This 3-part series is based on the handout I created for the Equity Crowdfunding Workshop
When I solicited ideas from my colleagues and clients on topics of interest to cover during the Crowdfunding Workshop, the overwhelming feedback I received was “simplify and explain it to me”. Despite much content on the subject, there still is a huge amount of confusion around the terminology, context, actors, portals, various nuances, and what is legal and what is still aspirational about crowdfunding.
So, I set out to create a simple and memorable factsheet that I distributed at the workshop. The handout was highly appreciated by participants and panelists alike, and many asked if I could publish it.
Your wish is my command: this 3-part blog series, presented in bite size chunks, is intended to give effect to that request.
| Context | Terminology | Explained… |
| What is Crowdfunding? | Pooling funds collectively via the internet to support a company or a cause; a marketplace for opportunity, access to funds, and diversity of players. |
| Why Crowdfunding? | Common desire of the crowd to bring good ideas that may not often fit well into the conventional means of funding (e.g., angel, VC, loans). Due to securities laws, the funding for startups and small businesses fell in the hands of wealthy families and VCs. This left out over 30 million businesses that needed funding. |
| Crowdfunding Types | Rewards Based | Equity Crowdfunding |
| Rewards Based (RB) | Perk based funding by backers. Thank you gifts only; zero equity. RB platforms: Indigogo; Kickstarter. |
| Equity Crowdfunding (EC) | Investing money in a company or cause, online, in exchange for equity. The investors can be accredited or non-accredited.The top 5 Crowdfunding Platforms targeting accredited investors: Crowdfunder.com, Realtymogul, Fundrise, FundersClub, and EquityNet. Platforms that target investments by non-accredited investors are currently limited only to investors within a state (E.g., CraftFund in Wisconsin). |
| Why EC for Startups? | Startups create the most jobs in the US economy out of any segment of business maturity. With passage of Federal JOBS ACT (2012) Title II and Title III, equity crowdfunding became an important phenomenon in startup capital formation. When implemented, Title III has the disruptive effect of taking startup investing from non-existent to mainstream for non-accredited investors. |
| What is JOBS ACT (Federal)? | Soliciting investments from public generally requires SEC registration. The JOBS Act (Title II and Title III) form exceptions to this rule under limited circumstances using internet and social media.Title II – From accredited investors only; effective now. Title III – From non-accredited investors as well (see limits); Soon to come… |
| What is JOBS ACT (Washington)? | WA State Act that allows crowdfunding up to $1 million; 12-month period; from non-accredited investors; 2K or <5% of income. |
| Compare Title III | WA Act | Both have the same investor $ limits.Title III: Final Rules due 10/2015; best for companies with operations throughout the US (interstate) + global revenue. WA Act: Already effective; most suitable for truly local businesses within WA (intrastate); raw startups with 80% + WA revenue or zero revenue. Not for startups with intra state + 20% + global revenue. For WA Investors only. |
| Where is EC legal now? | In UK, Finland, Australia, and Italy, EC is already popular and legal. With Title III of the JOBS ACT (federal), US hopes to make equity crowdfunding a reality. However, in over 20 states, (including WA), EC is already legal and alive. |
Here’s a great TEDx talk about the impact crowdfunding can have on the world.
Next Up: Part II: Crowdfunding and JOBS Act Simplified – Players and Best Practices