Widening The Equity Crowdfunding Umbrella
Krishan Arora is CEO & Founder at The Arora Project, a globally recognized leader in crowdfunding & scaling high-growth ventures.
Hedge funds, angel investors and venture capitalists know that the way to make big money on their investments is to invest in startups before they go public. By the time most people are investing in these companies on the stock market, early investors are already exiting with full pockets.
But what about those among us who have neither the knowledge nor the means to invest in startups via traditional channels? That’s where equity crowdfunding comes into play, and it’s the biggest step toward global financial democratization the investing industry has ever seen.
The Investing Landscape Is Changing
The phrase “democratization of finance” refers to a slow-moving process wherein control of the finance industry is removed from the wealthy few and distributed among the general public. By bringing an entirely new population of investors into the fold, the equity crowdfunding industry is achieving just that.
However, even an industry known for its pioneering spirit isn’t infallible, and financial democracy isn’t a given in equity crowdfunding. In fact, in many ways, the industry still favors those who have a good amount of cash on hand and can afford the gamble. This rules out a large subsection of those interested in investing, including people of color who historically have less consumer buying power than their white counterparts.
So, how can we widen the equity crowdfunding umbrella?
Financial Democratization Goes Beyond Equity
One of the questions I’m most frequently asked as a professional crowdfunder is directly related to financial democracy: How can investors and founders in the equity crowdfunding space broaden the umbrella when access to capital still isn’t equitable?
Unfortunately, there’s no simple answer — but I do have insight to share. To me, the most feasible way to make equity crowdfunding more inclusive is education, education, education. I know that sounds overly simplified, but hear me out.
In 2016, it was estimated that only 1 in every 3 Americans was aware of equity crowdfunding as a concept. Even if that number has doubled in the years since, that means there are still over 100 million Americans who aren’t aware of the opportunities available to them, whether as investors or startup founders. How many are minorities? How many understand the possible correlation between becoming an early investor and making large returns like venture capitalists and angel investors do?
I genuinely believe that if more unaccredited investors (i.e., the majority of the population) were educated about the most effective ways to grow wealth, equity crowdfunding would top that list. Every American should know about the opportunities opened up to them by Title III of the JOBS Act. When people become aware that they can not only generate wealth this way but also use their power as consumers to directly impact issues they are passionate about, that’s when the true magic of democratization happens.
As with most things in life, true change happens when influential people start loudly and proudly conveying their passions. So my advice for crowdfunding insiders looking to educate and expand the crowd is to share your zeal for the industry with everyone. Be enthusiastic. Extoll the industry’s virtues. Give tangible examples of how equity crowdfunding changes the world. You never know when your words will fall on ears that need to hear them.
Diversity Attracts Diversity
I’m also frequently asked how crowdfunders can attract more diversity and what strategies they can use to differentiate themselves in the market. Unlike my previous answer, this one is simple and immutable: The only way to attract more diversity is by being diverse.
Startups with gender and racially diverse leadership perform better overall in nearly every metric — including financially. Why? Because as teams become more inclusive, more points of view are brought to the table, which in turn drives innovation. This is something we all need to keep in mind as the industry grows exponentially — the startups with the most success gaining capital using equity crowdfunding will likely be the ones that understand the power of having a diverse team.
My best advice as a crowdfunding insider is this: Start from within. If your executive team looks, thinks and feels very different from the investors you’re trying to attract, that’s a good place to start. Welcome new perspectives, and be open to new ideas, regardless of who they come from. Be flexible, ask for input and learn to pivot when what you’re doing isn’t working. And above all else, understand that in this industry, diversity is a superpower.
