Will Internet-based financing change how businesses raise capital?
Executive Summary
The explosive growth of social media and the Internet have paved the way for crowdfunding, a means of raising small amounts of money online from a large number of people without any financial intermediaries. Crowdfunding, say proponents, democratizes the fundraising process by helping start-ups, nonprofits, artists and others overcome barriers such as gender and geography to gain access to capital. Besides raising money, crowdfunding provides a way to test the popularity of a product or creative idea and solicit feedback from potential customers. In the United States, the JOBS Act of 2012 legalized investment crowdfunding, which allows for the issuance of debt or equity to both accredited and unaccredited investors. However, the rules implementing crowdfunding for the latter group have yet to be finalized. Some critics worry that ordinary investors will become victims of fraud or will simply make bad investment decisions, but the data remain too sparse to confirm those fears.
Resources
Bibliography
Books
Cortese, Amy, “Locavesting: The Revolution in Local Investing and How to Profit From It,” Wiley, 2011. A veteran business reporter examines the local investment movement and how it can benefit investors and businesses.
Cunningham, William Michael, “The JOBS Act: Crowdfunding for Small Businesses and Startups,” Apress, 2012. A crowdfunding consultant and economist explains the JOBS Act and how it can help small businesses and start-ups raise capital.
Milliken, Dave, “Crowdfunding in a Nutshell: A Concise History of Crowdfunding and How to Raise Money Today,” Amazon e-book, 2014. An entrepreneur and business consultant reviews the history of crowdfunding and the opportunities that will be available under the JOBS Act.
Neiss, Sherwood, Jason W. Best and Zak Cassady-Dorion, “Crowdfund Investing for Dummies,” John Wiley & Sons, 2013. Two crowdfunding consultants lay out the basics of equity crowdfunding for entrepreneurs and investors.
Articles
Blackman, Andrew, “Real-Estate Crowdfunding Finds Its Footing,” The Wall Street Journal, April 13, 2014, http://tinyurl.com/
Casserly, Martyn, “The top 5 Kickstarter success stories: Oculus Rift, Pebble smart watch, Ouya and more,” PC Advisor, Oct. 2, 2013, http://tinyurl.com/
Picker, Leslie and Noah Buhayar, “LendingClub Raises $870 Million in IPO Poised to Change Finance,” Bloomberg News, Dec. 11, 2014, http://tinyurl.com/
Rosman, Katherine, “Crowdfunding Isn't Just for the Little Guys,” The Wall Street Journal, July 9, 2014, http://tinyurl.com/
Saksa, Jim, “Kickstarter, but With Stock,” Slate, June 23, 2014, http://tinyurl.com/
Shchetko, Nick, “Should Crowdfunding Sites Do More to Vet Projects?” The Wall Street Journal, Nov. 25, 2014, http://tinyurl.com/
Solomon, Steven Davidoff, “SEC's Delay on Crowdfunding May Just Save It,” The New York Times, Nov. 18, 2014, http://tinyurl.com/
Xu, Christelle, “Crowdfunding: Income or Gift?” Crowdfund Investment blog, Crowdfund Capital Advisors, Aug. 14, 2013, http://tinyurl.com/
Reports and Studies
“How Much Capital are Kickstarter and Indiegogo Hardware Projects Raising?” CB Insights, Aug. 11, 2014, http://tinyurl.com/
Crowdfund Capital Advisors, “Crowdfunding's Potential for the Developing World,” World Bank, 2013, http://tinyurl.com/
Dorff, Michael B., “The Siren Call of Equity Crowdfunding,” Sept. 13, 2013; available at SSRN, http://tinyurl.com/
Greenberg, Jason and Ethan Mollick, “Leaning In or Leaning On? Gender, Homophily, and Activism in Crowdfunding,” July 3, 2014; available at SSRN, http://tinyurl.com/
Mollick, Ethan, “The dynamics of crowdfunding: An exploratory study,” Journal of Business Venturing, January 2014, http://tinyurl.com/
Mollick, Ethan R., “Swept Away by the Crowd? Crowdfunding, Venture Capital and the Selection of Entrepreneurs” The Wharton School at the University of Pennsylvania, March 25, 2013, http://tinyurl.com/
Mollick, Ethan R., and Ramana Nanda, “Wisdom or Madness? Comparing Crowds with Expert Evaluation in Funding the Arts,” Harvard Business School Entrepreneurial Management Working Paper No. 14-116, June 20, 2014; available at SSRN, http://tinyurl.com/
The Next Step
Entrepreneurs
Clifford, Catherine, “Food-Tech Startup Dinner Lab Is Crowdfunding a Cool $2 Million—From Its Customers,” Entrepreneur, Dec. 3, 2014, http://tinyurl.com/
Kirsner, Scott, “A tale of two crowdfunding ventures,” The Boston Globe, Sept. 21, 2014, http://tinyurl.com/
Robb, Alicia, “Why Crowdfunding Closes the Gender Gap,” Inc., December 2014-January 2015, http://tinyurl.com/
Investors
Fikes, Bradley J., “Science gets help from the crowd,” San Diego Union-Tribune, Nov. 5, 2014, http://tinyurl.com/
Parmar, Neil, “Crowdfunding is Opening Investment Doors,” The Wall Street Journal, Nov. 9, 2014, http://tinyurl.com/
Weinstein, Joanna, “Crowdfunding real estate,” CNBC, Dec. 10, 2014, http://tinyurl.com/
Marketing
Dave, Paresh, “Gamers' funding fuels meteoric rise of ‘Star Citizen,’” Los Angeles Times, Oct. 19, 2014, http://tinyurl.com/
Gumz, Jondi, “Fast start needed to generate buzz in crowdfunding efforts,” Santa Cruz (Calif.) Sentinel, Dec. 27, 2014, http://tinyurl.com/
Schultz, E.J., “Newcastle ‘Crowdsources’ Local Super Bowl Ad,” Advertising Age, Jan. 12, 2015, http://tinyurl.com/
Successful Campaigns
Bajarin, Tim, “Pebble and Glyph: How Crowdfunding Is Creating Disruptive New Products,” Time, Jan. 27, 2014, http://tinyurl.com/
Heber, Alex, “A Campaign To Teach Kids An Hour Of Code Has Just Smashed The Indiegogo Crowdfunding Record,” Business Insider (Australia), Nov. 5, 2014, http://tinyurl.com/
Tate, Ryan, “How You'll Fund — And Wildly Profit From — The Next Oculus Rift,” Wired, April 4, 2014, http://tinyurl.com/
Organizations
Council of Better Business Bureaus
3033 Wilson Blvd., Suite 600, Arlington, VA 22201
http://www.bbb.org/
Self-regulatory group that provides information about businesses to consumers, including warnings about scams.
Crowdfund Capital Advisors
1688 West Ave., #802, Miami Beach, FL 33139
www.crowdfundcapitaladvisors.com
For-profit advisory, research and education organization dedicated to promoting access to capital through crowdfunding.
Crowdfund Intermediary Regulatory Advocates
1345 Avenue of the Americas, New York, NY 10105
www.cfira.org
Advocacy and trade group for the equity crowdfunding industry.
Ewing Marion Kauffman Foundation
4801 Rockhill Road, Kansas City, MO 64110
816-932-1000
www.kauffman.org
Nonprofit research and grant-making organization that supports entrepreneurship.
National Crowdfunding Association
213-208-2148
www.nlcfa.org
Trade association of crowdfunding professionals, portals, venture capital firms, angel investors, lawyers, accountants, software vendors, educators and students.
Securities and Exchange Commission
100 F St., N.E., Washington, DC
202-942-8088
www.sec.gov
Federal agency that regulates the U.S. securities industry and is preparing regulations for investment crowdfunding for unaccredited investors.
National Federation of Independent Business
1201 F St., N.W., Suite 200, Washington, DC 20004
202-554-9000
www.nfib.com
National advocacy and lobbying organization for small businesses.
North American Securities Administrators Association
750 First St., N.E., Suite 1140, Washington, DC 20002
202-737-0900
www.nasaa.org
Organization that represents state-level securities regulators.
Small Business Administration
409 3rd St., S.W., Washington, DC 20416
800-827-5722
www.sba.gov
Federal agency that supports entrepreneurship and makes loans; offers online course, “Introduction to Crowdfunding for Entrepreneurs.”
U.S. Chamber of Commerce Foundation
615 H St., N.W., Washington, DC 20062
202-463-5500
www.uschamberfoundation.org
Nonprofit affiliate of the Chamber of Commerce, a business lobbying group, disseminates information on the economy and employment issues, including crowdfunding.
DOI: 10.1177/2374556815573233