According to Wikipedia, crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the internet. Crowdfunding is a form of alternative finance, which has emerged outside of the traditional financial system. Today, crowdfunding is estimated to generate $3 billion to $5 billion worldwide.[1]

Crowdfunding holds the potential to be a great equalizer  as it democratizes capital and changes the game for women entrepreneurs in pursuit of capital for their business pursuits. There are three basic types of crowdfunding: rewards-based: Individuals receive something small in exchange for their contribution, peer-to-peer lending and peer-to-business lending: Entrepreneurs raise funds in the form of loans that they pay back to the lenders over a pre-determined timeline and set interest rate and equity-based: Investors are awarded an equity stake in a company.

Equity-based crowdfunding holds tremendous potential for women entrepreneurs. First created by Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012, equity-based crowdfunding, aka investment crowdfunding or crowd investing, or crowd equity, is best defined as an online offering of private company securities to a group of people for investment. Since equity crowdfunding involves an investment into a commercial enterprise, it is often subject to securities and financial regulation. Unfortunately, Title III remains outstanding as the Securities and Exchange Commission has yet to issue the final rules for this section of the JOBS Act. The needed regulations could enable entrepreneurs to sell equity to prospective investors online since the transaction is ongoing (as opposed to one-time). Equity-based crowdfunding is currently off-limits to the vast majority of small business owners that could benefit from this additional capital, which typically yields the highest average amount of money raised out of all the crowdfunding models. [5]

Currently equity crowdfunding platforms are only available to accredited investors, and there are a handful of platforms already operating: AngelList, CircleUp, Crowdfunder, and Portfolia. Accredited investors are individuals whose net worth is greater than $1 million or whose individual income exceeded $200,000 ($300,000 for couples) for the past two years, with the expectation for that income to continue in the current year.[6] In a review of this data, Crowdnetic found that women-led companies make up 17% and women-owned companies account for 18% of the 5,000 companies currently seeking equity crowdfunding. [7] Women entrepreneurs are interested in equity crowdfunding, but before they dive into it they want to know how to do it effectively with guidance from the SEC.

The JOBS Act requires the SEC to write rules and issue studies on capital information, disclosure and registration requirements.  At the moment, the company must go through an attorney, CPA, investment advisor or broker-dealer to verify that the investors are accredited, which, if done incorrectly, can have negative implications.

While the federal regulators have yet to pass national rules for equity crowdfunding, 16 states have stepped up and are working on implementing their own laws to meet the local demand. [8] And women small business owners are benefitting, “As of 2014, women-led businesses closed their rounds successfully at a 21% higher rate than men on the platform,” said Ryan Caldbeck, founder and CEO of CircleUp.

Equity crowdfunding is an exciting opportunity for women business owners. Per our latest research, men start their businesses, on average, with nearly twice as much capital as women ($135,000 vs. $75,000). This disparity is slightly larger among firms with high-growth potential ($320,000 vs. $150,000). Women-owned firms greatly exceed their own growth expectations yet, if they are underestimating their own growth, they are not pursuing the capital to maximize their growth potential. Equity crowdfunding levels the playing field for women investors too.

As President Obama has stated when signing the JOBS Act, “for start-ups and small businesses, this bill is a potential game changer.” The National Women’s Business Council believes the same and urges the SEC to pass national rules on equity crowdfunding in order to level the access to capital playing field. [9]

[1] Gulati, Sonya .Crowdfunding: A Kick Starter for Startups. TD Economics. 29 January 2014. Accessed 01 June 2015. <http://www.td.com/document/PDF/economics/special/Crowdfunding.pdf>.

[2]Stengel, Geri. “Stand out in the Crowd: How Women (and Men) Benefit From Equity Crowdfunding.” Ventrureneer. 29 April 2015 :54.

[3] Caccavo, Kimberly and Nowlan, Kate. The First GRACEDBYGRIT Retail Store. Accessed 22 June 2015. <https://www.indiegogo.com/projects/emmy-s-organics-gift-to-greatness#/story>.

[4] Abrams, Samantha and Gaffney, Ian. Emmy’s Organics-Gift to Greatness! Accessed 22 June 2015. <https://plumalley.co/campaigns/the-first-gracedbygrit-retail-store>.

[5] Crowdfunding Market Grew 81% in 2012, Finds MASSOLUTION Industry Report. 08 April 2013. Accessed 01 June 2015. <http://www.crowdsourcing.org/editorial/crowdfunding-marketgrew-81-in-2012-finds-massolution-industry-report/25049 >.

[6] See citation 2. Stengel:18-19.

[7] Stengel, Geri. Equity Crowdfunding + Women Entrepreneurs (Infographic). 06 May 2015. Accessed 01 June 2015. <http://blog.myturnstone.com/ensuring-equity-crowdfunding-lives-promise-women-entrepreneurs/>.

[8] Jefferson Public Radio. Crowdfunding Investments Take Shape in Oregon. 2014. Accessed 01 June 2015. <http://ijpr.org/post/crowdfunding-investments-take-shape-oregon>.

[9] See citation 2. Stengel:ix.