Crowdfunding

The ORIGINAL "crowdfunding" sites started as a way to make a donation to support an arts project/investigative reporting/documentary film or other "worthy cause". Initially the "rewards" were things like being listed in the credits of the documentary. This has evolved (in many cases) into something much more like placing an order for a product that has yet to be produced; hence the reference to game designers "not really delivering" and there are other cool products at the prototype stage that have raised money in this way by promising to produce and send the donor the item once the requisite funding is received for them to be able to produce it.

The NEW "crowdfunding" as covered by the JOBS Act is an equity offering and there are already a ton of rules (including having to go thru an "approved portal") built into the law. The corresponding regulatory framework is now being set up and was to go into effect on January 1st but rules have not yet been adopted by the Security Exchange Commission (SEC). It is interesting that one of the companies that has set itself up to be and "approved portal" says they are targeting companies with sales of between $3 million and $15 million, because this is the size/maturity of company that is big enough to deal with the expense/bureaucracy of the new crowdfunding procedures, but small enough to be unable to obtain debt financing for a major scale up. Thus the term is used for two entirely different processes. ( Kevin Hoult, WSBDC)

There are four basic forms of crowdfunding:

Original Crowdfunding includes:1. Gift-Donation -- often used on the art funding sites where everyone tosses in a small amount of money.

2. Prepaid Purchase – future customers are paying today for something they hope to receive later, like community supported. Revenues are considered sales and subject to taxes.

New Crowfunding includes:
3. Loan - Borrowing money and will pay it back, usually to a fund rather than to the individual contributors.. May be viewed as an offering under security rules.

4. Equity – The SEC must complete rule-making before the ban on general solicitation in Rule 506 offerings is lifted or before crowdfunding can commence. That rule-making is not complete. The SEC has published a warning to this effect on its website at: http://www.sec.gov/spotlight/jobsact/crowdfundingexemption.htm

A recent Internet search revealed hundreds of websites offering crowdfunding many specializing on topical area such as: non-profits, social causes and issues, arts and entertainment, consumer product development, or technology development.  Before registering examine funding website to identify the purpose and types of projects that site want to promote, read rules and identify all the fees.

Posting on a crowdfunding site is only the beginning. Raising funds will be more successful if you also have a social media marketing strategy spreading the word about your proposal.