who invests $2,000 will own 0.04% of the company. If the company is acquired for $200 million, that stake would be worth $80,000.

Your investment earned you a return of 3,900%, minus fees and taxes. That’s pretty impressive, but a few things need to happen before you can collect your money.

In many cases, it takes years before a startup has an exit event and before investors see returns.

Also, as in most other early-stage investment situations, shares are not liquid and can’t be easily converted to cash. Securities purchased in a crowdfunding transaction generally cannot be resold for one year. However, some platforms such as StartEngine offer secondary markets to sell shares early.

There are also many risks to investing in startups through crowdfunding platforms, not least of all that the great majority of them fail. Management mistakes, poor macro-economic conditions, or a superior product from a competitor can all lead to their demise. Whatever the reasons for failure, backers lose their money.

Therefore, investors should thoroughly study their potential startup investment target before investing in it and be sure they can afford to take the loss if they fail.

Frequently Asked Questions