What Entrepreneurs Need to Know About Equity Crowdfunding to Raise Money

Equity crowdfunding is the process whereby everyday people (the "crowd") invest in an early-stage company, which is not listed on a stock market, in exchange for shares in that company. These shareholders have partial ownership of the company and stand to profit if the company does well.

For the first time, the JOBS act is allowing unsophisticated investors to purchase your stock. Whereas traditional investors are a good source of input regarding your business plans, crowdfund investors may invest entirely on emotion, which means the input they provide may not be very constructive.

Equity crowdfunding will benefit many companies that aren't well-suited for funding by traditional venture capitalists. Equity crowdfunding may be ideal for a smaller business such as a restaurant or a service business that can get itself to profitability on a single funding round with one class of stock...