Crowdfunding.

• Author: Royse, Roger
• Position: Startupcompanies

in 2012 President Obama signed the JOBS Act, which introduced the concept of letting the wisdom of the crowd--instead of the regulator--determine the sale of securities. The crowdfunding movement as expressed in the JOBS Act, is the result of technology, legislation and market acceptance of the idea or leveraged fundraising models. 'I'here are now several new ways to raise money and selecting the right approach--and avoiding the wrong one---is an important consideration tor every startup entrepreneur.

What do the new developments mean for a startup seeking capital? The past hew years have opened two main avenues for raising money: donation-based or rewards-based crowdfunding (think Kickstarter or Indiegogo) and equity crowdfunding. Equity crowdfunding can be broken down into public and private equity crowdfunding.

Donation-based Crowdfunding: Money for Nothing

Despite the debate about equity crowd Iii the scene is still dominated by donation-based (or rewards-based) crowdlimding, which has exploded in the last live years. Businesses can now seek donations on websites like Kickstarter and Indiegogo and, while not typical, there are success stories of businesses raising millions of dollars within a few weeks.

Donation-based crowdfunding is best suited to young businesses that are still testing their model. Websites like Kickstarter and Indiegogo provide businesses a platform upon which to raise money for whatever purpose they see fit (within reason without haying to give away any ownership interest in the business.

In return for the donations, the business usually offers rewards linked to the product for which they are seeking funds. The rewards could be anything from a thank you email for a $1 donation to a personal meeting with the business owner for a donation in the thousands of dollars. Many donors donate at a level where the reward is the actual product or service for which funds are being raised. When used in this way. donation-based crowdfunding looks a lot like collecting pre-payments for goods and services.

Donation-based crowdfunding typically covers a broader array of businesses than equity crowdfunding It's not uncommon to see musicians. authors. designers and other artists use donation-based crowdfunding to raise money to fund their latest project. One of the key benefits of the donation model is the lack of securities regulation. That said. those raising money should make sure they follow through on their commitments. Earlier...