If you hang around me much, you’ll hear start talking about crowdfunding. This is a new name for something that has been around for a long time, raising money. But make no mistake, this isn’t your father’s fundraising.
Using the power of social networks and crowdfunding sites like Rockethub, IndieGoGo, StartSomeGood, Fundly and others, social entrepreneurs and nonprofits can create funding campaigns and raise money more efficiently than ever in the past.
Some readers will recall that I used StartSomeGood to raise some money for publishing Your Mark On The World last spring. You graciously provided the money required to get the words of my book from my computer to market. Thank you!
In exchange, those who helped with my campaign received copies of the book (autographed for the larger donors) and acknowledgement in the book, along with a plug for your favorite cause.
This kind of crowdfunding is commonly known as reward- or perk-based crowdfunding. The organization doing the fundraising offers rewards to the donors.
Last Spring, at the same time I was running my campaign, Congress passed the JOBS Act and the President signed it. The new law allows companies to raise equity or debt through approved crowdfunding portals. So, instead of organizations offering rewards, they will offer ownership in the organization or promissory notes.
The law gives the SEC and FINRA the responsibility to regulate this new model for securities offerings. Now we are just waiting for the rules. It appears likely that the final rules will be issued in time for securities-based crowdfunding to begin in 2013.
Most people in the crowdfunding community believe that this will replace the old-style friends and family rounds of financing and angel rounds as well. Instead, friends, family and angels will all participate in crowdfunding rounds. Much of the leg work involved will remain the same, but the public platform should create the ability for many more people to raise money for their new businesses, including social ventures.
It is hard to convey the scale of the change here, but since 1933, the U.S. Government has not allowed any type of public offering of securities for start up businesses. Equity crowdfunding represents a historic change that most people still don’t understand. But you will!
If you’ve had experience with crowdfunding, please share in the comments!