From Baruch New Media
Jump to: navigation, search

Crowdfunding

Crowdfunding is a fundraising and collection method that relies heavily on an online presence. Crowdfunding raises money for causes through online platforms, increasing the potential investor market. Crowdfunding is used for all types of projects, from museums to art galleries to video games, and technology. Companies usually set fundraising goals for their crowdfunding efforts, expecting a large number of small contributions from various investors. Crowdfunding relies on online tools such as social media, in addition to the money collection platform, in order to create buzz around the business idea. Investors, also referred to as backers, have the opportunity to help contribute small amounts of money as pledges to the campaign. [1]

In crowdfunding, there are two parties involved in the fundraising process and are known as creators and backers. The creator is the person that initiates a project or campaign and requests funds from the crowd while backers are the people of the crowd who give money and support a creator’s project goals. New media technologies enable a relationship among creators and backers and facilitate the transfer of money between them, thereby emphasizing the importance of web 2.0 technologies.

Crowdfunding relies not only on its web-based presence but for the project creators to actively promote and create buzz around the project. Common tools for publicizing the crowdfunding project include social media, mailing lists, and personal connections. Between 25% and 40% of crowdfunded project revenue comes from first, second, or third-degree connections of the project creators. [2] The rest of the support comes from backers who learn about the project through other marketing methods. Other methods of promoting crowdfunding projects include promotional videos and offering samples of the product.

History

Rise of Crowdfunding

Crowdfunding began growing more popular during the Obama administration and after the enactment of the JOBS Act in April 2012. The JOBS Act included an exemption for startup companies and other small businesses to raise up to $1 million through crowdfunding before having to create a public offering. [3]The intent was to allow startups to create a solid foundation without having to worry about paying hefty public offering costs with its limited funding. Crowdfunding, and the JOBS Act, also alleviated some of the burden of entrepreneurs who, in the past, relied on loans and leveraging their own personal credit in order to obtain financial resources.

Types of Crowdfunding

Types of Crowdfunding

There are two main types of crowdfunding and each has two subtypes of crowdfunding within it. There is donation-based crowdfunding which includes rewards-based crowdfunding and charity crowdfunding. And there is investment crowdfunding which includes debt-based crowdfunding and equity crowdfunding. In 2014 rewards-based crowdfunding had 43% of the total crowdfunding market, charity-based crowdfunding had 29%, lending-crowdfunding had 13%, and equity-based crowdfunding had 15%.[4] While there are several crowdfunding techniques available, they all used the crowd to raise money through various online platforms to fulfill numerous projects or causes. [5]

Crowdfunding Category Share Percentage Growth Percentage 2012 -> 2013
Rewards-Based Crowdfunding 43% 524%
Charity-Based Crowdfunding 29% 43%
Debt-Based Crowdfunding 13% 78%
Equity-Based Crowdfunding 15% 114%

[6]

Most Active Crowdfunding Categories of 2012

Category Percentage
Social Causes 30.0%
Business & Entrepreneurship 16.9%
Films & Performing Arts 11.9%
Music & Recording Artists 7.5%
Energy & Environment 5.9%
Other 28.0%

[7]

Donation-Based Crowdfunding

This is the most popular type of crowdfunding in present time. Donation-based crowdfunding can be broken down into two categories: rewards-based crowdfunding and charity-based crowdfunding.

Reward-Based Crowdfunding

Kickstarter and Indiegogo Logo

Rewards-based crowdfunding is where contributions are exchanged for current or future goods or services. Individuals or companies who launch campaigns may compensate contributors with something like a t-shirt, their product, or even just a thank you.

Rewards-based crowdfunding is perhaps the most prolific form of crowdfunding currently taking place in the US. Kickstarter and Indiegogo facilitate Anyone can go create a web page on these sites and pitch an idea. A famous example of this is the Pebble watch. Pebble used Kickstarter to pitch their idea: a relatively inexpensive e-paper watch that could be customized with apps to do things like display calendar notifications and emails. They outlined their idea on Kickstarter, made a video about the product and set a goal of $100,000 to complete R&D. A donation of $100 earned you a promise that you’d receive the watch when they are done. Different donation amounts had different rewards attached. You could even donate $10,000 for 100 watches!

Had the $100,000 goal not been met, the donors would get their money back and everyone goes on their merry way. Specific rules on funding vary by website. In the case of Pebble the goal was met, so the money was transferred from Kickstarter to Pebble. Kickstarter charges a 5% comission. Pebble is now obligated to give everyone what they paid for. By the time the campaign was over Pebble had collected $10 million, or 100 times their initial goal. Pebble now has the capital they need to create the product and they’ve already tested the market. They’re off to the races.

Currently rewards-based crowdfunding is very popular with projects in the arts (movies, art, music, etc.), companies looking to test markets, charitable groups and causes

Popular Rewards-based crowdfunding Platforms: Kickstarter, Indiegogo, Quirky, Tilt, and RocketHub[8]

Charity-Based Crowdfunding

Charity-based crowdfunding takes place when an individual, company or organization accepts charitable donations. Pretty simple, right? This has been taking place for a long time, albeit it may not have always been called “crowdfunding.” Wikipedia, the Red Cross, political parties, etc. all participate in donation-based crowdfunding.

Currently, charity-based crowdfunding is very popular with non-profits and causes.

Online crowdfunding helps to reach both the organizers and donors, and that is effective in gathering capital for a new idea, organizing community outreach events, or funding for a particular cause. For example, Obama's presidential campaigns were largely based on crowdfunding of grassroots donors and effectively raised millions of dollars, and at the same time, broadcasted his campaign messages, that ultimately propelled him to win the Presidency.

There are many websites today that help people build a fundraising campaign for various causes. Popular Charity-based crowdfunding platforms include Indiegogo, FirstGiving, Crowdrise, Causes, and Pozible.[9]

Investment-Based Crowdfunding

Investment crowdfunding when the crowd exchanges money for securities. Investment-based crowdfunding can be broken down into two categories: debt-based crowdfunding and equity-based crowdfunding.

Debt-Based Crowdfunding

Debt-based crowdfunding is when a crowd lends money to an individual or company with the understanding that the loan will be repaid with interest. Also referred as peer-to-peer lending (P2P) or social lending, debt-based crowdfunding is a financial transaction between individuals or peers without the involvement of a financial intermediary usually with anticipation for a rate of return for money raised unless it is for philanthropy. Debt-based crowdfunding platforms facilitate crowdfunded loans to individuals for purposes like home improvement and debt refinancing.

Companies also use debt-based crowdfunding to acquire capital from the crowd. As the individual or company pays back the debt accrued, subsequent rounds generally come at lower interest rates. Over time those seeking funding can acquire capital at rates much lower than traditional credit cards or other types of high-interest debt.

One risk of this type of crowdfunding is default. Every site will have their own policy on default and investors should understand these policies in order to protect themselves.

Currently, debt-based crowdfunding is very popular for companies and individuals planning on multiple rounds of funding, and companies who do not want to part with equity.

Popular Debt-based crowdfunding platforms: SoMoLend, Lending Club, and Prosper.[10]

Equity-Based Crowdfunding

Equity crowdfunding is crowdfunding where the exchange is company equity, or ownership, and not goods or services. The idea is very similar to how common stock is bought and sold on the stock market. This form of crowdfunding is gaining popularity has it enables the crowd to invest in a business so that funds can be made for entrepreneurial use. Rather than pure donation, receiving reward, or interest on loans, the backers in equity-based crowdfunding actually would have ownership in the venture.

Equity-based crowdfunding in the United States currently cannot expand right now. Equity-based crowdfunding can breach many securities laws. There are two main laws that limit equity-based crowdfunding. The first is that only accredited investors are allow to buy stock. This is deemed necessary because generally investments like these are high risk. The second problem for equity-based crowdfunding is that it is illegal to advertise the sale of stock. In a crowdfunding platform, that is all you are doing. The penalties for a securities violation can vary greatly and depend on the amount of profit obtained by the promoter, the damage done to the investors, and whether the violation is a first time offense. Because of so many regulations, equity-based crowdfunding is very limited.

Both of these problems will soon be corrected because of the JOBS Act(Jumpstart Our Business Startups Act).[11] The act, which was signed into law on April 5th, 2012 aims to alleviate some of the many hurdles associated with equity-based crowdfunding. The SEC is in the process of working with Congress and crowdfunding stakeholders to settle upon specific provisions for equity crowdfunding in the United States. In October 2013, the SEC voted on changes to title III of the JOBS Act of 2012, which covers crowdfunding. The law now limits the amount of money businesses can raise, per year, using crowdfunding sites. As well as, the amount of contributions a non-accredited investor can invest based on their personal income. Most significant is that businesses now issue shares as compensation for investments. [12] A few things that were highlighted in the bill are that

1. Certain small stock offerings (e.g. those taking place on future US crowdfunding sites) won’t be required to register with the SEC.

2. You won’t have to be an “accredited investor” to invest in these companies.

3. A company won’t trigger requirements to file with the SEC until they have 500 non-accredited investors OR 2,000 total investors.

4. The ban on general solicitation and advertising will be lifted for equity crowdfunding.

With congress and the SEC working together to bring equity-based crowdfunding to market, some label equity-based crowdfunding as the future of all startups.

Popular Equity-based crowdfunding platforms: Invested.in, CrowdCube, EarlyShares, Seedrs, and Fundable[13]

Influence in Startup Environment

Today those who look to crowdfunding as a method of funding projects and investments, can fund ventures by uploading the outline of their projects online and pitching it directly to potential investors. Some ideas have taken off successfully, such as the Ostrich pillow. [14] Entrepreneurs can upload videos, photographs, or even documents that may hopefully apeal to investors. The concept has revolutionized the ventur capital space because now a physical connection with specific investors is irrelevant. One project may not get the right amount of funding from the right investor, however, with the usage of crowdfunding, entrepreneurs can look to a vast population of people who can put up smaller amounts of capital in the hopes of seeing certain projects go through. The philosophy plays a strong role in Silicon Valley as the companies compete for capital.

Crowdfunding Process

Crowdfunding Blueprint

Preparation and planning is vital before a crowdfunding campaign is launched. A recent study by researchers outlines six procedures for crowdfunding work. These include understanding the opportunities and responsibilities, preparing the campaign material, testing the campaign material and initial project prototypes, marketing the project, executing the project goals, and contributing knowledge back to the crowdfunding community. [15] Crowdfunding is becoming competitiveness due to its growing popularity, and creators usually will have to put in a lot of hard work toward their campaign so that they can capture the crowd’s attention and get their projects funded. It is not necessarily straightforward and can be quite a rigorous process, thus planning is helpful to ease failures and increase likelihood of success. The entire crowdfunding process demands time and a thoughtful strategy. A successful campaign needs to be realistic and attainable, and clearly states project's goals and expectations.

Developing Crowdfunding Campaign

The first and foremost objective of a crowdfunding project is to grab the attention of the crowd . This can be done by making a positive impression through a well-defined listing of project goals and an introduction of personal background. This part of the crowdfunding process is critical for getting support and is mostly done by an introductory video. Projects with videos are more successful than those without videos. [16] It is necessary that the project introduction is short and captivating to stimulate interest. Moreover, a general rule of thumb for making the crowd send money to creators is to encompass the three Ps within a specific campaign, that is, a great Pitch, Perks, and Promotion. [17] Once there is a great emphasis of having an exciting and interesting campaign for drawing and motivating crowds, then creators are likely to be rewarded for their creativity and inventiveness.

Promoting Crowdfunding Campaign

Using social apps to promote crowdfunding campaign

In order for creators to get their projects funded they need to promote their campaign and utilize social networking sites comprehensively to bring attention to their cause or mission. Crowdfunding success is directly related to the use of social media. Social media has people or communities that creators can tap into for funding. Therefore, when planning an open call over the internet for donations it is vital to incorporate social media into a project. Creators can get crowd by reaching out to people on Facebook, Twitter, personal blog, and other networking sites that have existing online communities. Normally, creators get support from families and friends, who then would inform their networks. The more support creators can obtain signals a higher likelihood for project target to be attained or more money to be raised within the specified time period. Having a strong network of followers is an element of crowdfunding that depends on project creativity and the emotional response that it ultimately triggers.

Risks

Crowdfunding is often a slower method of fundraising, as it requires time to garner support through social media and word of mouth. Therefore, crowdfunding is not always the ideal form of fundraising for companies in an immediate need for funding. Along with ebusiness and ecommerce in general, crowdfunding also runs the risk of fraudulent investment proposals. In some cases, the investors know the entrepreneurs or the up and coming businesses on a personal basis and do not fall victim to scams. However, there are many other companies that can easily create fictitious accounts and request funding.

Furthermore, because crowdfunding is generally not considered an "investment", but more of a donation on the part of the user, the liabilities are not the same. However, crowdfunding sites like Kickstarter have added clauses to their rules stating that campaigns must deliver on their promises.

There is also the risk of the campaign underestimating the amount of funding needed - in some cases there have been rampant overspending, and in others, complete abandonment.

Luci

In November 2013, Luci removed its crowdfunding page on Kickstarter after claims of suspicious activity related to the fundraising surfaced. One backer, Amine Barnat, contributed to the Kickstarter campaign, but soon lowered his contribution to the bare minimum. He conducted business research, only to find that there was minimal information available about the company he decided to fund. Barnat's concern echoed and soon escalated. Investors retracted $38,700 CAD in funding in the course of one night, and additional retractions prompted Kicktraq, Kickstarter's metric system, to cancel the Luci funding campaign. In total, Luci is scheduled to refund $363,000 CAD to investors. [18]

The Stomping Land

The Early Access game The Stomping Land, by Alex Fundora, was funded between May 7, 2013, and June 6, 2013. At the end of the funding period, the campaign had raised $114,060 from 4,427 backers.

The game was released into Early Access on Steam on May 30th, 2014. Prior to this, there was frequent updates and logs regarding development - but after the Early Access release, Alex Fundora maintained radio silence for some time, and Steam removed the game multiple times. The game is currently considered abandoned. [19]

Crowdfunding Sites

There are many sites or platforms that creators can use to run their projects or campaigns. During the last five years, the number of platforms has grown exponentially, including 452 platforms across the world with $1.47 billion dollars donated in 2011, although the first crowdfunding platform was launched in 2001. [20] The well-known ones are Kickstarter.com, IndieGoGo.com, and Rockethub.com. These sites are easy to sign up for and registration is typically free as with social networking sites. Therefore, anyone that has access to the internet can explore lots of informative details on the sites before getting ready to launch a campaign. Crowdfunding platforms have different features and criteria specifications before a project can be accepted onto a site to solicit funds from the crowd such as the purpose of the project, the amount of money to be obtained and the duration of the campaign.

Kickstarter Logo

Kickstarter

Kickstarter is one of the larger crowdfunding sites available today. The site supports independent projects, within certain specified categories - Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater [21]. Kickstarter has moderated the collection and funding process for over 100,000 projects since its inception in 2009. Its guidelines for potential projects require detailed explanations of the project itself, to assure investors that funds will not be misused for a personal gain. Kickstarter requires that project creators convey the project's end goal or product to potential backers. In short it is a purchase of a concept, if enough people would like to purchase, the concept becomes real and the creator has basically already done their goal in sales, and launched his company with them. One other caveat is that investors' pledges are not collected unless the project reaches its fundraising goal. Otherwise, investors' receive their pledges back.

Companies and projects that received funding through Kickstarter include Dark Sky, Google Maps, Cards Against Humanity, and the American Museum of Natural History. [22]. As of November 2013, Kickstarter has helped collect $738 million in total for various projects [23].

Model

Kickstarter is one of a number of crowdfunding platforms for gathering money from the public, which circumvents traditional avenues of investment. [24][25] Project creators choose a deadline and a minimum funding goal. If the goal is not met by the deadline, no funds are collected, a provision point mechanism.[26] Money pledged by donors is collected using Amazon Payments.[23] The platform is open to backers from anywhere in the world and to creators from the US or the UK.[27] In June 2013, Kickstarter announced that it would open up to those looking to launch projects from Canada. [28]

Kickstarter takes 5% of the funds raised. Amazon charges an additional 3–5%. Unlike many forums for fundraising or investment, Kickstarter claims no ownership over the projects and the work they produce. The web pages of projects launched on the site are permanently archived and accessible to the public. After funding is completed, projects and uploaded media cannot be edited or removed from the site.[29]

There is no guarantee that people that post projects on Kickstarter will deliver on their projects, use the money to implement their projects, or that the completed projects will meet backers' expectations. Kickstarter advises backers to use their own judgment on supporting a project. They also warn project leaders that they could be liable for legal damages from backers for failure to deliver on promises.[30] Projects might also fail even after a successful fund raise when creators underestimate the total costs required or technical difficulties to be overcome.[31]

It is also important to note that Kickstarter does not deliver any of the money raised during a pledged online project duration if the pledged goal amount is not reached by the end date. This makes Kickstarter unlike other crowdfunding platforms like Indiegogo- platforms that allow project fundraisers to keep the raised donations regardless of whether or not the initial monetary goal is met.


Pebble(Watch)

Pebble.png

The Pebble Smartwatch is a smartwatch developed by Pebble Technology Corporation and released in 2013 that received the majority of its initial funding via the crowdfunding platform Kickstarter. The watch features a black and white Sharp Memory LCD, a programmable CPU, memory, storage, Bluetooth, a vibrating motor, a magnetometer, an ambient light sensor, and an accelerometer; these extend its use beyond just displaying the time and into many roles including interacting with smartphone notifications, activity tracking, gaming, map display, golf tracking, and more. The Pebble is compatible with Android and iOS devices. When connected to one of these devices via Bluetooth, it will vibrate and display text messages, emails, incoming calls, and notifications from social media accounts when they are received on the paired device. It can also act as a remote control for the phone, or for cameras such as the GoPro. As of February 2014, the Pebble app store had over 1,000 applications developed using Pebble's free software development kit (SDK). Pebble Technology Corporation raised $10.3 million through a Kickstarter campaign running from April 11, 2012, through May 18, 2012; this was the most money raised for any product on the site at that time. Best Buy, an American consumer electronics corporation, began selling Pebble smartwatches in July 2013, and sold out within five days. On 31 December 2014, Pebble sold its one millionth smartwatch. Funding

The Pebble integrates with any phone or tablet application that sends out native iOS or Android notifications including for example the web service IFTTT. IFTTT allow users to create rules for events that will send notifications to the watch. The watch's firmware operating system is based on a FreeRTOS kernel and uses Newlib, the STM32 Peripheral Lib, the Ragel state machine compiler, and an unnamed UTF-8 Decoder. [32] [33] [34] [35]


Indiegogo Logo

Indiegogo

Indiegogo is another crowdfunding site. Launched in 2007, the site first began supporting independent film projects. After one year, it soon expanded to support other campaigns internationally, including technology and fashion projects. Indiegoog only charges projects a fee once it earns contributions from backers. [36]

In 2013, Indiegogo opened its second office location in New York City, while still keeping its original office San Francisco open. The founders rely on the San Francisco office to support many of the technology based project operations, and have the New York office support potential finance based projects. [23] Projects hosted on Indiegogo are not required to meet fundraising goals, but are still subject to fees for using the service. This offers a more flexible solution since many programs are used for charity, and their is never a limit to how much funding they could use.

Wefunder

Ty6R6O9x 400x400.jpg

SEC regulated this is a crowdfunding website that takes advantage of the title III of the JOBS acts to corwdfund startup companies. Notable achievements is that it has successfully used the title II rule to crowdfund three companies up to the maximum limit of one million dollars. It has many other start-up companies as well that are still holding investment rounds.[37]



Patreon

[38]

421651-patreon.jpg

Patreon is another crowdsourced funding website. It was introduced back in 2013 by Sam Yam. Now, the crowdfunding site is headquartered in San Francisco, California. The purpose of the site is to provide users of the site the right business tools to formulate a subscription-based content service. The main target audience of Patreon is current and upcoming YouTube stars, artists, writers, musicians, and other creators. These creators use Patreon to access another source of funding. This funding is received directly from their fans (the patrons). In return, creators will usually provide a content service. Ultimately, Patreon hones in on the relationship between creators and their fans. If fans wish to further support their favorite creators, Patreon is the way to go.


GoFundMe

[39]

1 8oAXoONZd2i9Pf4oVZGFsw.png

Formed in 2010, GoFundMe is a crowdfunding platform developed and run by Brad Damphousse and Andrew Ballester. GoFundMe is a global brand with offices around the world. This includes San Diego, Dublin, Ireland, and etc. Even without these offices, GoFundMe operates on an international scale. The purpose of GoFundMe is to aid individuals in financing certain situations and events. These situations and events can range from lifetime goals to celebrations. Nowadays, GoFundMe is even used to combat difficult situations such as accidents, illnesses, surgeries, and to provide to family members of the deceased. Essentially, GoFundMe provides users a means to create their own website. The user can be anyone. This means that other people besides the person that the funds are meant for can create the website. In this website, users can systematically dictate the cause and the means in which they can raise money.

GoFundMe does not have a platform fee. There is an option to tip the platform when making a donation but it is not mandatory. The only fee that GoFundMe has is the payment processing fee. There is a 2.9% payment processing fee and a $0.30 fee per donation. This fee exists because GoFundMe uses a third party payment processor to secure and verify payments. GoFundMe does not receive any of this money, the payment processor does. [40]


IFundWomen

caption

Formed in 2016, IFundWomen is is the go-to funding marketplace for women-owned businesses and the people who want to support them with access to capital through crowdfunding. Additionally, IFundWomen offers coaching, connections, video production, and a supportive, private community for founders. The company is a pay-it-forward model where 20% of standard fees are directly reinvested into live campaigns on the site. They offer immediate access to capital through a premium online fundraising experience, access to small business grants from corporate partners, expert business coaching on all the topics entrepreneurs need to know about, and a network of women business owners that sparks confidence, accelerates knowledge and ignites action. Their mission id to equip women with the confidence, knowledge, and funding they need to bring their visions to life. [41]

Other Notable Title III sites

- StartEngine

- SeedInvest

- Fig

- RealtyMogul

- Fundrise

Microfinance Sites

Microfinance is a form of crowdfunding that offers financial services such as loans, savings and insurance to entrepreneurs and small business owners. These businesspeople do not have access to traditional sources of capital, such as banks or investors, which is why they turn to microfinance.

Kiva

Kiva is a non-profit microfinance site that serves low-income small business owners and people in underserved countries. Examples of borrowers include people raising money to create latrines for their homes in third-world countries to avoid illnesses, or farmers raising money to purchase materials to build bigger barns for their animals. On average, lenders loan out as little as $25 to borrowers of their choosing and once the borrowers make enough income, they pay back their loans. 97% of all loans on Kiva are paid back in full, and over $1 billion in loans have been funded.

Crowdfunded Projects

Both startup and well-established companies utilize crowdfunding as a means of financing.

Successes

  • Singer Amanda Palmer raised over $1 million for her music deal. Her Kickstarter based crowdfunding project raised the most money in the history of Kickstarter [42]
  • FORM1 has a mission to create less expensive 3D printers [42]
  • Nicola Tesla's museum raised over $1.3 million on Indiegogo [42]
  • Bernie Sanders raised over $5.9 million within 24 hours after announcing his campaign for the 2020 presidential election.
  • Villy Custom Bicycles, an established company backed by Mark Cuban and Barbara Corcoran, used crowdfunding to raise money for a new product launch, glow in the dark bicycles. The crowdfunding project helped the company gauge interest in the new product. The company raised its target $10,000 within two weeks. [43]

Failures

Approximately 56% of crowdfunding projects do not come to fruition.

  • The New York City Opera struggled with falling revenues and a lack of funding. It began a crowdfunding project on Kickstarter in September 2013, with a goal of $1 million. However, the project was only able to raise about $300,000. The New York City Opera filed for bankruptcy the following month. [36]
  • Melissa Joan Hart started a Kickstarter fundraiser for her romantic comedy with a goal of $2 million. She was only able to raise about 25% of her goal, with 315 backers. [36]
  • Ubuntu raised only $10 million of its targeted $32 million goal to create its smartphone, the Edge. [44]

Crowdfunding Implications, Outlook, and Future

Crowdfunding is a growing phenomenon that is capturing the attention of many people and will continue to be a bigger sensation in the future as new media technologies pave way for connectedness and creativity. Crowdfunding allows society to become productive because new products and businesses are invented by allowing ordinary individuals to achieve goals and liberate themselves all with the help of other human beings through monetary contributions on online platforms. Collaboration is evident in crowdfunding projects and as a result everyone is contributing towards making the world a better place. Crowdfunding makes you appreciate the fact that people do care about each other despite their backgrounds since projects are funded from people all over the globe. Crowdfunding is modernizing the efforts to raise money for numerous missions and causes, and being a part of the process is very user friendly yet formal.

Now that crowdfunding has turned the corner into a mainstream fundraising mechanism, large corporations will actively look to incorporate the social ritual, and monetize the process. RocketHub has already been approached, and had a series of conversations with top advertising firms, universities, and government agencies (the U.S. Department of State, and the White House), about working together. The marketing budgets that large organizations bring to bear will continue the trend, fully popularize the ritual, and complete crowdfunding’s shift from “innovative maker tool” to an acceptable and exciting way to buy things online.

Dodge Dart Registry

Furthermore, there seems to be a significant trend to utilize crowd funding for political campaigns, most notably spearheaded by Bernie Sanders. Through small-dollar donors, Bernie Sanders was able to raise over $5.9 million for his 2020 presidential campaign. By many, it is regarded as a true show of populism, and the biggest threat to traditional means of campaign financing that involve few mega-donors.

Registries

Undoubtedly giant online marketplaces like Amazon, Ebay, Etsy, and Paypal will soon incorporate this new media technology into their platforms. It will allow partial purchasing where multiple people are allowed to join forces, pitch in smaller amounts, and purchase an expensive item together. An obvious route these online marketplaces can go with this technology is gift registries. If a couple has an expensive dining table set on their registry, multiple people are able to chip in to reach the goal for the dining table set. An early beta test of this technology is the Dodge Dart Registry.[45] In early 2013, the Chrysler group created the Dodge Dart Registry which allowed users to create their own Dodge Dart. Then they were able to use social media to raise the money needed to purchase the car. This short test was a success, with over 6000 registries created. It also garnered an incredible amount of attention with over 2000 news articles written about the project.


Media Programming

Major media outlets are sure take advantage of the technology too. Look for them to incorporate crowdfunding technology into their programming, allowing the audience to influence the outcome of certain programs. A popular idea in the works is the popular show Shark Tank. Imagine if viewers were able to invest in companies like the sharks in real time. They could pitch in little amounts and own a small part of the company on the show. In October 2014 A&E tried to implement crowdfunding into one of their programs. They debuted Project Startup with crowdfunding platform giant Rocket Hub. They partnered to show campaigns on their channel to audiences of over 100 million. This gave campaigns a huge amount of publicity with most campaigns reaching their goals quickly short after airing. [46]

Redditmade


Integrated Funding

There will be many online communities starting to integrate crowdfunding into their platform that have never dealt with any type of online commerce before. They are already attracting millions of visitors. By incorporating crowdfunding into their community, they will be able to reach their millions of loyal followers without having to start from scratch. A recent example of this is Redditmade. In October of 2014, Reddit launched Redditmade.com which allowed millions of loyal Reddit users to raise money for projects within the Reddit community. The response was overwhelming. The short experiment had hundreds of thousands of participants in a short time span, and now Reddit is working on a much improved platform for its future crowdfunding ventures.

Regulation

Reg A+ Equity Crowdfunding in the Financial Markets

Under Title IV of the JOBS Act, the SEC has released the final Regulation A+ rules for equity based crowdfunding. The regulation allows start-up companies to raise up to $50 million from unaccredited investors in an IPO type offering. This increases the variability available to fulfill capital requirements of a start-up company. Beginning in June 2015, the average person can invest into start-up companies and can have liquidity in their equity purchase. The regulation structures a market to sell and buy equity in start-up companies, as this was a response to Indigogo and other crowdfunding sites. [47]

Title III

n April 2012, President Barack Obama signed into law the Jumpstart Our Business Startups Act, or JOBS Act. The JOBS Act was so called because it aimed to facilitate access to capital for startups and small businesses, give more people the ability to participate in investment opportunities, and ultimately, create more jobs and stimulate economic growth. While other crowdfunding regulations from the JOBS Act, such as Title II and IV, were implemented more quickly, Title III is the third but most anticipated piece of crowdfunding regulation to become effective.

For the first time, Title III will allow issuers to raise funds online from ordinary people for investment purposes. The regulation creates a new exemption to the Securities Act of 1933. This essentially means that, for the first time since being written 80 years ago, our securities laws will be updated to recognize modern modes of online capital raising.

Previously, generally only accredited investors could invest in early stage startups. Accredited investors are those who earn an annual income of at least $200,000 (or $300,000 if married), or those with a net worth of at least $1M (excluding one’s primary residence).[48]

Tax Implication.png

Crowdfunding Tax Implications

Crowdfunding Tax implications: as mentioned earlier, many startups use the crowdfunding method to raise their capital, so how does the IRS respond to crowdfunding?

Debt-crowdfunding is considered as an interest-bearing loan; in this case, contributors are expecting to get a principal plus interest in return. From the IRS perspective, funds received using this model are not income, and they are loans that need to be repaid. Also, interest paid on these funds is tax-deductible. Reward-based crowdfunding, in this model, the recipient of the funds has to include the fund in their income tax return; in other words, the money raised using this model is subject to taxation, on the other hand, the recipients crowdfunding expenditures are tax-deductible. The equity-based crowdfunding supporters make their contribution expecting to receive partial ownership. In this model, the fund received is considered initial capital investment, so it should not be taxable. Finally, the money raised through donation-based crowdfunding is not subject to federal taxation.[49]

49. [50]

References

  1. http://www.espm.br/rjclipping/2012/setembro/50589.pdf
  2. http://www.forbes.com/sites/tanyaprive/2012/11/27/what-is-crowdfunding-and-how-does-it-benefit-the-economy/
  3. http://mashable.com/2012/04/05/jobs-act-crowdfunding-startup/
  4. http://http://gogetfunding.com/blog/crowdfunding-statistics-and-trends-infographic//
  5. The Everything Guide to Crowdfunding: Learn How to Use Social Media for Small-business Funding. Avon, MA: Adams Media, 2013.
  6. http://gogetfunding.com/blog/crowdfunding-statistics-and-trends-infographic/
  7. http://www.statista.com/statistics/269975/most-active-crowdfunding-categories-of-2012/
  8. http://www.crowdcrux.com/crowdfunding-website-best/
  9. http://crowdfunding.about.com/od/Placeholderrr/tp/Top-Crowdfunding-Sites-for-Non-Profits-and-Charities.htm/
  10. http://www.crowdcrux.com/crowdfunding-website-best/
  11. https://www.sec.gov/spotlight/jobs-act.shtml/
  12. http://www.forbes.com/sites/devinthorpe/2013/10/24/sec-issues-new-regs-for-crowdfunding-panel-comments-live/
  13. http://www.crowdcrux.com/crowdfunding-website-best/
  14. http://www.ostrichpillow.com/
  15. "Easy Money? The Demands of Crowdfunding Work", Hui, Gerber, Greenberg, 29 November 2013
  16. http://www.entrepreneur.com/article/229436
  17. "From Friending To Funding", Lister, Kate, 29 November 2013
  18. http://blogs.wsj.com/digits/2013/11/12/kickstarter-project-canceled-amid-fraud-accusations/
  19. https://www.kickstarter.com/projects/524168447/the-stomping-land
  20. "Easy Money? The Demands of Crowdfunding Work", Hui, Gerber, Greenberg, 29 November 2013
  21. http://www.kickstarter.com/help/guidelines?ref=footer
  22. http://www.kickstarter.com/year/2012
  23. 23.0 23.1 http://www.crainsnewyork.com/article/20131106/TECHNOLOGY/131109937#
  24. Villano, Matt (March 14, 2010). "Small Donations in Large Numbers, With Online Help". The New York Times. Retrieved December 3, 2013
  25. Gould, Emily. "Start me up". Technology Review (MIT). Retrieved December 3, 2013.
  26. Musgrove, Mike (March 7, 2010). "At Play: Kickstarter is a Web site for the starving artist". The Washington Post. Retrieved December 3, 2013
  27. "Kickstarter starts welcoming UK creators with projects launching Oct. 31". GigaOM. Retrieved December 03, 2013.
  28. Kickstarter Allowing Canada-Based Projects Beginning This Summer. TechCrunch (2013-06-27). Retrieved on December 3, 2013.
  29. "Creators – Frequently Asked Questions (FAQ)". Kickstarter.com. Retrieved December 3, 2013.
  30. "Kickstarter FAQ If I am unable to complete my project as listed, what should I do?". kickstarter.com.
  31. Adrianne Jeffries, "Jellyfish Tanks, Funded 54 Times Over on Kickstarter, Turn Out to Be Jellyfish Death Traps UPDATED", BetaBeat, March 15, 2012,
  32. https://www.kickstarter.com/projects/597507018/pebble-time-awesome-smartwatch-no-compromises
  33. http://money.cnn.com/2015/03/27/technology/pebble-time-most-funded-kickstarter/
  34. http://www.technobuffalo.com/2015/05/05/pebble-time-enters-mass-production-ahead-of-launch-this-month/
  35. https://getpebble.com/#/.zq3cqs:Fuqt
  36. 36.0 36.1 36.2 http://www.entrepreneur.com/article/229423
  37. https://wefunder.com/
  38. https://www.patreon.com/
  39. https://www.gofundme.com/?pc=thrive_google_search_branded-f_general_usa_236436470300__kwd-39962425074__45191702344_732245677_go%20fund%20me_e_c_g__9004401___1t1&gclid=CjwKCAjw8r_XBRBkEiwAjWGLlF7AmwnGX_UC-oZYtcfhTg9PrdooY_qHjsFXba1T2Uomrkmdf2xxPhoCcYcQAvD_BwE
  40. https://www.gofundme.com/c/blog/gofundme-fees
  41. https://ifundwomen.com/
  42. 42.0 42.1 42.2 http://www.onlinemba.com/blog/the-top-25-crowdfunding-success-stories/
  43. http://www.forbes.com/sites/tanyaprive/2012/11/27/what-is-crowdfunding-and-how-does-it-benefit-the-economy/2/
  44. http://techcrunch.com/2013/08/22/edge-crowdfunding-fail/
  45. http://www.forbes.com/sites/theyec/2015/02/20/the-future-of-crowdfunding-what-the-next-5-years-will-bring/
  46. http://www.forbes.com/sites/theyec/2015/02/20/the-future-of-crowdfunding-what-the-next-5-years-will-bring/2/
  47. https://www.seedinvest.com/blog/jobs-act/regulation-a-equity-crowdfunding-rules
  48. http://www.crowdfundinsider.com/2016/05/85696-title-iii-crowdfunding-became-legal-on-may-16-what-it-does-whats-still-lacking/
  49. https://link-gale-com.remote.baruch.cuny.edu/apps/doc/A581681011/AONE?u=cuny_baruch&sid=AONE&xid=3a6c3546
  50. https://ifundwomen.com/