Securities Crowdfunding: A Quick Guide on Performing Platform Due Diligence
Every few weeks, you hear stories about a campaign funded by a crowd of Internet users through sites such as Indiegogo or Kickstarter. Sometimes it's a fundraiser for a fandom-backed, small budget movie like Veronica Mars. Other times, it's something quirky, like a recent campaign for $10 so the fundraiser could make potato salad that ended up raising more than $50,000. There are even crowd campaigns for charitable organizations and individual health care expenses.
Until recently, the crowdfunding industry was reliant on a rewards- or donation-based model, as Securities & Exchange Commission rules against general solicitation prohibited equity offerings on the sites. However, changes to the SEC rules pursuant to the JOBS Act now allow for the offering of securities through crowdfunding platforms. The advent of securities offerings in the crowdfunding realm has numerous potential benefits to both investors and those seeking capital, as indicated by the rapid growth in successful fundraisers of this kind.
However, traditional investors and businesses may be wary of using a mechanism that's more closely associated with the production of video games and small tech gadgets than with raising capital.