For years, Goparity has given investors a way to put their money directly behind projects they believe in through crowdlending, earning interest as loans are repaid. That model remains at the heart of what we do. But we're opening a new chapter.

Equity crowdfunding will soon be available on Goparity.

Instead of lending money to a company, you can invest in the company itself, becoming a shareholder and sharing in its potential growth.

It’s a different way of investing, with a different time horizon and a different approach to returns and risk.

So, what does that actually mean for you as an investor? In this article, we’ll look at how equity works, how it differs from crowdlending, how a return can happen, and what to consider before investing.

How equity differs from crowdlending

Most Goparity investors are already familiar with crowdlending. You lend money to a company or project, earn interest on a fixed schedule, and receive your capital back at the end of the term. You're a creditor. The promoter owes you money.

With equity, you become a shareholder instead.

When you invest in an equity campaign, you're buying a small ownership stake in a company. You become a shareholder in the business and take part in its potential growth, with the possibility of significant returns if the company grows substantially; however, you also take on the risk of losing part or all of your investment if the company does not grow as expected or goes out of business.  

There is no fixed interest rate, no scheduled repayment and no defined end date.  

Your potential return depends on how the company performs over time. It can come in different ways, including dividends, an increase in the value of your shares, or a liquidity event that gives you an opportunity to sell them.

For now, the key thing to understand is that none of these outcomes is guaranteed. This is why equity is generally a long-term investment. It can take several years before there is an opportunity to realise the value of your investment, and there may never be one.  

The fundamental difference is simple: with crowdlending, you lend to a company. With equity, you invest in its ownership.

Will you really become a shareholder?

Yes, through a SPV, not directly in the company. Once an equity round closes and the legal formalities are completed, your investment is held through a Special Purpose Vehicle (SPV): a separate legal entity that groups the whole investor community into a single shareholder on the company's cap table. Your stake reflects your share of what the SPV holds.

Being part of the SPV doesn't mean taking part in the company's day-to-day management. It does mean having an economic interest in the company's future value, with information rights and terms set out in the SPV's own documentation.

It also means that if the company grows in value, your shares may become more valuable too.

Most equity rounds on Goparity also involve a lead investor, typically an institutional or experienced investor who invests in the round and helps establish its key terms before the campaign opens to the community.  

Goparity itself does not act as the lead investor.

How can an equity investment generate a return?  

There are several ways your investment may generate a return over time.  

Dividends are one possibility. If a company makes profits and decides to distribute some of them to shareholders, you may receive a share of those profits. But dividends are not guaranteed, and early-stage companies may choose to reinvest their profits into the business instead.  

The value of your shares can also increase. If the company grows and becomes more valuable, the shares you own may be worth more than when you invested. But an increase in value doesn't automatically put cash in your account. To turn that value into a realised return, you generally need an opportunity to sell your shares.  

This is where liquidity events come in. A company might be acquired by another business, for example, allowing shareholders to receive a share of the proceeds. It could eventually go public through an IPO, making its shares publicly tradable. The company might buy back shares from investors, or another investor might purchase your shares in a secondary sale.  

These are some of the possible ways shareholders can eventually realise the value of their investment.  

None of them is guaranteed. A company may not pay dividends, its value may not increase, and a liquidity event may never take place. Even if one does happen, it may not result in a positive return.  

The important thing to remember is that equity doesn't come with a predetermined return. You're investing in a company's future, and the outcome will depend on how that company performs over time.

What are the risks?

As you've seen throughout this article, equity comes with a different risk profile from crowdlending.

The value of your investment depends on how the company performs, and there is no guarantee of dividends, growth in the value of your shares or a future opportunity to sell them. You may have your money invested for several years, and you could lose some or all of what you invested.

There is also the risk of illiquidity: even if your shares have increased in value, you may not be able to sell them when you want to.

In other words, the potential for growth comes with the possibility of loss. That's part of what it means to invest in a company rather than lend it money.

The important thing is to understand these risks before investing and to only invest an amount you're comfortable committing for the long term.

A different kind of investment, for a different kind of investor

Equity and crowdlending are not in competition. They are different tools, suited to different investment profiles and different stages of a company's growth. Some investors will use both. Others will prefer one over the other.  

What matters is going in clear-eyed about what each one is, and what it isn't - understanding the opportunity, the risks and the time horizon, and deciding whether a particular investment makes sense for you.

Equity crowdfunding on Goparity will be available to anyone who has completed identity verification, including people who have never invested before.