Equity Crowdfunding Blog

Author Archives: Judd Hollas

Top 10 Best Sectors to Invest in 2021 [Investor Data]

In the last twelve months, investors on EquityNet reviewed nearly 4 million company profiles while surveying the landscape for their next investment. We decided to use this data to analyze the best sectors to invest in based on those that intrigue investors the most.

When using our platform, businesses have 34 options to categorize their sector, ranging from Aerospace, Chemicals, and Defense to Pharmaceuticals, Media, Real Estate, and more. Below, you will see the 10+ industries piquing the most interest among investors on EquityNet:

Top 10 best sectors to invest measured by actual investor data

In typical Pareto’s Principle practice, the top two sectors received as much investor interest as the next eight most intriguing combined. 

Qualified Small Business Stock (QSBS) Section 1202 Exclusion

entrepreneur and investor analyze qualified small business stock and the section 1202 exclusion

Qualified Small Business Stock (QSBS) Section 1202 Exclusion

If you’ve ever sat down on a Sunday afternoon to read the tax code, you’re probably familiar with section 1202. If you haven’t, you’ll want to keep reading for a brief overview of how this mere footnote can leave a big footprint on the tax burdens of small business investors. 

Section 1202 is the partial exclusion for gains from qualified small business stock. 

What is Qualified Small Business Stock?

Qualified Small Business Stock (QSBS), sometimes referred to as “section 1202 stock,” is an internal revenue code (IRC) exclusion that can eliminate capital gains tax for long-term investors and other shareholders of qualified small businesses. 

Cost of Equity Formula Using DDM, CAPM, and Private Companies

From a company’s perspective, there are two methods for raising capital: debt and equity. Debt is usually less expensive than equity because the debtholder’s returns are fixed and finite. You can also deduct interest expenses from your tax burden, which is an advantage of using debt financing. 

But there are many reasons a company would want to raise equity capital and therefore must understand their cost of equity. Investors will also likely conduct a similar analysis for different reasons, but it’s good to align cost of equity expectations. 

Business Valuation Multiples by Industry [Data Study]

investors discuss business valuation multiples

Today’s entrepreneurial ecosystem is experimental. It’s experimental because 500,000 companies are started every year with a hypothesis for solving a problem and, in that same year, an equal number of businesses fail. 

From a macro perspective, these innovative companies test the market and either have groundbreaking success or enlightening failure. Those that fail send a powerful signal to the market that helps evolve our collective thinking about business and investing. Another powerful signal is the valuation multiple paid to invest in these companies — how is the market pricing innovation? 

High-Risk Investments: Types of Risk, Reward Ratio, and Examples

female investor considers high-risk investments on mobile brokerage

Warren Buffett, the most famous and possibly most risk-averse investor of all time, has distilled his principles for investing down to two rules:

  1. Don’t lose money.
  2. Don’t forget the first rule.

A high-risk investment is one that has a significant probability of losing some or all of its value. Every investment has some level of risk, in other words, every position has a probability of losing money, but safe investments have extremely low probabilities of loss.

What is Liquidation Preference and Who Benefits Most?

investor and entrepreneur negotiate liquidation preference

Whether you’re an entrepreneur, investor, or even an employee with some stock options in a startup, the importance of understanding liquidation preference cannot be overstated. 

Consider the purse of prize money at a gaming event: first place receives the lion’s share of the winnings, others on the podium usually get a much smaller slice, and the vast majority of contestants receive nothing. This is a great analogy for thinking about liquidation preference. 

In this article, we introduce one of the most important clauses that is included in an angel, venture, private equity, or other investment term sheet

A Guide to Rollovers as Business Startups (ROBS)

woman considering the ROBS program for 401(k) rollovers for business startups

If you’re looking for startup or operating capital for a business, you might exhaust all debt and equity financing options before discovering that Rollovers as Business Startups (ROBS) could have been a great option from the start. 

Accessing the capital needed from your own accounts can be a great way to avoid the risks of assuming debt, but it can also come with its own set of risks. If you are a young entrepreneur without any money saved in a 401(k), ROBS will not be a viable option to you and you should consider alternatives to raising capital, such as equity crowdfunding

How to Become an Accredited Investor

investor determining her accredited status by the SEC

We’ve all heard the phrase, it takes money to make money, but to rephrase it in terms that accredited investors would understand, we must make an appendage: it takes money to make money in unregistered offerings. 

This is because accredited investors have access to investment offerings and opportunities that most people do not, even those who earn above-average incomes and have respectable net worths. 

In this article, we discuss who is eligible to invest in unregistered securities and how the Securities and Exchange Commission (SEC) has moved the bar over the years for becoming an accredited investor.

Common Stock vs. Preferred Stock: Understand The Differences

All corporations, whether public or private, have shares of stock. Each share carries a price, whether established by the market (investors) or approximated by the company itself (pre-money valuation), that when combined, represent 100% of the company’s equity. 

When one buys a share of stock, they are buying a sliver of equity ownership in the company. The type of stock they purchase will dictate if and when they have rights to distributions of money and votes on corporate actions.

In this article, we cover what each form of ownership is (common stock vs. preferred stock) and how they differ for private and public companies. 

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