Internet powerhouse Youtube, owned by Google, has now decided to make its run at Crowdfunding. The site is now not only adding new features to help video creators, it is allowing users to donate to the video creators in attempts to draw people away from sites such as Kickstarter and Indigogo. Director of product management Mathew Glotzbach and Vice President of Engineering for creators Oliver Heckmann announced this news in a blog post and claimed that this will make life easier for all youtube users out there. In addition, Youtube is upping the resolution of their videos so that those who share video game footage on the site can have better quality images. These same Youtube video creators will be able to get donations from their viewers to help keep them from going elsewhere and starting new projects. Youtube decided to keep this project in house instead of using a service like Kickstarter for example. The rise in crowdfunding is becoming ever so clear as now even giants such as Youtube want a piece of the action.
Youtube can participate in donation and reward crowdfunding but not equity crowdfunding. In order to participate in equity crowdfunding, when the investor receives a financial return, the transaction needs to go through a registered FINRA member Broker Dealer. The rules regulating equity crowdfunding are still being determined by the SEC and FINRA.
What do you think about YouTube’s Fan Funding? Would you dontate to a campaign by only viewing a video? What information do you seek when reviewing a crowdfunding campaign?
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When the JOBS Act was passed on April 5, 2012, Congress gave the SEC 270 days to develop proposed rules and issue comments. It has been over 2 years and we are still waiting on the SEC (#ReleaseTheRules). Since the SEC was not able to adhere to the original deadlines rules certain states have taken it upon themselves and have been developed and issued their own Intrastate Crowdfunding exemptions.
Alixe Cormick, who blogs about Canadian and United States Securities Law Matters, provides an update as of April 7, 2014 on which State’s have adopted or have pending intrastate crowdfunding regulations.
7 U.S. states that have adopted an intrastate equity crowdfunding exemption.
- Indiana (as of 03/25/14)- not effective until June 30, 2014.
- Washington (as of 03/28/14) The Washington intrastate crowdfunding exemption requires the administrator or director of securities to adopt certain forms and rules in support of the new exemption by April 1, 2015; which means the Washington exemption may not be available until this date.
13 U.S States are in various stages of review in passing their own intrastate equity crowdfunding exemption.
- Florida-Stalled for Now
- North Carolina
- New Jersey
- South Carolina
- Texas – Investigating-ordered committee reports on crowdfunding for possible action in the next legislature
There is no guarantee however, any of these proposed bills will pass. The intrastate crowdfunding bill introduced in Mississippi for example failed to garner support and died. New Mexico has shelved its consideration of adopting an intrastate crowdfunding exemption indefinitely.
Visit Alixe’s Blog for some great detailed charts comparing each State’s Intrastate Equity Crowdfunding Exemption
How to Raise Money for Your City Chicken Farm: Successful Civic Crowdfunding by Nancy Scola of Nextcity and republished on PublicCEO looks at Rodrigo Davie’s master thesis for MIT’d Department of Media Studies called Civic Crowdfunding: Participatory Communities, Entrepreneurs and the Political Economy of Place. His thesis looks into what he and others call “civic crowdfunding”. “Rodrigo Davies is a former journalist who’s now a civic technologist with MIT’s Center for Civic Media. Davies says there’s one vibrant subgenre of crowdfunding that’s being unduly overlooked, not just by the public but fellow researchers, too. Davies says “Civic,” is a “slippery and contested term,” but he uses it here to talk about raising funds for projects that produce a shared public good.”
In other parts of the world, crowdfunding has been gaining huge momentum as a way to pay for civic projects and has been strikingly successful. Sure, there have been some failed attempts to fund urban initiatives, but lets take a look at some of the success stories….
- Liverpool, England – a group of friends calling themselves the “Friends of the Flyover” are attempting to turn an elevated concrete highway into a cycling and pedestrian friendly parkway. The idea stemmed from a Liverpool City Council proposal to remove the flyover, a plan that would cost nearly twice as much as creating a park in its place. So far, the group has collected 40,000 Euros for a feasibility study. A member explained “What has become really important to the campaign is how strongly people feel about it. That is the benefit of the crowdfunding process.”
- Brooklyn, New York – a Brooklyn based design team wants to float an Olympic size pool in the East River. The pool would have a newly designed filtration system that would make the river water safe to swim in. In 2011, the Plus Pool effort crowdfunding $41,647 with only a original goal of $25,000 on Kickstarter and since then nearly 3,000 people have contributed approximately $275,000 to keep the idea in the picture. Once approved by the city, the design team looks to start laying the groundwork.
- Kansas City, Missouri – A few years ago a group of friends looked to transform their city from one of the worst cities for bikers to one of the best with a bike-sharing initiative. Earlier this year BikeWalkKC announced plans to take it to the next level and attempt what could be the largest crowdfunding project to date. They hope to finance more bike stations and preserve the cities historic fountains for bikers to see.
So is Civic Crowdfunding sustainable?
In April, the JOBS Act celebrated its second anniversary. At its launch, it was deemed as pro entrepreneur while President Barack Obama called it a possible “game-changer” for small businesses looking to raise money.
Today, it is still a work in progress but change is coming as its “equity crowd funding” provision for non-accredited investors (known as Title III) will go into effect (hopefully) later this year. The Securities and Exchange Commission (SEC), who is responsible for issuing the rules, is still hammering them out and when they do so, doors will open for both investors and entrepreneurs to further meet online and share investment dollars for the companies and products of tomorrow.
Before equity crowdfunding small businesses obtained investment dollars through their own funding networks, not necessarily through an online portal.
Currently businesses can solicit for funds from qualifying accredited investors under SEC Rule 506(c) of Regulation D. Title II of the JOBS Act lifted the ban of general solicitation of SEC Rule 506 Regulation D Private Placements. With this provision, it enables them to expand their horizons to find potential investment deals online. Once personal relationships represented the entry way but now the gatekeepers are receding and opportunities can be found through advertisements, online or publications.
Through SEC rules, Accredited Investors can be natural persons or an entity. As for these accredited investors, who exactly are they? An Accredited Investors can be defined as people who meet the following thresholds: A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year a net worth of more than $1 million dollars (excluding home equity) or someone making $200,000 annually for at least the past two years. Additional requirements need to be met for married couples. Some Accredited Investor entities can be banks, insurance companies, employee benefit plans, or trusts that qualify under the SEC Rule.
For these investors, they could have invested in new businesses for years (some would refer to these investors as venture capital funders or angel investors) through private transactions; many have also called them Wall Street insiders as these opportunities aren’t public, excluding “Main Street.”
So you may ask why do these investors give money to these new, unproven businesses? They do so for numerous reasons.
In a November 2012 survey by the Crowd funding Professional Association (CFPA), when they asked these investors for the biggest drivers when making their investment decisions, they first responded investment returns (33 percent). This was followed by the opportunity to help companies receive capital where they couldn’t do so before (20 percent) while another 20 percent said it was being part of something greater than them.
And some answered they do so to make a difference in the life of an entrepreneur (17 percent).
“I think this survey shows how inspired people are by the unlimited possibilities that can happen with the crowdfunding bill. For once our entire society can play an active role in job creation and help level the playing field for access to capital for entrepreneurs everywhere,” said Ruth Hedges, CEO of Funding RoadMap and Founding Governance board member of the CFPA.
These crowdfunding projects have enabled accredited investors to continue expanding in ways they may not thought was once possible.
Growth Potential for Crowd Sourcing
Accredited investors are on to something as potential investment opportunities and portfolio diversification are poised to expand through crowdfunding.
Here’s more proof.
In a recent TABB Group report, it estimated that the crowdsourcing marketplace may hit $17 billion globally next year, with more than 1,000 funding companies offering forums for raising money. This represents a 200% rise for crowdfunding and an 88% jump for the pool of venues worldwide.
TABB noted in its report: “Angel investors (mostly so-called “accredited,” high net worth folks who pass a set of financial thresholds) will provide some of the crowd-sourced funding and, across all funding paths, as much as $50 billion in financing in 2015, up from $22.9 billion in 2012. A more conservative growth estimate puts 2015 angel investments at $28 billion in 2015.”
As for this potential explosion and the ability for small businesses to share publicly their need for capital, accredited investors will be at the forefront but the weight will also be placed on businesses to verify investors are in fact accredited as a means to still qualify and offer the non-registration exemption for Regulation D
Yes, at some point, the SEC is likely to ease this limitation. But until then, accredited investors are the ones that have access to growth companies through online networks, enabling these two parties to connect and have win-win situations. Through password-protected crowdfund sites, these companies can obtain documentation supporting the investors’ alleged accredited designation. Meanwhile, the investors can review financial and corporate documents. Then, both hope to see their investments grow.
Not a bad trade off.
Non-accredited investors and crowdfunding platforms
But for non-accredited investors, they haven’t been completely excluded from the crowdfunding party for now. They’ve also had opportunities to participate in small businesses projects as many turn to the popular Kickstarter crowdfunding platform and other reward or donation crowdfunding sites.
Launched in April 2009, more than 60,000 sucessfull projects and more than $1 billion dollars have pledged on Kickstarter. This is done differently as backers make reward-based donations as opposed to accredited investors’ ability to receive equity shares or other types of securities. It also comes as Kickstarter’s companies are still creating their creative businesses and offering pre-orders for their products. Challenges arise on this platform for because the innovator that launched their project on Kickstarter needs to make sure they have an enticing reward or product to attract backers. Struggles ensue trying to convince donors that pre-ordering or an acknowledgement is a good thing.
And this is where a problem then lies for the companies. Accredited investors may stay away from rewards and instead look for equity opportunities.
They do so for numerous reasons but they will tend to find greater choices from equity stakes, the amount of information and more opportunities.
Take a look.
While many backers can receive rewards in startups through donation-based crowdfunding platforms, such as Kickstarter while products and project are under development, accredited investors can take an equity stake in companies via other funding sites under the SEC Rule 506(c) today.
Through the JOBS Act’s Title III crowdfunding provision, Equity crowdfunding will allow non-accredited investors individuals) will be able to exchange funds to become an equity shareholders in early stage companies through approved funding portals; approval requirements are TBD by SEC. Both the opportunities and the risks are greater but many see these as transformational for startups, changing the landscape of early investing.
Accredited Investors may make investments as low as $1,000 but the amount will depend on the funding portal and the company. The proposed JOBS Act’s Title III crowdfunding provision, will allow accredited investors with larger investing limits which is based off their income or net wroth. The amount sold to any particular investor during a twelve month period by all crowdfunding issuers may not exceed:
(A) for investors with less than $100,000 in net worth or annual income, the greater of $2,000 or 5% of their annual income or net worth, and
(B) for investors with greater than $100,000 in annual income or net worth, up to 10% of the investor’s annual income or net worth, not to exceed $100,000.
Amount of Information
Aside from accredited investors taking an equity stake in the companies, the amount of company information they can review enables them to delve deeper into specifics as the larger investments in a company will demand and require more in-depth due diligence. They can appraise the organization as well as financials of the company and look over data . This can be done through the platforms as well as transacting purchase agreements.
In addition, less is not more here as the startups may also share documents with accredited investors such as market research, legal documents, team bios, videos and FAQs.
While once challenged to find investing opportunities thanks to regional barriers, with the rise of crowdfunding sites, accredited investors now have opportunities to independently find investment opportunities across the country, much less worldwide. This comes through be able to join a 506(c) crowdfunding platform and review the listed opportunities as new businesses can now publicly solicit for funding. Capital raises on equity crowdfunding portals cant raise more than $1 million in 12 months (proposed under Title III in the JOBS Act). Thus other portals are sprouting that will be compliant for raises seeking greater than $1 million dollar raises, but will only be able to accept participation from Accredited Investors.
The responsibility rests on their shoulders to confirm these investors as accredited. You could say there is now dual due diligence. But there’s also a need to trust and rely on the crowdfunding portal as well as their judgment.
For accredited investors, these opportunities provide a greater variety of choices as well as a chance to incur returns. And as previously mentioned, this is a priority when they make investments.
Looking ahead, the landscape for crowdfunding will change as non-accredited investors will also find greater opportunities and incur more choices. But these investor groups will continue to differ and for now, accredited ones have more choices at their fingertips and should take advantage of them. For those accredited investors, join eBRCapital and start reviewing your next investment opportunities.
Recently, Ebarnraiser came across an article “4-steps-to-successful-crowdfunding-every-entrepreneur-should-bag” by Amanda Barbara of Publush on ventureburn that listed four main steps entrepreneurs should follow for successful crowdfunding. The article was very informative and easy to read. The article begins by answering the simple to read yet hard to explain question of “Why Crowdfunding?” According to ventureburn “crowdfunding sets you up for success without having to woo investors or risk your personal finances….and you enjoy greater creative leeway as you bypass the exhausting act of jumping through hoops for professional investors.” They later add that the personal interactions between potential buyers allows for faster response time and instant feedback to help refine your goals.
The article then delves into certain mindsets that you must have to be successful in crowdfunding. They explain how the perfect mindset is one of determination (you can’t be discouraged if the project doesn’t immediately take off), passion (you have to inspire and motivate people to support you), and lastly aggression (you need to go out and get people to support your campaign). Once you have mastered this mindset, there are four steps to take to develop solid crowdfunding strategies.
Step 1 in the process would be to do your research. Figuring out what you like and don’t like, investigating similar products and studying past campaigns are all key components of this step.
Step 2: Make a plan. You can accomplish this by making a calendar, choose funding goals, and reaching out to bloggers and influencers.
Step 3 is where you assemble your crew. These should be people who you are close with and can trust.
Lastly, step 4 is to engage your supporters. During your campaign you must stay actively engaged so that your supporters believe in what you’re doing. All of these steps are vital steps one must take when trying crowdfunding for the first time. I completely agree with how the article stresses the importance of keeping your supporters engaged all throughout the process. Word of mouth is huge in marketing these days, therefore keeping supporters in the loop can make them actively seek others who believe in the same cause. Whether or not you succeed or fail, each project is a learning experience and will help you with your next project!