Basically, it is raising capital for entrepreneurial endeavors from lots of different people. The money can come in the form of:
- Donation – Gift of cash, generally used by not-for profit ventures
- Rewards-based – Dollars are given in exchange for a product or service
- Debt – Money is loaned and repaid with interest
- Equity – Money is exchanged for an ownership interest
So where is all of this coming from? The Jumpstart Our Business Startups (JOBS) Act enacted in April 2012, was an attempt to loosen some of the restrictions on entrepreneurs who needed to raise cash without all of the time and money required for an initial public offering (IPO).
The Securities and Exchange Commission (SEC) unanimously passed Title II crowdfunding rules in September 2013. This act allowed entrepreneurs, brokers, and venture capital companies to offer a general solicitation to accredited investors for funding – as long as there is a reasonable attempt to verify that investors are accredited and appropriate company information is provided to the investors.
October 23rd, 2013 the SEC released proposed rules for Title III crowdfunding which allows for unaccredited investors to participate in a general online solicitation. This concept also provides guidelines that impose caps on the amount that can be invested during certain timeframes. The comment period for Title lll ended in February, 2014. We are now waiting to hear from the SEC what the final rules will look like for this.
This is certainly not an attempt by me to offer legal advice. It is simply my attempt to talk about crowdfunding without all of the “Regulations, Sections, Rules and exemptions” that are continuously referenced in any conversation regarding crowdfunding.