Industry Regulatory Authority)
will be appointed to oversee the
crowdfunding intermediaries, who
would also have to register with
FINRA.
securities, and must direct
potential investors to the
crowdfunding intermediary with
whom they are working.
Different from Kickstarter
issue securities to investors, and the
investors may earn a return on their
investment. Conversely, Kickstarter
(www.kickstarter.com) and similar
websites allow small businesses to raise
funds, but do not allow the businesses
to issue securities to their investors.
Rather, Kickstarter investors receive
incentives to invest, such as a product or
an experience (e.g., a cool product that
the company produces or tickets to a
launch party).
Another difference is that Kickstarter
is typically used to launch a product, or
to release an independent film, or help
a band to tour. Crowdfunding will apply
the same concept to starting or growing
a business, such as a tech startup or a
local bagel shop.
One similarity between Kickstarter
and crowdfunding is that no project
have reached their target funding or
offering amount.
gap for many entrepreneurs and small
businesses, who may have a great idea,
but no way to obtain traditional financ-
ing. Banks are still hesitant to lend in
this economy, particularly to start-up
businesses. Venture capital is also dif-
ficult to obtain. Crowdfunding gets the
community at large involved in support-
ing the venture or idea, and provides
a great alternative to borrowing money
from family and friends.
Crowdfunding also allows individuals
to invest in their community and keep
their investment local, where they can
see the results. Even if they don't get
a direct return on their investment,
they still benefit from helping develop
their community.
is the potential for fraud. In an IPO, the
issuer is required to provide significant
financial information, in order to protect
the investor. A crowdfunding issuer will
be required to provide much less infor-
mation, which could be a double-edged
sword. On the one hand, a small business
may not have the resources to complete
an IPO, and crowdfunding provides lower
barriers to entry. On the other hand,
increases the potential for fraud by
fake companies.
Crowdfunding is also an inherently
risky investment. Many startup business-
es fail, and many crowdfunding inves-
tors may lose their entire investment,
or at least are unlikely to earn much of
a return on investment. Crowdfunding
investors will need to be well apprised of
the risks involved.
Another concern is how to walk the
fine line between advertisement of a
crowdfunding opportunity and giving
financial advice. Crowdfunding interme-
diaries cannot give financial advice,
but will have to make people aware of
the opportunities available without
even appearing to recommend certain
opportunities over others.
here are some things you can do now
to prepare:
be as visible as possible to potential
investors.
offering may only be disclosed by the
crowdfunding intermediary.
you need and what you will use it for.
investor questions. Begin to work on
the crowdfunding disclosure.
funding shareholders (voting, etc.).
funding intermediaries, although
those costs are not yet known.
intermediaries.
crowdfunding in early 2013, after the
SEC has issued its rules.
"CROWDFUND Act"
preliminary rules for crowdfunding.