Choosing the right security type affects investors’ returns. To understand which are most common in equity crowdfunding (ECF) since 2023, we analyzed Reg CF and Reg A+ deals.
  • Common equity, the same securities offered on public markets, are the most frequent – but exercising voting rights through ECF deals is nearly impossible, limiting investor control. While investing in common equity, the key focus should be on company valuation, not share price.
  • Preferred stock gives better terms when it offers liquidation preference. This ensures preferred shareholders get their initial investment back first, ahead of common shareholders, in the event of liquidation or sale. Common stockholders only receive payouts after all debts and preferred claims are settled. However, some companies note in Form C that these shares may act like common stock, so careful due diligence is crucial.
  • Platforms like StartEngine and Dealmaker Securities mainly feature companies offering common or preferred stock.
  • SAFEs (Simple Agreements for Future Equity) are popular with early-stage companies. They allow companies to raise funds without issuing stock or setting a formal valuation. Instead, a SAFE offers a valuation cap (setting the highest price at which the SAFE will convert to stock) and/or a discount (ensuring early investors get better terms than future investors). SAFEs delay stock issuance and therefore dilution, which can enhance returns, but uncapped SAFEs are riskier as investors don’t know the future valuation, which could reduce their share of the company.
  • Convertible Notes also promise future equity and may offer interest in the form of extra shares until conversion, but they are usually reported as debt. Crowd Notes, a derivative of Convertible Notes, are regularly offered online.
  • Equity token securities use blockchain to offer digital shares with liquidity benefits while maintaining traditional ownership rights – like Hydro Wind Energy did in its latest raise.
  • Ultimately, while security types do influence outcomes, the real key to maximizing returns is picking companies with solid growth potential, smart leadership, and a fair valuation. Focus on the company’s fundamentals—choose wisely, and the type of security becomes a strategic tool rather than the deciding factor for success.