WHAT IS CROWDFUNDING?
Crowdfunding is a process of raising capital, usually via the Internet, to fund a private venture by pooling small amounts of monies from multiple funders who share similar interests and ideologies.
Crowdfunding is currently being used to fund charities, the arts, political campaigns and even startup businesses. However, securities laws dating back to 1933 have made it illegal for funders to receive equity in exchange for their investment. The passage of the “Jumpstart our Business Start-ups Act” (JOBS Act) will legalize equity-based Crowdfunding, thus opening new doors to capital for cash-hungry small businesses and providing an abundance of new growth opportunities for ALL investors.
HOW WILL CROWDFUNDING IMPACT JOB CREATION AND STIMULATE ECONOMIC GROWTH?
Since the burst of the dotcom bubble in 2000, it has become increasingly difficult for startups to access the growth capital needed to expand, compete in a global economy, innovate and most importantly, hire. Conventional paths to growth capital have been stymied by increased regulation and changes in investment methodologies. In a dismal small cap IPO market, investing in an emerging private company became as out of favor as investing in a “dotcom” itself. Trading, as opposed to investing, became the new mantra. In an environment where only large cap companies can survive, the new issue market became monopolized by banking conglomerates and massive institutional funds.
With the U.S. capital markets being used as a playground by PIPE funds, program traders and a handful of supersized investment banking and institutional firms, small cap companies had no choice but to accept dilutive equity financings or pay exorbitant interest rates on debt structured financings. These egregious terms forced many small companies to go out of business. NASDAQ, America’s once great incubator, went from being an advocate of the small cap to its adversary, and in doing so left a gaping void in capital formation.
Preventing capital from reaching small businesses is what exacerbated unemployment and left America’s economy in shambles. Consumers need jobs so that they can purchase goods and services and keep money flowing through the system. An economy can’t exist without consumers. According to The Kauffman Foundation, “Without startups, there would be no net job growth in the U.S. economy.” And according to Capital Markets Advisory Partners, the loss of small IPOs is a major contributor to job loss in the United States.
Crowdfunding facilitates capital formation by not only giving small companies access to more capital, but lets them raise that capital on far more reasonable terms. Crowdfunding furnishes small businesses with the seeds to flourish. When America’s small businesses thrive, the entire nation prospers.
HOW IS THE CROWDFUNDING MARKETPLACE NOT JUST ANOTHER MICROCAP MARKET THAT WILL BECOME RIDDEN WITH FRAUD?
The Crowdfunding Marketplace could not be more distinct from conventional public micro-cap markets.
For one thing, crowdfund investors do not share the same investing philosophy as the typical micro-cap public investor. Conventional public micro-cap markets (ie: pink sheets) became the underbelly of the U.S. capital markets because of the type of investor and broker that the platform itself attracted; not on account of the issuers being small or micro companies. The liquidity structure of the pink sheets makes them appealing to stock manipulators and “pump and dump” schemes. Penny stock investors aren’t buying shares of a pink sheet stock because they believe that the company may eventually become the next Apple. They are buying stock because they think they could make a quick buck.
Crowdfunding breeds an entirely different type of investor – the long term, benevolent shareholder. Crowdfund investors are investing because they truly appreciate the company’s business, its mission, its value to the community and/or its potential impact on society. In fact, crowdfunders value the company’s business so much that they are currently funding projects without even receiving the equity component. Imagine a pink sheet investor forgoing his equity because his true motive is to see the company succeed? I can barely envision a pink sheet PIPE investor not demanding a 70% discount to the current bid in exchange for his capital.
Crowdfunding allows businesses to obtain shareholders whose interests are more aligned with their own. This alliance gives companies a greater chance to succeed. If crowdfunding achieves nothing else but altering investing behaviors and making it “chic” to be a long term shareholder again, it will go a long way towards improving our capital markets, our economic future and even advancing society as a whole.
HOW IS CROWDFUNDING REGULATED?
Equity-based crowdfunding will be regulated by the SEC. The JOBS Act will also require funding portals to register with an applicable self-regulatory organization (SRO). FINRA will most likely serve as the industry’s SRO.
THE FORMATION OF INDUSTRY ORGANIZATIONS
Formed by the crowdfunding industry’s leading platforms and experts, the Crowdfund Intermediary Regulatory Advocates, or CFIRA, was organized following the signing of the Jumpstart Our Business Startups (JOBS) Act. CFIRA is dedicated to helping establish industry standards and best practices through meaningful dialogue with the Securities & Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and other affected governmental and quasi-governmental entities. For more information, visit www.CFIRA.org.
The Crowdfunding Professional Association (CfPA) is dedicated to facilitating a vibrant, credible and growing crowdfunding community. CfPA brings together the many voices behind this historic breakthrough in capital creation. The CfPA is committed to defending your right to crowd fund. You can let your voice be heard by joining the CfPA today.
The Crowdfunding Accreditation for Platform Standards (CAPS) program is an initiative to promote the adoption of best practices for the operation of crowdfunding platforms. Designed to protect both crowdfunders (people pledging or investing capital) and fundraisers (people raising capital), the CAPS program’s mission is to foster the sustainable growth of the crowdfunding industry to provide much needed capital for projects and initiatives, start-ups and small businesses. Supported by an advisory council of leading platform operators and industry experts, the accreditation criteria will be reviewed annually to ensure high standards for performance continue to be set as the industry develops. Accreditation is granted based on an interview and a review process. Platforms that do not meet the qualification criteria receive feedback, and upon implementation of the recommendations, are able to reapply.
To understand the new crowdfunding securities laws as well as to gain greater insight into the JOBS Act itself, we recommend you read, U.S. Securities Laws Poised for Major Shift as ‘JOBS Act’ Goes to President for Signature, put forth by Reed Smith, a 135 year old global relationship law firm with nearly 1,700 lawyers in 23 offices throughout the United States, Europe, Asia and the Middle East.
HOW CAN I RAISE CAPITAL VIA CROWDFUNDING AS WELL AS FIND INVESTMENT OPPORTUNITIES?
Please note that although signed into law, Securities Crowdfunding is not legal until the SEC implements the new “Crowdfund Investing” rules. It is highly unlikely that the SEC will meet its January 1, 2013 deadline for implementation. We will keep you posted on the regulatory progress. In the meantime, reward-based crowdfunding is totally legal, as is “accredited crowdfunding” under certain exemptions. Please crowdfund responsibly – don’t drink and crowdfund
NowStreet recommends checking out the following crowdfunding tools & platforms:
- AngelFunder – AngelFunder is an online platform for entrepreneurs and business to post their new ventures, whether they be start up businesses, product line expansions, or a great new invention. AngelFunder leverages the power of crowd funding to help entrepreneurs and businesses get the financial support to launch or expand their businesses. AngelFunder also provides a great place to test the waters for your new venture before you invest a lot of money into it.
- AngelList – AngelList is a community of startups and investors who make fund-raising efficient. Started by the dudes who do Venture Hacks.
- Bolstr – Bolstr was founded to provide Small Businesses with a simple fundraising tool that enables them to transform their network and community into a team of investors, and supporters. Through step-by-step guidance, Bolstr democratizes, and simplifies the process of raising money through a private offering. By utilizing the technique of “crowdfunding”, Bolstr enables Small Businesses to reach out to their networks and communities to raise smaller investments from a larger group of people. With Bolstr, Small Businesses can effectively leverage their network and community to raise the money needed to operate and expand.
- California Stock Exchange – California Stock Exchange assists small firms in raising raise capital which is coupled with www.leonhardtslaunchpads.com, a startup business incubator booster program.
- CircleUp – CircleUp is an online social marketplace that supports direct equity investments from individual investors to small private consumer and retail companies.
- Crowdcube.com – is a crowdfunding platform enabling startup companies to raise funding by offering real equity. Uniquely, Investors can invest very small amounts of money (minimum £10) allowing the average Joe to build their own investment portfolio.
- Crowdfunder – Crowdfunder is the Business Crowdfunding platform that enables U.S. startups and small businesses to raise funds through equity and revenue-based investment.
- Crowdfunder.co.uk – is a new crowdfunding platform and service. Open to anyone in any country, Crowdfunder allows people to raise funds for almost any type of projects and give rewards to their community of funders.
- Crowdnetic - Crowdnetic is a leading provider of market data solutions and funding portal platform technology to the private equity and crowdfunded securities industry. The company operates the industry’s premier centralized hub for real-time market data aggregated from platforms across the globe.
- FundingLaunchpad – FundingLaunchpad helps Colorado companies raise capital through crowdfunding. Boulder, CO, has become a regional hotspot for startups, so why not a crowdfunding site that focuses on them?
- GATE Technologies – The GATE Platform offers a complete end to end solution by combing a regulatory compliant transactional platform, settlement and clearing services with global connectivity, enabling qualified investors and institutions to trade the most complex alternative assets with confidence. GATE Technologies gives market participants the transparency, efficiency and liquidity they need to view all market activity, ensure regulatory oversight and lower transaction times.
- GATE Impact – GATE Impact is a robust software application will enable investors to access research, analytics, trading, settlement, clearing and reporting metrics for socially and environmentally responsible investors all while maintaining a regulatory
compliant and secure environment.
- GrowVC – Grow Venture Community (Grow VC) is the first global, transparent, community-based platform dedicated to entrepreneurs and investors. Grow VC enables great ideas and great teams to get visibility with the right investing audience, funding and support earlier. Grow VC is more than crowd funding, it’s a nurturing ecosystem where entrepreneurs can connect with experts, funders, team members, new customers and partners to realize their ideas. Grow VC can help startups companies secure initial funding of up to 1M USD. Grow VC International Headquarters is located in Hong Kong, with offices in the US, UK and Finland.
- Indiegogo – Indiegogo is one of the world’s leading Crowdfunding platforms. Indiegogo is totally open and doesn’t require an application to start a campaign – offering anyone with an idea – creative, cause-related, or entrepreneurial – the tools to simply and powerfully raise money. Indiegogo is the only crowdfunding platform that features a merit-based, data-driven methodology to display and rank campaigns. Anyone in the world with a dream to make their idea a reality can easily create a campaign to raise money, offer perks and maintain 100 percent ownership. In addition to focusing on individual campaigns, Indiegogo has established several partnerships for business-to-business opportunities, including collaborations with the White House-sponsored Startup America effort, the Kiva Fellow’s program and fiscal sponsor Fractured Atlas.
- Kickstarter.com – Kickstarter is leading Crowdfunding platform. Every week, tens of thousands of people pledge millions of dollars to projects from the worlds of music, film, art, technology, design, games, fashion, food, publishing, and other creative fields. Since its launch on April 28th, 2009, more than one and a quarter million people have pledged $130 million to projects by creators who always maintain full ownership and complete creative control of their work.
- Launcht - Launcht enables universities, foundations, businesses, and conferences to create their own custom white label crowdfunding platforms. Launcht partners with emerging crowdfunding portals as their technology developer, offering turnkey crowdfunding solutions. We also host a crowdfunding site for social entrepreneurs. These platforms empower your crowd to engage with and fund your community’s projects and ideas, connecting with their causes to further your mission.
- MediaShares.com holds an issued U.S. Patent for a method of Crowdfunding through SEC-compliant online stock offerings. MediaShares’ methodology allows companies to sell their shares in an IPO directly to their fans, customers, or affinity groups, and in so doing, build massive online communities of shareholders that they will have direct contact with. Using Direct Registration to sell shares online to even non-accredited investors, MediaShares business method enables companies to sell as little as a single share of stock to fans, as well as sell large blocks of stock to typical institutional investors. The stock can be sold online, with or without an Underwriter. The JOBS Act will modify Regulation A, allowing for advertising the sale of stock to the general public and selling to non-accredited investors and this is expected to greatly expand these types of online offerings.
- Motaavi – Motaavi is a crowdfunding platform where anyone can invest in startups seeking up to $1M a year.
- peerbackers.com – peerbackers is an online funding platform that allows business owners to raise capital from their “peers”—in small increments—in exchange for tangible rewards to those who contribute. We’re the connectors— our online marketplace directly links business people who are looking for a small amount of start-up or growth capital with individuals who are willing to contribute that funding in small increments. These individuals can be friends, family or complete strangers…but they all share one thing—at least $10 to spare and a desire to have a positive impact on the world. Not to mention—the contributors get cool rewards too!
- ProjectFranchise – Project Franchise is a group set out to ‘Make Fantasy Sports a Reality’ by charging $10 for each premium member, plus sponsorships, they seek to raise enough money to buy a minor league sports franchise and let the community vote on all major team decisions. The fans will have a say in everything from team name, mascot and logo to player personnel and game strategy to what is served in the concession stands.
- RocketHub.com – RocketHub is one of the world’s top crowdfunding platforms that has been featured in the Wall Street Journal, The New York Times, NPR, Wired, The Economist, CNN, The Washington Post, ABC News, USA Today, etc. while helping thousands of funding campaigns raise millions of dollars. RocketHub is open for all types of funding campaigns, free to join, and accepts projects from around the world.
- Rock The Post - Rock The Post is a social networking platform for entrepreneurs to fund and swap resources. The free site is a great tool for entrepreneurs to leverage their networks and reach new ones, to fill the missing pieces of their projects. The crowdfunding and cowdsourcing site is the ideal resource for startups and companies ramping up.
- Seedmatch – Seedmatch is the first online platform based in Germany that offers crowdfunding for startups. Our aim is to connect promising startups with a crowd of individual investors. Everybody is invited to invest even small amounts of money (starting from 250 Euro) and to become one of many “mini business angels” who together help realising the innovative and promising startup projects that are introduced on the platform. Each investor can choose individually which projects he wants to support. Our vision is to make exciting ideas happen and to encourage entrepreneurship.
- Seedups.com – Seedups is a crowdfunding platform for Entrepreneurs looking to raise seed-stage capital for their business from a crowd of high net worth investors. Entrepreneurs can raise from up to £250,000/€250,000 in a single funding round.
- SoMoLend – SoMoLend is a super savvy company with patent-pending peer to peer lending technology. We leverage a patent-pending lending technology executed within a hyper-localized geographic scope (we know, super techy, but very cool). This user-friendly technology can be accessed worldwide by 1) business borrowers who are credit-worthy, but may not be eligible for traditional forms of financing and 2) investors seeking higher than public market rates of return. Investors lend money directly to borrowers through a web-based application, which then packages the loans and sell them as notes, bypassing the need for banks and credit-card issuers. It’s not your daddy’s financial institution. It’s Social. Mobile. Lending!
- Sponsume.com is a free and open fundraising platform for creative projects based in the UK and Europe. Unlike most crowdfunding sites, Sponsume does not charge a success fee or any other fee. Sponsume welcomes applications from individuals and organisations for artistic, entrepreneurial and social projects.
- StartSomeGood – StartSomeGood empowers people from around the world to become social innovators. By connecting social entrepreneurs with the financial and intellectual capital they need to transform an idea for improving the world into a reality, together we can turn ideas into action and impact. There are no shortage of problems in the world, and no shortage of people with ideas to address them, yet they lack the resources that they need to get started. StartSomeGood provides social entrepreneurs with a platform to raise start-up funds and build a community of supporters — all in a fun, engaging and community-driven way. Our site taps into the power of the crowd, allowing social entrepreneurs to ask for small amounts of money from supporters from around the world, and gives them the tools to update their supporters, provide unique rewards in exchange for support and run multiple campaigns over time. We’ve taken the crowdfunding model — which is growing in popularity world-wide — and customized it to reflect the unique needs of social entrepreneurs.
- Symbid – Symbid is one of the first “equity-based” online investment platforms that enables individuals to directly invest in start-ups or existing ventures in exchange for an equity stake in the company! Anyone can invest, – from as little as €20 for each investment unit – you decide the size of your investment by deciding how many units you wish to acquire. You can begin by investing just €20 for one unit or increase your investment to as much as €2,500,000! Symbid’s crowdfunding model is the first of its kind providing a new way for small and large investors to directly invest in equity-based ventures. Investors become partial owners once the new company has managed to achieve its stated funding.
- Wefunder – Wefunder is a crowd-investing platform for startups and small businesses.
- When You Wish – When You Wish is the internet’s most flexible and inexpensive platform for raising money online. They create a market for human aspiration where the best way to dream big is to give bigger.
- Wiseed – Based in France, Wiseed is a 4 year old equity platform for financing startups with more than 7000 investor members, 18 invested companies and the average investor investing €1 500.
- You’ve Got Funds – YouveGotFunds is dedicated to funding the next big idea. Whether it’s a new business, film, CD, art project, invention, personal cause or technology, they believe in your creativity and help visionaries gain exposure to a wider audience, find funding and market their concepts.
WHERE CAN I LEARN MORE ABOUT CROWDFUNDING?
Additional crowdfunding resources include:
Startup Exemption – Startup Exemption is a team of seasoned entrepreneurs who came together to create a regulatory framework that balanced the needs of entrepreneurs and investor protection in order to make CrowdFund Investing legal. Their work is the foundation of the “CROWDFUND Act” which is embedded in The JOBS Act that passed both chambers the legislative branch by an overwhelming bipartisan majority and is expected to be signed into law by President Obama this week. The path from idea to law in 579 days can be found at: www.startupexemption.com.
Croudsourcing.org – Founded in 2010, the industry website, Crowdsourcing.org, is a neutral organization dedicated solely to crowdsourcing and crowdfunding. As one of the most influential and credible authorities in the crowdsourcing space, Crowdsourcing.org is recognized worldwide for its intellectual capital, crowdsourcing and crowdfunding practice expertise and unbiased thought leadership.
Funding Roadmap – Funding Roadmap business plan and due diligence reporting system on-the-cloud provides real-time planning, reporting, analysis, compliance, transparency and GAAP compliant financial statements. It gives you a simpler and easier way to comply with individual state and national security laws and future reporting as you successfully crowd fund your business on any crowdfunding site.
For crowdfunding assistance, introductions to crowdfunding experts or information on NSJ crowdfunding events, please feel free to email firstname.lastname@example.org.