The other big reason why businesses choose the equity crowdfunding is the lack of other fundraising options. 

A business may go to equity crowdfunding route because they can't get a loan from the bank, or raise money from venture capital funds, for example. 

How do investors earn money from equity crowdfunding?

Company exit

A company may get bought out by another, often bigger company, years after an equity crowdfunding campaign has ended. If the purchase is favourable, the investor may be able to cash out when this happens.

Dividends

Depending on the company, investors may even get periodical dividends. This is a direct return on investment as a part owner of the company.

Raising Funds For Your Company through Equity Crowdfunding: Risks and Rewards

Risks

Hard to find a mentor in the investor pool

One of the most valuable things you can gain from VC funding is mentorship. VCs are often veterans who can provide insight into a specific industry.

This is something you might lose out on when you raise money through equity crowdfunding. If having a mentor is important to you, you might need to look for one outside of your equity crowdfunding campaign.

High level of scrutiny at an early stage

When you raise money through equity crowdfunding, you'll get a large number of shareholders who will be interested in how your company is doing.

For an early-stage startup, this level of attention and scrutiny may become problematic.

Rewards

Successful funding leads to much-needed cash injection

​The most important reward from equity crowdfunding is cash injection. You can use this money to continue growing your business.

Public support

Your investors will likely become your best advocates. When you are successful, they are successful.

Investing in a Company through Equity Crowdfunding: Risks and Rewards

Risks

Paying too much for too little

While audited accounts are always provided, not all retail investors are savvy enough to understand it. This can results in most retail investors not knowing if the valuation is accurate, and paying too much per share.

Dilution

It's hard to predict what might happen to a company after a crowdfunding campaign. In some cases, shares may get diluted, making them much less valuable than when they were first bought. 

Business goes bust before getting profits

Since most equity crowdfunding campaigns are run by early-stage startups, there is a real risk of companies closing shop way before the investor can realise any profits.

Rewards

Opportunity to invest

The biggest reward of equity crowdfunding is that it provides retail investors an investment opportunity into high-growth companies. These are opportunities which would otherwise only be available to high net worth individuals, VCs, or banks.

Conclusion

There is no stopping the growth of equity crowdfunding in Malaysia. More and more platforms have become available for businesses to raise funds on. An increasing number of businesses and investors have become interested in the investment vehicle.

For businesses, equity crowdfunding can be a good way for you to raise money to grow your business. You get to control the terms of the fundraising campaign.

On the other hand, equity crowdfunding gives retail investors access to investment opportunities that might otherwise be unavailable.

However, to get the best rewards, it's best to first have a good understanding of the risks of equity crowdfunding.