What is Crowdfunding ?
There have been many articles that discussed crowdfunding in various aspects. In general, that a company or project seeks funding from a very wide audience is called “crowdfunding”. Crowdfunding means nearly everyone is a potential investor. Traditionally, solicitation of funding can be achieved by private offering.
Since 2009, it has exponentially grown, thanks to the online channel or platform called “Portal”. Here was the highlight provided by Gregory Paley, an attorney based in Seattle Washington:
- 2015 equity crowdfunding ~ $662 MM
- 2009 – 2012 CAGR of crowdfunding at 63%
- 10-year projection at $93 billion in funds annually
- 600 + portals
There are 4 types of crowdfunding. In Vancouver’s 1029 Café model, both 2 and 3 were designed in its original offering.
1. Donation （公益众筹）
Equity Crowdfunding Law in the United States
Equity crowdfunding was approved by the federal government in 2012 as part of the Jumpstart Our Business Startup Act (JOBS Act). But the law has yet to go into effect because the federal Securities and Exchange Commission (SEC) hasn't agreed on specific rules.
Equity Crowdfunding in the State of Washington
The state's crowdfunding law, signed into law in March 2014, went into effect November 1st, 2014. Now the state’s companies can get investments from people who are not accredited and the investors can receive shares in the company. Here are some highlights of the law:
1. Securities can only be offered by companies within the state to people within the state.
2. 80% of revenues, assets and proceeds must be derived, located and used in WA State.
3. Startups can raise $1 million using the exemption in a 12-month period.
4. Investors don't have to be accredited, but the amount they can invest is capped ($2,000 to $100,000).
5. Companies must file a form with the state before soliciting funds.
6. Companies must publish quarterly financial reports online for as long as securities are owned by those who bought them through crowdfunding. The financial reports don’t have to be audited.
Alternatives: Other Securities Regulations in the United States
Alternatively, US companies can raise private capitals, exempt from the SEC Registration (similar to crowdfunding), pursuant to Regulation D of the Securities Act of 1933, specifically the Rule 504, 505 and 506. Rule 504 can raise up to $1 million in a 12 months period, Rule 505 up to $5 million, and Rule 506 unlimited. Additionally, to be qualified for the exemption, there is no restriction on the numbers of the unaccredited investors under Rule 504; Rule 505 and 506 can’t have unaccredited investors more than 35. For further information, please email to email@example.com.
(Author: Michael He)
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