U.S. Crowdfunding Sites: A Discussion

 US Crowdfunding Sites

US Crowdfunding Sites

Crowdfunding is defined as funds generated by a group for a venture, concept, or product. This allows a greater number of contributors to provide a smaller amount of money each in order to reach a preset funding goal. The crowdfunding landscape is braced for change and growth in the coming year. In order to understand the rapidly changing life of the crowdfunding industry in the United States, it is worthwhile to discuss some of the current operations of U.S. crowdfunding sites.

U.S. Crowdfunding Sites: Reward and Donation

Most familiar in the United States are the reward or donation crowdfunding platforms. Since 2012, these sites have been open to everyone regardless of income or experience. Reward crowdfunding is the type whereby people commit money in exchange for a specific service or reward. For example, someone may go to  Indeagogo.com  and present a movie project. Anyone who contributes to the project is offered a producer credit. This is very popular for many types of ideas, such as homemade jewelry, music, inventions, software, and so on.  Kickstarter.com successfully funded more than 53,052 projects according to the Kickstarter statistics* . This type of crowdfunding has experienced large growth over the past year.

Donation crowdfunding is very similar except that projects are limited to charity fundraising. In this instance, people are able to create a goal or event in order to contribute money to those in need. Sites such as GiveForward.com allow people to create pages for things big (providing safe immunization for all children in Africa) and small (loved ones who need to cover medical bills). Basically, any cause that moves a person to action can be turned into a fundraiser via donation crowdfunding sites.

U.S. Crowdfunding Sites: Equity and Investment

While the terms equity “crowdfunding” and “investment crowdfunding” often are used interchangeably, let us make a distinction for the purposes of this discussion.  Let’s have our definition of equity crowdfunding be a site that gives investment opportunity to the U.S. public.  Soon the U.S. citizens may be able to take part in equity crowdfunding that has had great success, for businesses and investors, elsewhere around the globe. Equity crowdfunding allows anyone to purchase small-business stock from start-up companies.  The Jobs Act of 2012 has opened the door to the possibility of equity crowdfunding in the United States; however, the SEC must finish regulations before anyone officially is allowed to walk through the door.  In this discussion the term investment crowdfunding will be used in reference to the U.S. crowdfunding sites currently offering equity opportunities to U.S.-accredited investors and citizens in other nations. It is worthwhile to discuss the U.S. investment crowdfunding sites as a consideration of what equity crowdfunding may look like in the United States in the near future.

There are many sites operating in the United States providing investment crowdfunding opportunities to accredited investors. Sites such as GrowVC.com, microventures.com, and Fundable typically charge fees ranging from 5.3% to 10% of the money raised in order to run the sites.  Generally the fees range by services provided and the number of users on a given platform. Some of these sites provide education for new investors and new entrepreneurs. Many of these sites were strong supporters of the Jobs Act of 2012 that may indicate that they will offer equity crowdfunding in the United States when possible.  In the U.S., users of these investment crowdfunding sites are limited by regulation. In order to participate in this type of crowdfunding, a company must complete specific paperwork with the SEC, thus these sites provide an opportunity to complete this due diligence. Similarly, only U.S. citizens able to participate as investors are those who meet the SEC accreditation standards – a net worth of 1 million dollars and two hundred thousand U.S. dollars per year income.

Some U.S. crowdfunding sites are able to support both reward and investment crowdfunding opportunities. For example, both RocketHub.com and Crowdfunder.com allow users to choose which type of proposal they have (concept, object vs. business).  The conditions of investor accreditation and SEC registration still exist for these sites within the United States. However, users outside the United States are able to invest individually in enterprises or post a company concept with little limitation.

In expectation of the coming regulations from the SEC, there are emerging sites devoted strictly to equity crowdfunding. One of them is truCrowd.com and will utilize social media in an expansive way that has not yet been seen. These sites will be focused on the needs of the U.S. public who desire to invest in start-ups as Europeans have been doing for few years now. U.S. equity crowdfunding sites will benefit from the experience of European crowdfunding as well as the kinds of crowdfunding already flourishing in the United States. This allows U.S. businesses to be innovative and have an equal opportunity with companies in other nations. It also allows the U.S. public to have investment opportunities that previously have been reserved for only the wealthiest citizens.

According to Reuters, $2.7 billion was raised via crowdfunding in 2012**. The expected growth for 2013 by many expert organizations, such as Forbes, was exponential and we are mere months away from having the final calculations for this year. With the possibility of equity crowdfunding in the United States on the horizon, experts continue to expect crowdfunding to be one of the fastest growing markets in 2014.

What do you think? Did we explain well and clear the types of crowdfunding sites that are here in US?

Posted in Capital Formation, Equity Crowdfunding, Investors, Start-ups

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