What Is Crowdfunding?
Crowdfunding is the process where a person or company uses the Internet and social media to ask the general public for small amounts of money to achieve a larger goal. Kickstarter is one of the most common and successful platforms and there are a host of others, both small and large.
There are a wide range of reasons people set up crowdfunding campaigns, from developing new products to philanthropic efforts, such as disaster relief.
Things To Consider
Crowdfunding campaigns sometimes result in the issuance of “securities” like loan agreements, promissory notes, shares, and units in exchange for investing. These transactions must all comply with securities laws. It’s not just the securities that must comply either – if someone has been helping the person or company find investors, they may also be subject to securities laws and may need to be registered.
While many campaigns are legal and beneficial, they can still have significant adverse effects on investors. Even if the crowdfunding deal is structured appropriately, it’s incredibly important to determine your goals and risk tolerance before getting involved, since crowdfunding has an inherent risk like any other investment.