Reward-based crowdfunding
has been used for a wide range of purposes, including motion picture
promotion, free software development, inventions development,
scientific research, and music albums. There are no regulatory hurdles
required to exchange a promise to deliver a product in return for an
up-front payment. Thus, many of these rewards based crowdfunding
platforms core competitive advantage rests in the utility of their
website design infrastructure and overall competiveness in their fees
being charges. While some crowdfunding platforms offer ancillary
services and perks, the primary distinction between most Rewards based
crowdfunding platforms are their fees charged and rules surrounding
policies relating to “‘Keep-it-All’ (KIA) and ‘All-or-Nothing’ (AON).
“‘Keep-it-All’ (KIA) is where the entrepreneurial firm sets a
fundraising goal and keeps the entire amount raised regardless of
whether or not they meet their goal, while an ‘All-or-Nothing’ (AON)
is where the entrepreneurial firm sets a fundraising goal and keeps
nothing unless the entire goal is achieved by the pre-determined
deadline.
Equity Crowdfunding: Equity Crowdfunding is the process where a
project funder receives actual pre-defined ownership shares of a
crowdfunding company, usually in its early stages, in exchange for the
equivalent amount of money pledged. The project’s success is
ultimately determined by how effectively the company’s vision and
long-term economic viability can be demonstrated. A similar decision
making framework and project approval process is analogous to the
investment considerations Angel investors make when considering
private placement investments, with the exception being that the lower
financial entry level barriers can occasionally lead to a more
recreational and informal project acceptance criteria. Equity
crowdfunding is a mechanism that enables broad groups of investors to
fund startup companies and small businesses in return for equity,
however when compared with the firm control exhibited by many V.C
firms, equity crowdfunding is essentially not much difference from the
more passively supportive investment approach already utilized by many
Angel investors for decades, with the key distinction being the
platforms inherent scalability and mass community design appeal.
However, whereas many rewards based crowdfunding platforms rely
heavily on how user-friendly their platform is and/or the total size
of their internal network of funders, with equity crowdfunding firms
this is only the beginning. For a more active investment advisory type
of approach is essential in order to effectively maximize issuing
companies equity raises and valuations, while alternatively
pre-screening prospective companies and investors who could pose
systemic future risks by issuing misleading disclosures or fabricating
unaudited financial statements. Given these much higher stakes there
are many regulatory hurdles required with equity crowdfunding and the
SEC is the chief governing body establishing, regulating, and
overseeing the rules which will guide the future of equity
crowdfunding as an industry. Many of these hurdles were expected to be
eliminated following the passing of the JOBS ACT. The first piece of
the Jobs Act went into effect this past September. It ultimately
relaxed long outdated depression-era rules that previously banned
companies from advertising investment opportunities to the public.
However, the more fundamental aspect actually allowing small
businesses to sell equity via crowdfunding to non-accredited
investors, has been delayed on multiple occasions with the most recent
target date recently being pushed back until October 2015. Thus, the
regulatory uncertainty left many equity crowdfunding platform
companies in limbo unsure of the ultimate industry rules and
regulations governing non-accredited investors. In the U.S an
accredited investor is defined as person possessing a net worth of at
least one million US dollars, (not including the value of their
primary residence) or alternatively have income at least $200,000 each
year for the last two years (or $300,000 together with their spouse if
married) and have the expectation to make the same amount this year.
Thus, while cautious equity crowdfunding companies waited on the
sidelines for the equity crowdfunding industry to take shape and only
hesitantly embarked on soft-launches; more savvy equity crowdfunding
firms, like SeedInvest, realized that there was nothing stopping them
from launching prior to the SEC finalization of the JOBS ACT so long
as only accredited investors were targeted. So while everyone else
awaited for non- accredited regulations, SeedInvest raised the bar and
leapfrogged their potential future competitors by successfully
crowdfunding itself with a $4.2M Series A financing round while
building a market around crowdfunding private companies to their
network of accredited investors. Thus, investment bankers with
foresight and other Angel investor networks willing to adapt realized
that while the JOBS ACT would surely be a global game-changer once the
treatment of non-accredited investors were legally defined, the very
same platform utility concepts designed for the general masses could
be intermittently used for targeting smaller niche(s) of wealthy
investors seeking private placement investments. Overtime, it is
believed that the amount of attention focused on crowdfunding will
lead to eventual economies of scale. The benefits of scalability could
thus lead to a renaissance in investment banking and venture capital
investing, with a far greater focus on investments made in companies
at far earlier stages of the investment spectrum.
Crowd Funding Central 