# Equity crowdfunding

**Author:** The Carta Team  
**Read time:** 3 minutes  
**Published date:** March 13, 2024

Equity crowdfunding is a type of regulated fundraising where startups raise capital from large groups of investors in exchange for small amounts of equity.

## What is equity crowdfunding?

Equity crowdfunding is a type of [startup funding](/content/learn/startups/fundraising/index.html) where early-stage companies raise capital, usually through an online platform, from large groups of investors in exchange for small amounts of equity.

## Equity crowdfunding vs. other types of startup fundraising

Equity crowdfunding is an alternative fundraising option to other types of equity financing, in which [private companies](/content/learn/startups/private-companies/index.html) grant [equity in their company](/content/learn/equity/index.html) to a large group of investors, many of which may be individuals. Unlike most types of startup investing, equity crowdfunding is not restricted to [accredited investors](/content/learn/private-funds/regulations/accredited-investors/index.html) and allows non-accredited investors to participate.

Here are some of the key differences between equity crowdfunding and the most common types of startup financing:

|     |     |     |     |
| --- | --- | --- | --- |
| **Fundraising type** | **Equity crowdfunding** | **Convertibles (SAFEs & notes)** | **Priced rounds** |
| **SEC-regulated?** | Yes | Yes | Yes |
| **Types of investors** | Accredited and non-accredited investors | Accredited investors, qualified purchasers | Accredited investors, qualified purchasers |
| **Typical stage of company** | [Pre-seed](/content/learn/startups/fundraising/pre-seed-funding/index.html) | Pre-seed, seed | Series A and beyond |
| **Medium** | Online | Online or in person | Online or in person |

### Equity crowdfunding vs. other types of crowdfunding

Equity crowdfunding is distinct from other types of crowdfunding because it involves an exchange of ownership for capital. Other types of crowdfunding do not exchange ownership.

## How does equity crowdfunding work?

To raise money through equity crowdfunding, you can start by making a profile on a crowdfunding site (examples include [Republic](https://republic.com/), [NetCapital](https://netcapital.com/), [StartEngine](https://www.startengine.com/) and [WeFunder](https://wefunder.com/)). Your company’s crowdfunding profile tells potential investors critical information and may include a business plan, [pitch deck](/content/learn/startups/fundraising/pitch-deck/index.html), and a [pro forma financial statement](/content/learn/startups/financial-statements/index.html), among other documents.

### Regulation crowdfunding

Companies [raising money](/content/learn/startups/fundraising/index.html) through equity crowdfunding must follow specific U.S. Securities and Exchange Commission (SEC) regulations. Equity crowdfunding is often conducted pursuant to the rules set forth in [regulation crowdfunding](https://www.sec.gov/education/smallbusiness/exemptofferings/regcrowdfunding) (also referred to as Reg CF). The SEC allows businesses to raise up to $5M through equity crowdfunding every 12 months. Key requirements include:

- All transactions must occur through an SEC-registered funding portal or broker-dealer.
- 12-month period limits on the amount individual [non-accredited investors](/content/learn/private-funds/regulations/accredited-investors/index.html) can invest.
- Information disclosure requirements to SEC and the investors.
- Securities typically cannot be sold again for a period of one year.

## Equity crowdfunding pros and cons

- **No debt repayment:** Unlike small business loans or [convertible notes](/content/learn/startups/fundraising/convertible-securities/index.html), there is no debt to pay back with equity crowdfunding.
- **More founder control:** Founders often maintain more control since crowdfunding investors do not take [board seats](/content/learn/startups/private-companies/board-of-directors/index.html) or get involved with company operations.
- **Equity dilution:** Any equity-based financing involves dilution—when you sell part of your company, you own less of it.
- **Investor relationships:** Traditional VCs may offer mentorship and guidance which may be lost if raising solely from equity crowdfunding.

## Crowdfunding and Carta

Carta has relationships with several crowdfunding portals that allow your company to represent your crowdfunding investors as a single line item on your [Carta cap table](/content/equity-management/cap-table/index.html):

- NetCapital
- Republic
- StartEngine
- WeFunder

If you haven’t started crowdfunding yet, we can help recommend a trusted platform.