Understanding Equity Crowdfunding: Opportunities, Risks, and Differences from Lending

Understanding Equity Crowdfunding: Opportunities, Risks, and Differences from Lending

Crowdfunding is a grassroots financing mode that has gained worldwide popularity. Among the various existing forms of crowdfunding, equity crowdfunding offers participants the opportunity to become shareholders in the companies they invest in.

What Are Equity Crowdfunding Projects?

Equity crowdfunding projects allow investors to acquire capital shares in start-ups or companies in exchange for their investment. Unlike lending, where the investor receives a repayment of capital plus interest over time, with equity, they have the opportunity to profit from the appreciation of their shares, often with a long-term view.

Benefits of Equity Crowdfunding

The main benefits of equity crowdfunding include:

  • Direct Participation: Investors participate directly in the potential growth of the business through the purchase of shares.
  • Potential Return: Faced with greater risk, investors have the opportunity to achieve potentially higher returns.
  • Portfolio Diversification: Allows investors to diversify their portfolio by adding an alternative asset class to more traditional ones.

Risks of Equity Crowdfunding

Like any type of investment, equity crowdfunding also presents risks:

  • Liquidity Risk: Shares in start-ups and SMEs may not be easily sellable, and the investor must be prepared to maintain their investment for an extended period.
  • Risk of Capital Loss: As with any crowdfunding project, there is the possibility of losing all or part of the investment made.
  • Business Risk: Start-ups and SMEs are subject to a higher rate of failure compared to established companies.

Equity vs Lending: Key Differences

While equity crowdfunding focuses on acquiring shares in a company, lending projects or collective loans are based on a repayment of capital with interest over time under predetermined conditions.

Lending, if companies adhere to the payment plan, usually offers a more predictable income stream and a shorter investment horizon, while equity can be considered a growth investment and as such, usually includes a more significant risk and return component.

EvenFi's equity campaigns, such as the recent Condominio 360 project in collaboration with WeAreStarting and PMI Advisor, offer investors the opportunity to join from the inception innovative business ideas and actively participate in their development over time. In conclusion, equity crowdfunding represents a dynamic and growing tool for those looking to diversify their portfolio by investing directly in the capital of emerging companies. It offers investors not only the opportunity to support innovation and entrepreneurship but also to participate in the future successes of the selected companies.

However, as with any investment opportunity, it is important to carefully evaluate your risk profile, the company and project details, and consider that equity crowdfunding may be more suitable for those willing to accept a degree of uncertainty and commit to a longer time horizon. As with any investment and particularly in crowdfunding, it is necessary to consider the possibility of losing 100% of the capital.

EvenFi is committed to providing a transparent and regulated platform to facilitate these investments and to support investors at every stage of the process.