Have you had experience with crowd funding?

Please check the SEC website. I did not think the SEC has issued all amendments to the Securities Act to allow these types of transactions.

Regis is correct, the SEC has not issued the final regs pursuant to the 2012 Jobs Act which was passed in April 2012. The new business model pursuant to the Act is for crowdfunding portals to put investors together with enterpreneurs for capital investment. I'm also on the board of a crowdfunding start-up called Smart Money Entrepreneurs.

A bit of clarification. These comments, which I share, relate to issuing securites. The regs are a work in process, and will probably not be out for months.

That said, it is possible to use crowdfunding for new ventures, although it is limited to sales of services and products. There have been many rather successful enterprises raising as much as $1mm+. To me, that is good news and bad news. The bad news is that it tends to give people the impression that crowdfunding is a very viable method, but overhyped, in my view.

Peter,

So is crowd funding now limited to working capital loans? Why to only new ventures?

It's original inception and as it runs today, it's meant for a lot of smaller contributors to support something that might not otherwise get done. Crowd funding to date has been to get projects done, like small film or art projects, although not exclusively so. These fundraising efforts are generally donation or the donor gets a sample of early products or a t shirt or something. I'm not aware of any current allowance to treat as equity in a project or even debt for a project. Until clear guidance is provided by the SEC sometime this year (hopefully) pursuant to the JOBS act, this will remain the model. The folks I know who have pursued crowdfunding have had mixed results, raising a few thousand to a few tens of thousands.

As the SEC opens the door for entrepreneurial fundraising, one key thing to watch out for will be the effect on the cap table and subsequent fundraising expectations. It's unclear how institutional investors will feel about sharing the cap table with individuals who came in through crowdfunding. So, if a firm will need to raise more than $1M/year, crowdfunding may still be a debatable strategy. But, in the long term, hopefully it lowers the cost of capital for startups as the kins get worked out.

Irv, you will need to provide us with additional details before we can accurately provide you with feedback. Are you raising funds via equity, donation or product/services?

I agree with several of the respondents that Crowdfunding is still in its’ infancy stage and needs to be closely examined before a final decision can be determined. A huge concern I can foresee would be how companies will manage and communicate with their investors? Through crowdfunding, you could potentially end up with hundreds of investors that you will need to manage and coordinate. This takes away the valuable time and resource that a founder needs to concentrate on the core business and reason for the raise. There has not been any discussions on how these crowdfunding platforms will helps founders on this issue. OptionEase provides web based software solutions that can help companies manage their investors and run reports for their cap table.

Kim,

Actually I am just curious why it works. Thank everybody for their responses.

Irv

Here is a company that is doing a slightly different take on crowdfunding as a debt platform - https://streetshares.com/ It brings small businesses together with accredited investors who make loans to the company. So the loans are repaid with interest rather than exponential ROI.