What are the main benefits of equity crowdfunding for startups?

As we approached the end of 2024 for the investment landscape, the global equity crowdfunding market was estimated to be worth nearly US$1.60 billion, a figure that’s projected to reach $1.83 billion by 2025, and $4.45 billion by 2032. This represents a CAGR of 13.50% for 2025-2032. While this might be a speck of the total global investible universe, the rise cannot be disregarded. It has the potential to expand exponentially if things go well.

For a funding structure (Sec Reg CF) with the lowest regulatory norms, the SEC allows $5 million annually for a company to raise funds through equity crowdfunding, but the broker intermediary needs to be registered with the SEC.

Understanding the main benefits of equity crowdfunding is advantageous for startups because it empowers founders to make informed decisions about raising capital and growing their businesses.

Benefits of Equity Crowdfunding for Startups

Crowdfunding allows early-stage/pre-seed private companies to raise capital from the general public through an online platform. This is different from a public offering due to the annual limit of $5 million. The benefits of equity crowdfunding include.

Access to a Wider Pool of Capital

Equity crowdfunding helps startups to raise funds from a large pool of investors, rather than relying solely on venture capitalists or angel investors. Startups can raise capital from accredited as well as non-accredited investors, which might have been difficult to raise from traditional financiers such as banks, private equity, and other financial institutions.

No Repayment Pressure

Equity crowdfunding comes with its own set of fiduciary duties, but the investors do not force the company to repay their investment, as they do not generally get involved in the decision-making. Since the investment amounts are generally lower, the investors are not very concerned about the risks involved. While the risks are usually on the higher side, the returns are also higher, and the investment can be highly profitable for those who identify the potential of the company.

Community Building and Engagement

With a community of a large number of small investors, they also act as promoters and advertisers. Engagements such as online discussions about the company lead to a higher awareness of the products and services offered. Criticisms generated can also help to improve the products/services offered. The sense of community ownership can work wonders for the product.

Market Validation and Publicity

As per market research conducted over time, a dollar spent on marketing generates $4-$5 in revenue, which is usually higher in startups and can go up to $35-$40 for innovative products and services. Crowdfunding also comes with free marketing from the investors who would generally talk to their family and friends about the investment and the company. The investors would also try products and services themselves and provide word-of-mouth marketing.

Flexibility in Use of Funds

Crowdfunding provides more flexibility and leeway to the founders. Funds can be spent as they are received, and no financial performance metrics need to be met. This helps with more flexibility in operational decisions rather than meeting set targets, as is the case with private venture funding.

Potential for Faster Fundraising

Equity crowdfunding involves a smaller amount from a large number of investors. As word spreads, investors would generally invest quickly without taking much time to evaluate, since small amounts are involved. With a small amount, risks are lower for the investor, as they can easily diversify investments to reduce risk. The number of investors and the investment from each investor can vary widely from one campaign to another.

Case studies for successful crowdfunding

Crowdfunding is not a new source for financing in the investment space, but it is still in its infancy. While there are several examples, let’s look at some of the most successful crowdfunding stories in recent times. These case studies illustrate how equity crowdfunding can provide startups with crucial early capital, community engagement, and validation, often leading to further institutional investment and significant growth.

Case study – Beta Bionics

Boston University biomedical engineer Ed Damiano devised a mechanism to deliver insulin to people with type 1 diabetes. Beta Bionics created a device (iLet Bionic Pancreas) that would automatically administer insulin based on blood glucose levels through a closed-loop system.

Early Capital via Equity Crowdfunding

The company was one of the first to raise capital using the new SEC crowdfunding rules in 2016. The company raised $1 million from 775 investors through online funding websites, with each investor contributing an average of approximately $1,300. In February 2022, Beta Bionics raised $57 million in Series C funding after achieving a breakthrough device designation, which fast-tracked it to FDA approval. The successive funding rounds have raised $343 million in funding ever since. With an oversubscribed IPO worth $234.6 million and subsequent trading in late January, the company was valued at slightly below $1 billion.

Community Engagement and Cause Resonance

Betacoin’s mission to improve the lives of people with type 1 diabetes resonated strongly with investors, many of whom had personal or professional connections to diabetes. This created a community of engaged supporters who were motivated by idealism and personal experience rather than just financial returns.

Market Validation

The successful crowdfunding campaign demonstrated public interest and demand, helping validate the product concept. Beta Bionics’ early investors included scientists and diabetes researchers, further lending credibility.

Community and Market Impact

Beta bionics could raise money easily because it resonated with a cause that is close to the Americans. Nearly 11.6% of the total US population is diabetic, and a large number of them require regular insulin doses. This would lead to community engagement on the technology being developed, and investors would provide capital quickly.

Case study – Replit

Replit is an American programming website that brings developers and users together. It provides non-technical users with limited programming knowledge with tools for software development. The company was incorporated in 2016 by Jordanian-Americans Amjad Masad, Faris Masad, and Haya Odeh.

Early Capital via Equity Crowdfunding

Replit went for crowdfunding in 2022 for the maximum limit of $5 million through the online funding platform, WeFunder with around 2,000 investors. The company has already completed Series B funding worth $80 million before that. Even before crowdfunding, Replit was highly successful with investments. In 2023, after raising $97.4 million in a series B funding round, Replit was worth nearly $1.16 billion.

Community Engagement and Cause Resonance

Replit’s crowdfunding round may not have added a significant funding amount, but it allowed small investors to share in the company’s growth story. Community building for investors and discussion of growth prospects may also have been a reason why the company went for a small crowdfunding round rather than a larger series B round, as it did later on.

Market Validation

Taking up crowdfunding after a successful Series B round might have been unconventional, but it did allow Replit to with market validation and positive publicity. It was reported in April 2025 that the company is in talks with investors for a new funding round that would value it at $3 billion.

Community and Market Impact

With the rise in AI, Replit adapted quickly and has become a full-fledged AI coding tool synonymous with ‘Vibecoding.’ The company boasts more than 30 million users and has built up a community of like-minded programmers.

Equity crowdfunding compared to traditional venture capital

Venture capital is a private equity financing received from investors in the early stages of the startup. The investors can be banks, financial institutions, or investment companies. In addition to funding, they can also provide technical or managerial expertise.

Ownership stake is sold to only a few individuals. Crowdfunding is also a form of private ownership, but it is generally without the involvement of a large financial institution. The number of investors part of the funding is also significant. Let’s look at some differences.

	Venture Capital	Crowdfunding
Financial Institution	Banks, investment companies, etc.	Crowdfunding Platform
No of Investors	Few	Higher than VC but less than IPO.
Investment Amount	Large (5 million or more)	Usually less (Average of $88)
Investment Decision	Generally, 3 to 6 months	Generally, 30-45 days
Investment Period	Around 4 years (2023)	Varies
Involvement	Highly involved in management	Low to zero involvement

Crowdfunding investors may have an emotional attachment to the campaign, such as with Beta Bionics, but may not be experts. VCs come with industry expertise and can assess investments better. 

While VCs may take longer to evaluate investments, large amounts can be raised from VCs. In addition to differences in investment size and the number of investors, risks can differ, too. Crowdfunding risks are high but with the low amount of investments, they might not affect customers considerably.

Level up your equity crowdfunding with Eqvista!

Crowdfunding can be exciting for an investor as well as the founder. With the rise of social media, founders can access investors globally to meet their funding needs. Getting like-minded investors can surely be a shot in the arm for a fledgling enterprise. With numerous crowdfunding stories across the globe, this form is extremely likely to pick up momentum in the near future. Founders need to reach out to investors who relate to their product and services.

Crowdfunding can attract several investors, which can make it difficult to manage the cap table for the startup. Eqvista offers cap table management, which helps founders keep track of the equity and shareholder details, voting rights, and the vesting schedule of the options.