Equity crowdfunding has become an uprising trend aiming at decentralization due to new developments in technology it has come up with. It has become a substitute for Initial Public Offering which is popularly understood as IPO. A very well-known magazine has even mentioned in its article about how the interest in equity crowdfunding has grabbed the interests of venture capitalists for project funding. The idea to invest in startups for equity is also being initiated due to the growing popularity of this process. Now, there is no need to depend on a few people or crowds. This process has helped startups in making it possible to fund money from the majority of people.
It is too simple to know the reason behind it. Coming to the basics, there is not much difference between the equity crowdfunding and IPOs. Both are akin to each other in fundamentals like stakeholdership. However, there is a difference between these two phenomena. Equity crowdfunding has surpassed IPOs in terms of providing new provisions like making the best opportunities for investment for people. Such advantages were not prevalent in the Initial Public Offerings.
Now, when it comes to comparison between the two financing methods, equity crowdfunding fares much better than IPO. Also, there are not many demerits to it. If you are aiming to fund your project via campaigning, then you should be familiar with the merits and demerits of each of these methods.
Advantages Of Initial Public Offering
Before we count on the benefits of equity crowdfunding, let us know the advantages of IPOs. One of the big advantages of IPO is it is support from venture capitalists. They regard this financial method as the best option for investing. Since IPOs are highly secured and usable, they become the preferred choice for VCs. Another advantage of IPOs is its providing high liquidity. Apart from it, IPOs are operated by those firms that have financial stability be it more or less. It hardly matters if your ROI is not big. It comes with a guarantee.
Disadvantage
However, there are downsides to IPOs. Investing in IPOs is not possible for all. Also, it can prove to you very costly. Sometimes, you will be asked for specific money before stepping ahead for joining the Initial Public Offering. They are prone to critical analysis from the regulatory bodies as well as from the investors.
Advantages Of Equity Funding
One of the biggest advantages of equity crowdfunding is that it is not present in any stock exchange and does not adhere to any need of an unending report. This indicates the shifting of savings on the side of investors. Another major advantage of equity crowdfunding is good returns which are not possible on IPOs. Also, it is not liquid in comparison to the latter financial method. Investors are benefitted with big profits through equity crowdfunding.
Disadvantage
Equity crowdfunding has its downsides too. One of the biggest is investments with possible risks. Most of the companies that find it useful comprises businesses at the infant stage or startups. They don’t have stability in comparison to other firms that are found on Initial Public Offering. Coming on to its next downside is the diversification which seems pathetic for investors. Due to lower bar entry, most of the investors belonging to equity crowdfunding are not experienced. They don’t have much idea about proper portfolio diversification. This leads to money loss or misguided investment steps according to experienced investors. Since this financial method is too straight, it may result in constant problems.
Is Equity Crowdfunding Legal In India?
The answer is NO. In India, a financial method like equity crowdfunding is not considered legal at all. In comparison to it, donation or reward-based crowdfunding is accepted legally in this country. Investors use this financial method to invest money so that company gets full support. But contrary to it, venture capitalists and angel investors raise funds to help a startup grow from ground-level in India.
Equity Crowdfunding And Initial Public Offerings
When it comes to defining equity crowdfunding, then we can see it as that type of financial method where the role of stakeholding is performed by the supporters of the firm. In this method, the general public is invited to invest in a business firm that would also get them equity share.
Initial Public Offering is the method when a private corporation in issuing new stock provides shares to the general public. Issuing of public sharing lets a firm in capital raising from investors from the public.
Conclusion
So this is the difference between the equity crowdfunding and Initial Public Offering. Both of them are either the choice to fund your project. In this blog, I have explained both of these financial methods and have even mentioned the pros and cons of each. However, it is not too easy to opt for either of these financial methods of fundraising. It is not that simple. You should be known about the price and benefits that would result in better for your company and campaign as well. Other than benefits, you must also know the downsides of these two fundraising methods to be aware of risks.
