NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Sunday, October 16, 2016

The JOBS Act was signed into law by President Obama in 2012, allowing companies to acquire funding through online portals from non-accredited investors, which roughly accounts for 97 percent of the population in the United States. On May 16, 2016, Title III of theJOBS Act, also known as regulation crowdfunding, or equity crowdfunding, was the last section to be implemented by the SEC.

With such a large pool of potential investors looking to enter the market, it would seem that the crowdfunding and investment communities would be extremely welcoming of Title III — but it seems like the exact opposite is happening. This could be because not enough is understood about this type of crowdfunding. As a founder who has tried all types of crowdfunding, I’ve seen significant benefits to all platforms, including equitycrowdfunding.

How is equity crowdfunding similar to or different from other crowdfunding?

Equity crowdfunding shares similarities with Kickstarter campaigns in terms of how a company must spread their message to potential investors about their products in order to successfully raise enough funding. However, the main difference between equity crowdfunding, rewards-based crowdfunding and donation-based crowdfunding is the investor’s end goal in rewards-basedcrowdfunding, such as Kickstarter and Indiegogo. Rewards-based fundraising is aimed at enticing investors based on the benefits they would receive in relation to the amount they contribute.