Still, the idea of crowdfunding appears to have captured the attention of both entrepreneurs and investors. In March, ProFounder announced that it had helped ten entrepreneurs raise more than $300,000 from 245 investors. IndieGoGo says it has helped raise millions for more than 25,000 campaigns in 170-some countries.
At the moment, many of the sites appear to focus either on creative ventures, such as funding for artists, or companies that have a social mission. For instance, No One Without, a clothing company soliciting on 33needs.com, says that for every product sold, 20 percent of the revenue goes directly towards its non-profit partners.
The letter further outlines several steps that SEC will be taking, including a review of the impact the Commission’s regulations on capital formation for small businesses, along with capital-raising trends and the Commission’s mandates to both protect investors and facilitate capital formation.
While firm statistics on the number of entrepreneurs that have turned to crowdfunding as a way to finance their ventures are hard to come by, several sites have sprung up to help them do just that. Among them: www.profounder.com, www.indiegogo.com, and www.33needs.com.
In a recent letter to Representative Darrell Issa, (R-CA), chair of the Committee on Oversight and Government Reform, SEC chair Mary Schapiro addressed the topic of crowdfunding. According to her letter, the SEC staff has been discussing crowdfunding and “possible regulatory approaches to this developing capital formation strategy with business owners, representatives of small business industry organizations and state regulators.” The letter also notes that in “considering whether an exemption from the registration requirements of the Securities Act is appropriate for capital formation strategies like crowdfunding, the Commission will be mindful of its dual responsibilities of facilitating capital formation and protecting investors.”
The amounts raised by most of the solicitors are relatively tiny. No One Without was looking for $3,000, and as of early May, it had raised about $1,300.
In July, 2010, the Sustainable Economies Law Center in Oakland, Calif., wrote to the SEC, proposing an exemption from Section 5 of the Securities Act of 1993 for securities offerings of up to $100 Big Fat Finance,000, with a limit of $100 per investor. “These small investments can be a powerful source of grassroots and local funding for developing small businesses. The small amount at stake and maximum aggregate cap ensure the protection of investors while furthering the public interest in this type of investment,” the letter states. The letter can be seen here on the SEC’s website. Comment letters, most of which supported a change, are posted here.
As any treasurer knows, funding a business is challenging. That’s particularly true for start-ups. Crowdfunding, otherwise known as crowd financing or crowd sourced capital, is one way to navigate the hurdles. USLegal describes how crowdfunding might work: “An entrepreneur seeking to use crowd funding typically makes use of online communities to solicit pledges of small amounts of money from individuals who are typically not professional financiers.”
In addition, not all investments lead to purely financial returns. For instance, investors who invest $100 in Mission Cheese, an artisanal cheese shop located in San Francisco and soliciting investors via IndieGoGo, receive a $20 gift card and a Mission Cheese T-shirt, along with their names on the Mission Cheese wall for opening. Apparently the offer worked; the business had raised $12,665, or more than its $12,000 goal.
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