Crowdfunding for Investors

Basics For Investment Crowdfunding Investors

Written by Bill Hubbard

(Provided solely as an educational service and not to be used as and not constituting investment advice.)

As an Investor—or potential future Investor—your choices of investment are important for both your and your family’s future. Most financial professionals recommend a balanced and diversified investment portfolio with a level of risk and timelines appropriate to the individual Investor.

In today’s market, we understand that many of these professionals are, because most other asset classes are cross-correlated, recommending 10-20% of a person’s investments be in an asset class known as Alternative Investments. Crowdfunding, or more correctly, Investment Crowdfunding, is just one type, amongst many, considered a type of Alternative Investment.

No one should make any Crowdfunding Investment in any amounts unless and until they:

  • Fully understand the nature of the investment and have carefully studied each company and its management
  • Understand that, generally, small companies are thought to have more investment risk than large well-financed ones (yes, there can be exceptions)
    and those who depend upon them—are fully prepared for a complete loss of the investment should it occur
  • Understand that in all events any investment, even if ultimately successful , will be illiquid and there is likely no way to see any return for an extended time
  • Acknowledge to themselves that unless one is a trained financial professional, they are better advised to seek qualified financial advice (such as from a Registered Investment Adviser) in advance of any Crowdfunding Investment
  • You’ll find below a list of important questions—our comments are for educational purposes only.

Q & A

What Is Investment Crowdfunding?

For an Investor, it is the risk—and opportunity—to either, or both, invest money into or loan money to small entrepreneurial companies. National regulated Investment Crowdfunding is lawful in the U.S. It is also lawful, on an intrastate basis, in about 30 states if both the businesses seeking crowdfunding and all investors are located in solely such state; Illinois instrastate state crowdfunding will likely begin by July 1, 2016 (with real estate and local businesses being the prime beneficiaries).

How Much Can Be Invested?

Because of Congress’ desire to protect Investors from fraud and to help to ensure that no Investor risks too much hard earned money in Investment Crowdfunding, individual investments (and the total of all individual investments) are limited to $2,000 or 5% of a person’s income or net worth; this amount changes to 10% if the person’s net worth or income exceed $100,000 but no more than $100,000 can be made in any one investment or across all crowdfunding investments in any given investment year (which may not be a calendar year).

This means that if you make $50,000 per year (and you do not have a net worth EXCLUDING your home equity), you are limited to a TOTAL of $2,500 (which is 5% of $50,000) for ALL nationally regulated Crowdfunding Investments you make in a year.

How Much Should I Invest In Crowdfunding?

If you have been advised by a qualified financial adviser, then invest only amounts which are not in excess of the lesser of those permitted by law or the amounts advised by your qualified financial adviser. If you do not have a qualified financial adviser, and choose not to retain one, or cannot afford one, then you should invest no more than you, and your family, are prepared to and can afford to lose.

Unless you are trained or educated in investing, it is recommended that, if you can afford it, you first seek a qualified investment adviser. You can and should first learn about investing. The U.S. Securities and Exchange Commission (which is a part of the U.S. government) provides excellent investing information at their website.

How Can I Invest In Lawful Investment Crowdfunding Opportunities?

This can, as a result of S.E.C. rules, now be lawfully done in the United States. Prior to making any investment:

Make sure you are dealing with a legitimate investment crowdfunding portal or broker-dealer. This can and should be done only here (also check for other applicable links)

Make sure that you, and your family, can afford to lose all amounts you may decide to invest through investment crowdfunding. Even if you get back some or all of your investment or ultimately make a positive return on your investment, you will not have immediate access to any funds you invest in a crowdfund investment.

Review, on the FINRA registered funding portal or broker dealer website(s)

  • Particulars of any one or more potential investments
  • Background check of the principals of the company offering the investment
  • Business plan and financial plan
  • Explanation of the value the company feels that it
  • Interest or shares or other investment it is offering is worth
  • What the company plan and timing is for you to see a return on your investment
  • All other information important for you to make your investing decision

This website, provides a list of 5 questions to ask before you invest. A registered Crowdfunding Portal is prohibited from offering any investment advice. A registered Broker-Dealer is permitted to provide investment advice (if qualified and incidental to being a broker-dealer), as is an attorney, accountant, engineer, or teacher (if qualified and incidental to the profession). Note: Department of Labor recent fiduciary rules are different than those of the SEC and will, by next year, impose additional restrictions and standards with regard to qualified plans, self-directed IRAs, Keogh plans and the like. Heightened advisor and investor caution is urged with regard to such plans.

Should you decide to investigate and/or make a regulated crowdfund investment, follow the steps provided on the FINRA registered portal or broker-dealer for the mechanics of making the investment.

Be advised: registered portals are not authorized to accept any funds from any investor; the investment must go directly from the investor to a separate type of escrow or account which the portal does not have access to, and neither does the company into which any investment is made, until the registered funding portal has confirmed that the minimum total investments have been made and that other steps required by regulation of the funding portal have been fulfilled. Only at this time will the funding portal authorize the funds from investors to be transferred to the Company you are investing into. (Note: a registered broker-dealer is authorized by law to hold funds from investors though a registered portal is not.)

What are the Terms Of The Investment?

It will differ for each investment. It depends entirely upon the terms set by the Company asking an Investor to invest—as long as those terms and the investment comply with the rules put out by Congress and the SEC.


  1. A share of gross revenue, like a royalty
  2. Shares of stock
  3. A loan or convertible to equity loan
  4. A membership interest in a limited liability company
  5. An interest in a limited partnership
  6. A SAFE interest (Simple Agreement for Future Equity)
  7. Many other types. Each of the times is complicated and involves a bunch of rights and obligations for the Company, for the investor, and for third parties.

How Much Can I Make?

There will be no assurance that you will ever make any money. In fact, you might lose all of the money you invest. All businesses change. What might look profitable today may well fail a month from now. You’ll have to judge for yourself based upon the information provided to you and any qualified financial advice you can obtain prior to any investment.

In short: Buyer Beware. Because of the regulated nature of investment crowdfunding, fraud is not expected by many to be widespread (if verified registered portals are used--particularly if the the company has been verified by companies like That said, bad management, bad timing, bad luck, bad investment structure or just investing in a company which otherwise can’t sustainably and profitably compete over time and return a profit to investors means many investments simply won’t pan out.

How Does It Work if I Want to Investigate Investing A Crowdfund Eligible Business?

A potential Investor (You) contacts a registered broker-dealer or a registered funding portal, usually through the internet. You will have to show to the Broker-Dealer or Funding Portal that you understand the potential risks and potential benefits of a Crowdfund Investment. You may have to review materials or video clips and answer various questions correctly. Then you will have to certify your income and total crowdfunding investments, and provide other information.

There will be privacy restrictions on the use of the information you provide and the portal is required to share your information with the government. For about $10 per month (after two free months) provides its comments on each crowdfunding investment (though keep in mind that it is not a registered investment adviser). There are a number of crowdfunding related publications and associations and, given the lag time between the statute and today, a whole crowdfunding infrastructure has developed and will now evolve. It’s worth exploring.

What Are Broker-Dealers and Funding Portals?

Each are types of businesses which Congress has required be strictly regulated and supervised by the U.S. Securities and Exchange Commission. They are also required to be licensed and supervised by the Financial Industry Regulatory Authority or FINRA (formerly the NASD). Broker-Dealers are permitted to offer financial advice. Funding Portals are NOT permitted to offer financial advice. The SEC expects there to be no more than 50 registered Funding Portals across the U.S. because of the compliance and other costs associated with becoming registered.

How Does One Locate Or Check-On A FIRNA Registered Broker Dealer Or Funding Portal?

By going to the FINRA website, through an internet search, or through your own network. It is likely that you will have family, friends, acquaintances, and strangers contacting you about potential Investment Crowdfunding. BEFORE making ANY investment with or through any Funding Portal or Broker-Dealer, each Investor should check on the FINRA website to ensure that the Funding Portal or Broker-Dealer is registered. FINRA also lists any disciplinary actions which may be on the record of the Broker-Dealer (and its registered representatives) or the Funding Portal.

Who Would Consider Investing?

Only those who have enough money to place their Investment Crowdfunding money at risk for an extended period of time and are prepared and can afford to lose all of it if the investment does not pan out—and preferably after receiving sound financial advice from a qualified financial adviser about Investment Crowdfunding in general and potential individual investments in particular.

What Materials About the Company Will Be Available For An Investor Review Prior To Investing?

All materials that the SEC and Broker-Dealer and Funding Portal require should be available through their website to review. These would optimally include a limited background check on the Company’s principals, financial information about the business, a business plan, a discussion about how the price of the investment was determined, and the Company’s plan for the Investor to eventually get out of the investment. Most importantly, it will need to show all the reasonably anticipated risks of the investment.

In short, it should contain all material information about the investment as required by the SEC. These materials, though, WILL NOT mean that any investment is a good one or that you will ever see any return on that investment or even receive any of your money back.

Where Can An Investor Read the Entire SEC Rules Applicable To Crowdfunding?

You can read the entire relese at by clicking here. These rules were 3.5 years in the making. The text of the JOBS ACT (Jumpstart Our Business Startup Act in which the Crowdfunding Act can be found) can be found at here.

From an investors perspective, the cool perspective about crowdfunding for me is this: it permits--and encourages--the average citizen to focus, again or for the first time, on one of the main pillars of our country’s heritage and culture--entrepreneurship--and in a way which will permit more widespread opportunities, and I don’t mean just economic opportunities, (so MORE on this in other discussions ; it’s a subject on which I could spend hours).

About the author

Bill Hubbard

Business strategist and tactician focused on each client's "Next Level" achievements—after analysis of the business landscape and underlying complexity. Has historically served as outside trusted business advisor and general counsel to small and larger middle-market companies and their owners. Focuses on the crucial intersection of law, business, finance, taxes, risks, opportunities, emotions and decisions. Combines thorough analysis with instinct after thinking through various courses of action and their likely effects over time upon all stakeholders. Considers the needs of each client and the business—today’s and tomorrow's. While he has received some recognition, his focus remains on each client's successes.