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Chance Barnett says he founded Crowdfunder in order to give startups more options. Backers can choose to invest for more than just straight equity -- they could also buy a cut of revenue based on time or percentage return. So an investor could buy 5% of a company's revenue for three years, or 10% of revenue capped at a 200% return on their investment. "In equity-based financing, [investors] aren't guaranteed a return on their money unless the company is sold or offers dividends," Barnett says. "Revenue lets them get a return. It lets them really share in the incremental growth of a company as it happens." Crowdfunder is in private beta testing right now, which will serve as a holding pattern until the Act takes effect.
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“The law is better than it might have been … but there are lots of loose ends, a lot of inconsistencies.”
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regulators are still working on ways to ensure investors are educated on how to evaluate crowdfunding proposals, and how to monitor the amount of money investors are pouring into companies through online portals (the law places a tiered cap on crowdfunding investments based on an investor’s income).There is also a great deal of uncertainly concerning the standards for “registered funding platforms.”
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The JOBS Act also requires the Financial Industry Regulatory Authority, a nongovernmental organization that regulates brokerage firms and exchange markets, to implement a new set of rules specifically for crowdfunding portals.One big problem: The law set no deadline for FINRA, which according to Tim Rowe, chief executive and founder of the Cambridge Innovation Center in Cambridge, Mass., often “moves at a snail’s pace.”
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That could mean an additional year or so after the SEC publishes its own rules before crowdfunding is available to entrepreneurs. “We’re ready for a good long wait,” Rowe said.
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News of a leadership change at the Securities and Exchange Commission has some experts concerned that entrepreneurs may have to wait even longer for highly anticipated yet already delayed crowdfunding rules.
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Mack said this latest development may leave entrepreneurs waiting “several months, or perhaps a full year, or perhaps longer” for the SEC crowdfunding rules
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n the event the company is raising over $500,000 it will need their financial statements to be audited, which could be a costly process. Funding portals will also be “invited” to pass certain requirements. Some of these might be registration fees or for the portal management team to hold whatever exam FINRA or other SRO may require.
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Data from massolution research indicates that total funds via the reward and donation based crowdfunding are growing at a rate of 524 percent, where platforms raised almost $1.5 billion, funding over one million projects in 2011.
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a crowdfund industry consultancy firm will be releasing a report in September 2013 that shows the debt and equity crowdfunding space to be at least $4.3 billion in its first year of operation.
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While crowdfunding lets businesses test the popularity of their product, it also gives copycats the opportunity to launch a similar business and rush it to market.
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The idea of “its not what you do, but why you do it,” really hits home here. By focusing on a bigger purpose, the driving force behind a brand, project creators will be able to create a unique community of likeminded individuals.
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Typically, most successful projects receive about 25-40% of their revenue from their first, second and third degree of connections. This could include friends, family, work acquaintances, or anyone that the owner is connected to, including their second and third degree connections. Once a project has seen some traction, unrelated consumers start coming out of the woodwork to support campaigns they believe in.
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Utilizing social media, creating email distribution lists before the project launches, contacting local media, are all necessary steps to take if you are serious about your goal.
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1. They connect to the greater purpose of the campaign 2. They connect to a physical aspect of the campaign like the rewards 3. They connect to the creative display of the campaign’s presentation
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In this age of the digital reign, many consumers will stop reading your campaign if they don’t connect to the video, so this is really the gateway to your proposal
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While crowdfunding creates a funding opportunity that certain smaller businesses may not have received in the traditional way, it also is a great outlet for more established companies.
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the pilot program would provide FINRA with necessary data for their own regulatory programs. I will go so far as to say that RocketHub believes that without this testing, the SEC runs the risk of writing out an inefficient and potentially ineffective regulatory framework.” “We strongly believe that a pilot program will allow both the SEC and FINRA to identify topics that require additional regulation before the floodgates open
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“In honesty, and in the spirit of being pragmatic, I believe the risk of loss due to under performance of a legitimate start-up or small business far outweighs the likelihood of loss to investors due to fraud or omission.”
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Mr. Jackman and Mr. Symington turned to U.K. crowdfunding website Crowdcube.com and raised £600,000 in 16 days for their career-change website in exchange for a 24% stake of their business. Around 400 people invested between £200 and £20,000 each, in return for non-voting shares in the company–and a branded hoodie or t-shirt.
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If the SEC and the industry fail to keep the rip-off artists out, crowdfunding could become toxic to both investors and businesses. Even without deliberate fraud, big losses for people who don’t fully grasp the risks involved might have the same effect.
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Crowdfunding is on ice until the SEC finalizes the regulations, even if that takes more time than the law allows for.
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Washington State Securities Administrator, says advertising unregistered investment opportunities used to be a red flag for a scam. With the advertising ban repealed, he asks, “how are we to detect the legitimate from the illegitimate offerings?”
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It doesn’t say what kind of background check is necessary or what kind of past problems should get someone barred.
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“funding portals.” While lots of new companies want to play this role, questions about how they can operate remain: How will they vet companies raising money? How will they make sure investors understand the risks? How will they make money?
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These existing companies are ‘startup social networks,’ networks that, among other things, connect startups with investors. With existing deal-flow (companies) and capital (investors), the market is already made, and offering a crowdfunding solution is a natural decision.
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Among the severe cuts, organizations like the First Nation's Governance Institute have been put on notice that their funding will be cut completely within a year. Motivated by the goal of self-reliance and self-governance, combined with the added squeeze from budget cuts, FundWeaver wants to build online collective support systems for financing Aboriginal organizations, entrepreneurs and community members.