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Community Investing:
How does it Work?

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Basics of Community Investing

What is community investing?

Crowdinvesting, equity crowdfunding, community funding: whatever you choose to call it, it’s a new form of funding that opens up opportunities for small investors and small businesses alike. Until very recently when new laws went into effect, it was difficult for all but the wealthiest individuals and “angel” investors to invest in small businesses and startups. Now, small businesses can reach out to their friends, customers and people who share their vision for funding. And every American can be an angel and invest in businesses they know and love—or simply want to see in the world.

It’s a very small-d democratic idea. There are no gatekeepers or Wall Street overlords; just citizen-investors voting with their dollars and businesses sharing the wealth created with their supporters.

How is this different from GoFundMe or Kickstarter-type crowdfunding?

Many people think of crowdfunding as a Kickstarter campaign. In this model, you give money and, in return, receive a reward, like a product or some other kind of perk (t-shirts, invitation to special events). On some sites, such as GoFundMe, the contribution may be a straight donation.

With community investments, on the other hand, you are investing. That means buying shares or lending money to a business with the expectation that you’ll get your investment returned to you—with some extra.

Most of the offerings on investibule are conducted under the JOBS Act, such as Regulation Crowdfunding. We also feature offerings such as pre-pay opportunities, where individuals are paid back in products or services, and zero-interest loans from Kiva.

How is this different from investing in the stock market?

When you buy stocks on NASDAQ or the NYSE, you’re buying shares in publically traded companies. Typically, these are very large corporations, since the cost of “going public” is prohibitive for most firms (an IPO can cost tens of millions of dollars).

The businesses featured on investibule are typically small businesses, like the local coffee shop, or early stage startups looking for growth capital, and are not publicly traded. That means a couple of things: They can be more risky to invest in. And they are less “liquid”, because you can’t easily sell your investment in the market when you need/want to cash in.

Unlike publicly traded companies, the businesses you’ll find on investibule do not have research analysts covering them or making recommendations. The companies (or “issuers” in financial jargon) are required by law to disclose all relevant information that investors need to assess the investment opportunity and risk, but the onus is on investors to do their homework. On the other hand, as members in the same community, we may have insights and connections in the business that research analysts don’t have.

The businesses featured on investibule are typically small businesses, like the local coffee shop, or early stage startups looking for growth capital, and are not publicly traded. That means a couple of things: They can be more risky to invest in. And they are less “liquid”, because you can’t easily sell your investment in the market when you need/want to cash in.

In addition, unlike publicly traded companies, the businesses you’ll find on investibule do not have research analysts covering them or making recommendations. The companies (or “issuers” in financial jargon) are required by law to disclose all relevant information that investors need to assess the investment opportunity and risk, but the onus is on investors to do their homework. On the other hand, as members in the same community, we may have insights and connections in the business that research analysts don’t have.

How is this different from angel investing or venture capital?

Angel investors have traditionally been very wealthy individuals—or “accredited” investors, as they’re called in the financial industry—who decide to invest in startups. Only about 6% of the population qualifies as accredited.

New laws (see the JOBS Act) have made it possible for anyone, regardless of their net worth, to invest in startups and small businesses, with as little as $50. This has opened up the opportunity for the other 94% of the population to become mini-angels.

Angel investing is risky business. That’s why professional angels often band together in groups or  funds to share investment opportunities and research companies. They also diversify their investments, given that only a few of the companies they invest in will go on to make it big. As community investors, we can adopt similar tactics by forming groups, posing questions directly to company officials on crowdfunding portals, and diversifying our investments across a number of companies.

Is community investment regulated?

Yes. Offerings for community investments fall under regulatory oversight. The Securities & Exchange Commission (SEC) created the rules for the new crowdfunding models and regulates them, along with the Financial Industry Regulatory Authority (FINRA).
> FINRA’s investor information
> SEC’s Investor Bulletin on Reg CF crowdfunding
> SEC’s Investor Bulletin on Reg A

What is the JOBS Act?

The Jumpstart Our Business Startups Act (JOBS Act) modernized the nation’s securities laws for the first time since the 1930s. In the wake of the Great Recession and a steep decline in bank lending, it was intended to make it easier for small businesses—the nation’s job creators—to raise growth capital. The JOBS Act was passed with bipartisan support and signed into law in April 2012 by President Obama.

The JOBS Act has a number of provisions, but the main thing it did was to allow small businesses raising money to appeal directly to the public for funding. Prior to the JOBS Act, they were restricted in what they could say and who could invest in them.

The main piece of the JOBS Act is Regulation Crowdfunding, also known as Title III. It allows any American, regardless of their net worth, to invest in private companies that raise money through SEC-sanctioned crowdfunding portals.

Before that, it was difficult for most people to invest in companies that were not publicly traded on the stock market.

Another provision of the JOBS Act, Title IV, created a “mini-IPO” option that lets companies raise up to $75 million under Regulation A.

For Investors: Some Nuts & Bolts

How much can I invest?

That depends on your financial status as well as the offering specifics. The SEC has recently updated its rules for how much individuals can invest:

Regulation Crowdfunding (Reg CF)

There are no limits on how much accredited investors may invest. 

For those who are not considered accredited investors (most people), they can invest in aggregate over a 12-month period is capped according to a formula based on their income and net worth.

If either your annual income or your net worth is less than $107,000, then, during any 12-month period, you can invest up to the greater of either $2,200 or 5% of the lesser of your annual income or net worth.

If both your annual income and net worth are $107,000 or more, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is greater, but not to exceed $107,000.

New: Are you a financial professional with a Series 7 or other certification? You may now qualify as an accredited investor even if you don’t meet the financial thresholds.

Annual Income or Net Worth
You Can Invest Up To
Maximum per Year
Less than $40,000
$40,000 – $107,000
5% of your annual income or net worth
More than $107,000
10% of your annual income or net worth up to $100,000

Regulation A (Reg A)

There are no investment limits on offerings that rely on Tier 1 of Regulation A, regardless of the investor’s financial status.
However, non-accredited investors investing in Tier II offering that are not listed on a national securities exchange (such as Nasdaq) are limited to no more than 10% of the greater of the person’s annual income or net worth (alone or together with a spouse, and excluding the value of the person’s primary residence and any loans secured by the residence).

What kind of returns can I expect?

That depends on the type of investment you are making. If you’re making a loan, the business will clearly state the interest rate and pay back terms, for example, when payments start, over what period they will be paid—for example, 8% interest to be paid back over five years, starting one year from the close of the campaign.

Equity investments are more speculative, and depend upon a market where you can sell the shares (or alternatively, the business being acquired by a bigger company). In both cases, financial returns are predicated on the success of the business. It’s important to note that small businesses, especially startups, are risky investments.

PS. Don’t be surprised if you see Kickstarter-style perks thrown in alongside financial terms. Many businesses include products, swag or VIP events as an added sweetener.

What are the risks of investing this way?

Investing in small businesses and startups is inherently risky. Even the best ideas can be poorly executed—and often are. If a business fails, you may lose your entire investment. Crowdfunding portals are required to do basic vetting to screen out “bad actors,” but investors are responsible for their own research and due diligence. If making an equity investment, your shares may be illiquid, meaning they cannot be sold.

That said, the most enduring piece of investment advice has been “invest in what you know.” So if you are familiar with a local business, are already a customer, or are an expert in particular field that a business is in, you may be in a better position to assess risk.

For more on risks, see the SEC’s investor bulletin.

What if I change my mind?

Your investment will not be collected until the company completes its crowdfunding campaign and successfully reaches its funding goal. You are able to cancel your investment anytime up until 48 hours prior to the funding deadline.

Can I sell my investment?

There is often a lockup period of one year for before you can resell a crowdfunded security (the exceptions are selling to the issuer, an accredited investor, a family member, or their trust). The bigger issue is that there may be nowhere to sell them. As of yet, there is no Nasdaq for crowdfunded shares (although some companies are working on it). In some cases, a company you invest in on a crowdfunding portal could go public via an IPO, but even so it would probably take years for that to happen. The bottom line? Assume your equity shares are illiquid for the time being.

For Entrepreneurs: How to Raise Capital

Is my business a good fit for community investment?

Any U.S.-based company is able to raise money via crowdfunding (as long as they have not been flagged by regulators as a ‘bad actor.’). We’ve seen campaigns for everything from bison jerky to jetpacks. However, some businesses are a better fit than others.

Do you have a brick & mortar presence and a loyal following? Crowdfunding may be a good fit for you. Restaurants, microbreweries and other Main Street businesses have done well raising money this way, particularly from local investors. And packaged consumer goods, especially natural brands, are a big category.

On the other end of the spectrum, startups with innovative new products and technology, whether electric vehicles, medical breakthroughs or social media apps, can capture investors’ imaginations. Film, music, real estate, and education are also well represented.

The point is, if you have a business that you think will appeal to the public, and a compelling story to tell, crowdfunding may be a good path. And the potential benefits go beyond the capital you raise—crowdinvestors can provide valuable feedback and help spread the word. In fact, they often become a company’s most passionate ambassadors.

How much can I raise?

The SEC has increased the maximum amount the companies can raise under Regulation Crowdfunding to $5 million, up from $1.07 million.

Need more capital? You’ve got options. Companies can conduct a parallel offering alongside their Reg CF offering that targets accredited investors via Regulation D, rule 506(c). Most portals enable companies to effectively create one campaign that targets the two different investors groups. That allows them to include loyal customers and supporters while capturing bigger dollar checks.

Another option is a Regulation A offering. This “mini-IPO” allows companies to raise up to $75 million under newly expanded funding guidelines. “Reg A” offerings are open to all investors regardless of financial status, but they involve a lot more legal work and expense.

What’s involved in launching a crowdfunding campaign?

Just because you don’t have to sit across the table from a bunch of stone-faced professional investors, don’t be fooled into thinking a crowdfunding campaign is easy. It takes a lot of work and preparation. The most successful campaigns start preparing months before their campaign goes live. That includes building your email list and social media presence and engaging your supporters.

There’s also financial and legal preparation. You’ll need to take an honest look at your goals, how much capital you’ll need, and what you’ll spend it on. The SEC requires issuers (that’s what they call companies raising money) to share their financial information with potential investors, so you’ll need to get your books in order. And it’s a very good idea to discuss your planned offering with a legal professional.

Before launching a campaign, a company must file a Form C with the SEC. Once the campaign is live, plan to spend a significant amount of time on marketing and answering questions from potential investors (mediated through the crowdfunding portal). And once your successfully raise money, you may be required to provide annual updates to your investors (it’s good practice to do so in any case).

The SEC now allows companies to “test the waters” to gauge investor interest before they launch a campaign.

What funding type is right for me?

That depends on your situation, and, specifically, two questions: Do you want to give up ownership control? And, are you generating revenue?

Established businesses that generate revenue are good candidates for loan or revenue-sharing offerings. That allows them to raise money without giving up ownership control. With revenue-sharing, the amount you pay back rises and falls as a percentage of your sales, making it a good option for businesses with variable or seasonal revenue to consider.

Startups that are pre-revenue are probably going to think about equity, whether traditional shares, convertible notes, or newer twists such as SAFEs. [links to funding types]

The good news is, no matter which funding type you settle on, you are in the drivers seat when it comes to setting terms, interest rates, and deciding whether or not to offer voting rights or dividends.

How do I choose a funding portal?

FINRA, the financial regulator that oversees crowdfunding platforms, lists more than 40 approved funding portals for Regulation Crowdfunding alone! Some focus on certain types of companies or funding types, such as Main Street businesses, real estate, or loans.

Beyond Reg CF, there are funding portals that operate within individual states, portals that handle Regulation A offerings, and even DIY options where you can conduct an offering on your own web site. If that’s not confusing enough, some funding sites are broker-dealers, which gives them more flexibility in the services they offer. And they all have different fee structures.

It’s a lot to choose from. Start by narrowing down what kind of offering you want to do (under Regulation Crowdfunding, Reg A, or intrastate for example). It also helps to look for businesses similar to yours that have conducted successful campaigns (investibule is a great place to do this research!). What portal did they use?

Types of Investments

Four ways to fund, with different returns for investors


An equity investment is an ownership stake in a business—you’re literally buying a “share” of a company. When you make an equity investment, you’re betting that the business will grow in value— and your shares along with it. If the company is traded at the stock market, you can sell your shares at the (hopefully higher) current price, or hold onto them and receive a share of future profits in the form of dividends. If the company gets acquired, another possible outcome, you’ll get a share of the sale price.

There are four different kinds of equity you’re likely to be offered:

Common stock

Common shares are the most basic form of equity. The shares typically come with voting rights, but common shareholders are last in line (after preferred shareholders and lenders) to get paid if the company goes belly up. If the legal setup is a LLC, the shares are often called “Membership Units”.

Preferred stock

Preferred shares are a class of stock designed to attract outside investors. They typically pay dividends and give investors priority over common shareholders, but have limited or no voting rights.

Convertible Note

A Convertible Note is technically a loan that converts to equity at a later date. It’s popular for early-stage startups because it puts off the challenge of establishing a value for a company (which may have no product or sales yet) until a later date, usually the next major funding round. At that time, you’ll receive equity shares (see Common or Preferred Stock), typically at a discounted price. Until the conversion, the notes may accrue interest like a regular loan.

SAFE (or sometimes called CrowdNote)

The Simple Agreement for Future Equity (SAFE) is a simplified version of a Convertible Note that originated in Silicon Valley. However, unlike a convertible note, a SAFE is not a loan and does not accrue interest. You simply get dibs on equity shares at a discounted price in a future funding round. So you before you invest in a SAFE you should be pretty confident that the company you’re investing in will be able to raise another round of major financing. One feature of a SAFE to pay attention to is the Valuation Cap. It sets a maximum value on the company for purposes of determining your future share price. So the lower the number the better.

Read the SEC investor bulletin on SAFEs


Also known as Promissory Notes, loans are a form of debt: you lend the company money and they pay it back to you over time, usually with interest. Investors do not receive ownership or voting rights. Loans are best suited for established companies with revenues that can handle regular payments.
Loans come in different flavors:

Standard term loan or note

Most loans have a fixed interest rate and repayment schedule—for example, 5% interest paid to investors quarterly over a three-year term.

Zero-interest Loan

Yes, loans can be interest-free. On some funding sites, such as Kiva, you can loan money to a small business and they pay you back the principal—i.e. your original investment amount—over time. (Your reward is knowing that you’re helping out a deserving entrepreneur.)


(sometimes called Royalty Financing)

These investments have variable repayments that rise and fall with the sales business. Instead of a fixed interest payback rate, the business sets aside a certain percentage of sales until you hit a specified target—for example, 1.5x or 2x the amount of a loan (or $1,500 on a $1,000 loan). 

In general, Revenue Sharing can be used as way to pay back a loan, or to buy back equity from investors.

Your rate of return as an investor depends on how long it takes the business to fulfill its payback obligation. If sales go well, you get paid faster, and your return will be higher.



Pre-pay arrangements let customers pay a sum of money up front, and get paid back over time in products and services as they spend down your credit. It’s like having a house tab at your favorite local business. The advantages for customers include no-hassle transactions.

And because shop owners appreciate your loyalty, the usually throw a little something extra in. (Pre-pay arrangements sometimes go by the name community-supported enterprise).


You may have heard of Bitcoin, a digital currency based on “blockchain” technology. In the last few years, some startups have begun offering digital tokens similar to Bitcoin in lieu of (or sometimes in addition to) equity shares.

The tokens typically offer the investor some form of value, like credits that can be “spent” with the company they are investing in. Crowdfunding companies often call this process an Initial Coin Offering (ICO). They have also devised SAFE-like securities to pre-sell tokens. Sometimes called a SAFT, or Simple Agreement for Future Tokens.

Types of Investment featured on investibule.

What can investors expect to get for their money?


Get paid back in cash over time.


Own a piece of the company and its profits.

Rev Share

Get a fraction of the (variable) revenues .


Get paid back in-kind (products & services).