Crowd investing is when a large group of people pool small amounts of money to fund either a loan or a business venture in exchange for a future financial return on an online platform.

But it’s potential is more than just investments. It’s how the general public becomes our financial system’s infrastructure by being the ones that provide financing.

Today small businesses, startup companies and individuals seek funding mostly from traditional sources, such as banks, private lending institutions or venture capital firms.

These institutions create many roadblocks for these individuals seeking funding.

The big banks don't typically like to finance small businesses. According to a 2022 report from the Federal Reserve, it’s because they are seen as riskier and harder and longer to approve than midsize and large companies.

In addition, small businesses are more complicated and less streamlined and the banks will make more money loaning to their larger counterparts.

Individuals who go to a bank to secure a personal loan must have good credit. Otherwise they often have very little alternatives other than using high interest rate credit cards or going to a private lending institution. Many of these institutions are predatory (think payday loans and lease-to-own lenders). The Pew Research Center has been studying this for the last 30 years.

When it comes to startup companies, venture capital firms with the backing of accredited investors (investors that meet certain income or net worth thresholds like $1 million in liquid assets) dictated which companies received funding and which did not.

Venture capital investments occur in the private market where only institutional and accredited investors have access.

Essentially, the wealthiest people in America decide which companies get the chance to shape our future economy.

McKinsey & Company highlighted in a 2023 report that this exclusivity of startup funding also creates additional barriers for women and minority founders.

In all three of these cases, large institutions would profit from the success and hard work from the small businesses, individuals and startup companies. Facilitating concentrations of wealth and perpetuating economic inequality.

The large institutions would take on risk, granted, but would often fleece the little guy to mitigate such risks.

To make matters worse the primary investment avenue for the average person is in large publicly traded companies through stocks and bonds. Allowing large corporations to benefit from the hard earned investment dollars of the general public. Which again facilitates concentrations of wealth and economic inequality being that the wealthiest 10% of Americans own 93% of stocks.

Enter crowd investing.

Crowd investing allows the general public to profit from the success and hard work of the general public. Off each other. This creates a regenerative and sustainable economic ecosystem. Where no one is too big to fail, and wealth gaps shrink.

The first successful crowd investing website to emerge was the peer-to-peer lending platform Prosper in 2006. Here an individual could invest as little as $25 to collectively fund a personal loan between $2,000-$50,000.

Many of the loans on Prosper are debt consolidation.

In other words, regular people can help other regular people get out of debt.

The regulatory hurdles that Prosper faced (and still faces today) are immense with residents of 20 states unable to invest on their platform at the time of this writing. Each state has their own securities laws and restrictions on investors.

The next big crowd investing platform to go online was Calvert Impact Capital in 2014.

With Calvert an average person can invest in the rehabilitation and development of low income communities for as little as $20.

In Calvert’s 29 years of existence (before becoming a crowd investing site they were available through select broker accounts) no investor has ever lost their principal or interest (past performance does not guarantee future results).

But the real breakthrough came when Regulation A+(2015) and Regulation Crowdfunding(2016) came into effect through the passage of the JOBS Act in 2012.

Overnight a new industry was born.

These new regulations freed up retail investors (non-accredited) allowing them access to the private market via crowdfunding.

Finally, regular people have access to this private market which has historically outperformed the public stock market.

This means that any US resident over the age of 18 with a US bank account can invest in small businesses (Honeycomb Credit), private equity (Fundrise) or startup companies (Wefunder).

Today there are dozens and dozens of crowd investing platforms available to the public. These platforms offer a huge variety of opportunities and frameworks.

These investments can be short term (4-12 months) or long term (5-10+ years).

Crowd investing is an inherently diversified way to invest and mitigate risk. With many platforms having $10 minimum investment requirements (SMBX). In this scenario someone investing $1,000 can be diversified into 100 different people and projects.

That's bank level diversification.

In its simplest terms, crowd investing is crowd-sourced financing.

This financing can come in different forms like equity crowdfunding (NetCapital), real estate crowdfunding (Arrived), peer-to-peer lending (Prosper), private equity crowdfunding (Fundrise), community development funds (Calvert) and loan participation programs (Steward).

A large crowd of people financing each other and together improving financial well-being for themselves and our shared economy. This is what crowd investing is all about.

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