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When we say “crowd-funding” these days, most people think of Kiva or Kickstarter. Or maybe the JOBS Act comes to mind.

JOBS stands for Jumpstart Our Business Startups. The JOBS Act is a piece of U.S. legislation that was passed in April 2012 that significantly changed U.S. securities laws. It eases some of the regulation required for companies to issue securities (equity shares and in some cases bonds or other types of debt) in order to raise money or capital. Companies raising less than $50 million are exempt from Securities and Exchange Commission registration requirements under the JOBS Act.

Whilst many people are celebrating the removal of barriers for smaller and earlier stage companies to raise money from strangers, it does come with some challenges. Opponents to deregulation of securities laws are concerned about the relaxation of rules and requirements for the provision of historic financial information. The JOBS Act permits companies to “test the waters” by communicating information to potential qualified and accredited investors early, before any documents are registered with the Securities and Exchange Commission.

Caveat Investire

Let the investor beware! I cannot help but think that the relaxation of securities laws in the U.S. places more onus on the investor and intermediaries to make appropriate investment decisions. Already “crowd-funding” is used interchangeably to mean the type of funding raised on Kickstarter, which does not pay the funder a financial return, and other sites such as MicroPlace or WeFunder, which do pay a financial return. Financial return is not the only outcome that could be generated from the projects or businesses supported by these platforms. In the next post in this series, we’ll take a look at the difference between Crowd-funding and Crowd-sourced Equity.  In Part 3, we’ll look at Crowd-sourced Equity versus Capital Raising.

Register for Let’s Talk About Crowdfunding and hear from 5 guest speakers about their perspective on sourcing money from the crowd.   The event is part of a series of Conversations for Investing with our Values hosted by Pique Ventures.  August’s event is co-hosted with the Canadian Global Impact Investing Group.

This series of posts:

  1. Getting Money from the Crowd – Part 1 [Crowd-funding]
  2. Getting Money from the Crowd – Part 2 [Crowd-funding vs. Crowd-sourced Equity]
  3. Getting Money from the Crowd – Part 3 [Crowd-sourced Online vs. Offline]