Crowdfunding is the name given to a method of raising finance by businesses where generally small sums of money given by a large number of people in return for a benefit - a t-shirt, website membership, a copy of a book or even just a credit on a website dedicated to the project.
Historically, crowdfunding was not a means of raising equity and was outside financial services protection laws in most countries.
However, the concept has been adopted (some may say "hijacked" by so-called "equity crowdfunding" which blurs the lines between investing and giving.
The traditional crowdfunding market has seen a tremendous upsurge in what amount to nothing more than begging letters seeking help with paying for anything from medical bills to holidays. Some crowdfunding sites are packed with such "projects" while others make a point of excluding them and focusing entirely on business projects.
"Equity crowdfunding" is often not crowdfunding at all: it is a platform that takes away the mystique of dealing with venture capitalists and angel investors, does not require complex information at the pitch stage and therefore lowers the barriers to entry to Angels and VCs that have traditionally been the case. It's more like TV's "The Voice" than investment banking, at least in the initial stages. But it's still raising equity, investors want a say in the company and how it is run and its ultimate goals including IPO.
Part two of a look at the "new" source of finance for business and the approach of regulators.
"Crowdfunding." It's one of those terms that seems like it was just waiting to be coined. And with the focus on "the cloud," anything that sounds a bit like it (even if it's almost as if it's been mispronounced) sounds new and exciting. So, what is "crowdfunding," is it viable, legal and, maybe most importantly of all, regulated?
Australia's financial regulator, ASIC, has issue guidance on crowd funding. It admits that, in general, it is not regulated by ASIC.
Tim Stange's parents had moved from one country to another. When he and a cousin spent last summer together, the idea of developing a website to provide a wide range of information and assistance to those moving. All he needed was the money to develop and market it. So he turned to crowdfunding.
Vortex Centrum Ltd, the UK publisher, has today added "CrowdFundingNewsNetwork.Com to its growing roster of specialist financial services titles.