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Equity crowdfunding is the online oering of private rowers must demonstrate creditworthiness and the capacompany securities to a group of people to investment. bility to repay the debt, making it unsuitable for NINA or
Because equity crowdfunding involves investment into a startups. [14]
commercial enterprise, it is often subject to securities and
nancial regulation. Equity crowdfunding is also referred
to as investment crowdfunding, crowd investing or crowd 2 Regulation
equity.
Equity crowdfunding is a mechanism that enables broad
groups of investors to fund startup companies and small
businesses in return for equity. Investors give money to
a business and receive ownership of a small piece of that
business. If the business succeeds, then its value goes up,
as well as the value of a share in that businessthe converse is also true. Coverage of equity crowdfunding indicates that its potential is greatest with startup businesses
that are seeking smaller investments to achieve establishment, while follow-on funding (required for rapid growth)
may come from other sources.[1]
History
Investment crowdfunding can be debt-based or equitybased, or can follow other models, including protsharing and hybrid models. The term equity crowdfunding is often used to describe crowd investing into both
debt and equity based instruments when they are oered
on an equity crowdfunding platform. The rst known investment based crowdfunding platform for startups was
launched in Feb. 2010 by Grow VC,[2] followed by the
rst US. based company ProFounder launching model for
startups to raise investments directly on the site,[3] but deciding later to shut down its business due regulatory reasons preventing them from continuing,[4] having launched
their model prior to JOBS Act.[5][6][7][7] One of the rst
currently operational equity crowdfunding platforms in
the USA was EquityNet,[8] other early platforms include
CrowdCube and Seedrs in the UK.
Selling investments via crowdfunding has been
called crowdfund investing,[9]
hyperfunding,[10]
[11]
crowdinvesting,
or even simply crowdfunding, as in
legalize crowdfunding.[12] Some have called for standardization of the terminology in a way that distinguishes
the practice from other forms of crowdfunding.[13]
if raising funds with either debt or equity.[16] The Corporations and Markets Advisory Committee (CAMAC)
issued a report into proposed changes to the Australian
regulatory environment for Crowd Sourced Equity Funding in May 2014. It is anticipated that Treasury will follow with a subsequent request for comment later in the
2014.[17]
3.2
Belgium
3.3
New Zealand
3.4
Canada
3.5
Ireland
However, there are a number of websites that oer various types of crowdfunding services. Fund it was set up in
2011 to nance creative arts related projects, supported
by Bank of America Merrill Lynch, The Arthur Guinness Fund and a technology grant from the Department
of Arts, Heritage & the Gaeltacht. iCrowdFund which
is part of the iDonate online fundraising platform was
founded in 2014 and supports donation and reward based
crowdfunding. Linked Finance is a crowd lending site.
3.6 Italy
Italy has several well-functioning reward-based crowdfunding websites since 2011 (e.g. www.eppela.com,
www.produzionidalbasso.com). In July 2013 Italy became the rst country in Europe to implement a complete
regulation on equity-crowdfunding, which applies only to
innovative startups and establishes, among other rules, a
national registry for equity crowdfunding portals and disclosure obligations for both issuers and portals.[25] The
rst platform for equity crowdfunding went online on December 12, 2013 [26] and two more followed.[27][28] The
rst equity crowdfunding campaign launched in Italy was
a success, raising a total of 157,780 in three months,
exceeding its initial target of 147,000.[29]
3.7 Israel
Israel has yet to enact legal framework for equity crowdfunding. Therefore, any equity crowdfunding activity is
currently regulated under the Israeli Securities Law which
permits the oering of securities to 35 non accredited individuals and an unlimited amount of accredited investors
as dened in Israel Securities Law. The Israeli Securities Authority has proposed a new regulatory framework
for equity crowdfunding in Israel, which has not been
adopted yet. Some of the main terms are:
An aggregate nancing amount of up to ILS2 million over 12 months
Limitation of the amount to be invested by each
individual to ILS10,000 unless the investor is
wealthy
A sophisticated investor (as dened in the regulations) must contribute 10% of the total nancing
amount
3.12
Switzerland
where crowdfunding works as abase to crowdsource public investment decisions.[42] The donation-based Crowdhas been active in Sweden
There is an equity crowdfunding platform called Funding portal FundedByMe
[43]
and
Norway
since
2011,
and
Swedish crowdfunding
OurCrowd
activity is evolving in parallel to Crowdfunding in the
USA with Equity-Based CrowdFunding becoming active
in Sweden late in 2012.[44] Invesdor also started operating
3.8 Finland
in Sweden in February 2013.[33]
An Equity Crowdfunding portal was launched in Finland
in May 2012 by Invesdor.[30] The legal issues around
donation-based crowdfunding have been under debate in
Finland as its legislation[31] around this is dierent from
most countries. However the legislation about Equity and
Rewards-based Crowdfunding is more similar to the rest
of Europe, and the legal situation is clear.[32] Invesdor has
also started operating in Sweden[33] and has additionally
opened its service to Danish and Estonian companies.[34]
The Sweden-based FundedByMe also launched their Equity Crowdfunding portal in Finland in January 2013.[35]
3.9
Germany
3.12 Switzerland
The oldest[45] and most active [46] crowdinvesting platform in Switzerland is investiere.[47] Crowdinvesting was
responsible for 48% of the total money raised via crowdfunding in Switzerland in 2013.[48] The Swiss Financial
Market Supervisory Authority has not established specic regulations for crowdinvesting platforms. Instead,
each platform is reviewed on a case-by-case basis to decide whether the platform requires a license to operate.
In general, if the money raised is only brokered via the
platform and not centrally pooled in any way, unlicensed
providers are acting within the law.[49]
3.13 Turkey
Turkeys crowdfunding platforms are Fonlabeni, Fongogo
and Biayda.[50]
4 SEE ALSO
the Financial Services Authority (now the Financial Conduct Authority). It was approved in July 2011 and was
launched to the public in 2012.[55] Abundance Generation provides democratic nance to UK-based renewable
energy developers.[56]
On 6 July 2012, Seedrs Limited was launched as the
rst equity crowdfunding platform to receive regulatory approval from the Financial Services Authority.[57]
In August 2012, Richard Branson announced his support for crowdfunding, crowdinvesting and crowdlending platform BankToTheFuture.com in the Telegraph
newspaper.[58] In February 2013, the CrowdCube equity
crowdfunding platform, which was launched in 2011, was
authorised by the FSA.[59]
Federal legislation
Thanks in part to the Crowdfunding exemption movement, the JOBS Act was signed into law by President
Obama on April 5, 2012. The U.S. Securities and Exchange Commission has been given approximately 270
days to set forth specic rules and guidelines that enact this legislation, while also ensuring the protection of
investors.[64] Some rules have already been proposed by
the SEC.[65][66]
The bill went through a number of amendments and on
April 5, 2012 President Barack Obama signed the JOBS
Act into law.[67] The legislation mandates that funding
portals must register with the SEC as well as an applicable self-regulatory organization to operate.[68]
The JOBS Act places limits on the value of securities issuer may oer and individuals can invest through
crowdfunding intermediaries. An issuer may sell up to
$1,000,000 of its securities per 12 months, and, depending upon their net worth and income, investors will
be permitted to invest up to $100,000 in crowdfunding issues per 12 months.[69] An independent nancial
statement review by a CPA rm is required for raises
$100,000500,000 and an independent nancial statement audit by a CPA rm is required for raises over
$500,000.[70]
On October 23, 2013, the SEC unanimously approved the
progress of the crowdfunding bill and SEC commissioners explained that the commissions goals are to ease online fundraising for small companies and fraud protection
for investors. As of the date of approval, the proposal is
open for public comment for a 90-day period that is followed by another SEC vote to enable the enactment of
the proposal.[71] In parallel to the SEC regulations, the
Financial Industry Regulatory Authority (FINRA) is creating additional rules related to member rms engaged in
crowdfunding.[68]
3.16.3 State legislation
Some people see the federal crowdfunding legislation as
unworkable, and several U.S. states have recently enacted
or are considering their own crowdfunding exemption
laws, to facilitate intrastate investment oerings that are
already exempt from federal (SEC) regulation.[72] These
include the Invest Kansas Exemption,[73] eective August
2011, and the Invest Georgia Exemption, eective December 2012, has $1m/$10k caps.[74] Late in 2013, both
Michigan [75] and Wisconsin [76] joined Kansas and Georgia. As of April 2013, the states of Washington[77] and
North Carolina[78] are considering their own crowdfunding exemptions.[79] In July 2012, the Wisconsin Department of Financial Institutions issued an advisory, about
legislation proposed, intended to allow crowdfunding to
raise up to $1 million from non-accredited Wisconsin investors without audited nancial statements, or up to $2
million if the issuer has audited nancial statements.[80]
3.16.4 Crowdfunding insurance
The draft SEC rules calls for portals to purchase a delity
bond of at least $100,000. As stated by the SEC is that a
delity bond .. aims to protect its holder against certain
types of losses, including but not limited to those caused
by malfeasance of the holders ocers and employees,
and the eect of such losses on the holders capital.[81]
A delity bond generally covers a corporate policyholder
from rst party losses arising from the theft of money,
securities or other tangible property so if the portals employees steal the funds belonging to the crowdfunding
company, the bond can be useful. However, if there is
a claim against the portal for negligence in providing its
services as a portal, the more proper insurance policy to
apply to this loss is a professional liability insurance.
4 See also
Angel investor
Comparison of crowd funding services
5
Crowdfunding
JOBS Act
References
IN
[25] Consob disciplina con regolamento fenomeno 'equity crowdfunding' | Business | Reuters. Borsaitaliana.it.reuters.com. 2009-02-09. Retrieved 2013-09-03.
[26] http://www.unicaseed.it
[7] Startups Remain Cloudy on the New General Solicitation Rule. Bloomberg Businessweek. Retrieved September 20, 2013.
[28] http://www.assitecacrowd.com
[27] http://www.starsup.it
[10] Igniting That Startup Spark. Wharton Magazine. 201305-16. Retrieved 2013-09-03.
[12] Mattise, Nathan (2012-03-22). Senate passes legislation to legalize crowdfunding. Ars Technica. Retrieved
2013-09-03.
[13] Sang Lee (2013-04-22). Stop Calling It Crowdfunding.
Crowdfund Insider. Retrieved 2013-09-03.
[14] Art Patnaude (27 March 2013). "'Crowdfunding' Takes
Hold in the U.K. The Wall Street Journal.
[15] Cohen, Corcoran & Landis. Securities Act of 1933
(PDF). Securities Act of 1933. U.S. Securities and Exchange Commission. Retrieved 5 March 2014.
[16] ASIC guidance on crowd funding. Australian Securities
& Investments Commissionaccess. Retrieved April 12,
2015.
REFERENCES
[66] Venturebeat: SEC uses JOBS Act to set up new roadblocks to crowdfunding. Retrieved October 15, 2012.
[67] Landler, Mark (5 April 2012). Obama Signs Bill to Promote Start-Up Investments. New York Times. Retrieved
6 April 2012.
[68] Crowd Fnding News: FINRA Seeks Public Input on
Crowdfunding Regulation. Retrieved October 15, 2012.
[69] EGS: Crowdfunding Alert (PDF). Retrieved 16 Oct
2012.
[70] Denlinger, Craig. Crowdfunding Audits. Retrieved 5
April 2012.
[71] CHRISTINE LAGORIO-CHAFKIN (23 October 2013).
Historic Crowdfunding Rules Proposed--Finally. Inc.
MANSUETO VENTURES. Retrieved 24 October 2013.
[72] Crowdfunding state by state? William Carleton, Counselor @ Law. Wac6.com. 2013-03-08. Retrieved 201309-03.
[73] Oce of the Kansas Securities Commissioner, KS Invest Kansas. Ksc.ks.gov. 2013-06-21. Retrieved 201309-03.
[74] http://rules.sos.state.ga.us/docs/590/4/2/08.pdf
[75] McGlade, Alan (December 31, 2013). Michigan Governor Signs Intrastate Crowdfunding Exemption. Forbes.
[76] http://docs.legis.wisconsin.gov/2013/related/acts/52
[77] House Bill 2023 (PDF). Retrieved 2013-09-03.
[78] Invest NC Exemption (PDF). Retrieved 2013-09-03.
[79] State Crowdfunding Law. State Crowdfunding Law.
Retrieved 2013-09-03.
[80] Murphy, Patrick; Melissa York, Godfrey & Kahn S.C.
(December 21, 2013). New Tools for Raising Capital at
Community Bank Holding Companies: General Solicitation and Crowdfunding. The National Law Review. Retrieved December 30, 2013.
[81] http://www.sec.gov/rules/proposed/2013/33-9470.pdf
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