Friday, June 1, 2012

CrowdFunding: Breaking it Down

After attending the CrowdFunding Made Simple conference on May 31st and June 1st, I have gained a new knowledge and appreciation for what has been accomplished so far by the leaders in this industry. I am amazed at the potential growth projected for its future. But more on that in another post. As a point of basis and reference, we need to start with some of the basics.

According to Carl Esposti, the Founder of Crowdsourcing.org and a great guy, CrowdFunding needs to be understood in its four uniquely different categories.

1. Reward/Perk CrowdFunding: This is the most popular form of CrowdFunding today, and it is based on the concept that those giving funds to the project will receive something in return, usually a non-monetary perk or reward. It can range from a postcard signed by the fundraiser from some far-off country to a shipment of the product the fundraiser builds with the money received for the project. The CEO and COO of RocketHub.com participated in this conference (great guys!), and I'll be sharing a lot more detail on how this model works and how to make it successful. Other platforms of notoriety include Kickstarter.com and Indiegogo.com.

2. Donation CrowdFunding: There are many platforms that fall into this category as well, which returns nothing to the givers of funds except the emotional connection to a cause or program with which they have a strong connection. This category fits with philanthropic, charitable, and sponsorship activities and projects. 

3. Equity CrowdFunding: Startup and other companies sell some of their stock to regular folks like you and me, that's the idea behind this category. Givers receive stock and the prospect of financial return that might come with it. It's a revolutionary concept, and here's why. In the United States, it is not currently legal to sell securities in a privately-held business to what are referred to as unaccredited investors, meaning people who have made less than an average of $200k per year for the last three years or who have a net worth in excess of $1 million, excluding their personal residence. However, the JOBS Act, which President Obama signed into law in April 2012, is going to allow this to happen. There are still some things to be sorted out by the SEC and whoever they appoint as the regulatory body to oversee compliance, but that's supposed to be done by Jan 1st, 2013.

4. Debt CrowdFunding: Similar to equity CrowdFunding, this category provides the prospect of a financial return to the giver in the form of interest and principal payments. 

In addition to sharing more content I learned at the conference, I plan to write a lot more on this topic during the coming weeks and months as the industry grows and regulatory bodies attempt to catch up with the current legislation.