RSS

The Bulletin

Crowdfunding's lack of reward

Posting in Energy

With an equity option, maybe some of those one-dollar bills would be tens.

The practice of "crowdfunding" has recently gone into overdrive as a method for anyone from technology inventors to independent filmmakers to round up much needed dough.

It has been around for centuries in some form or another, but over the last couple of years U.S. websites like Kickstarter and Indiegogo have helped it soar by making it easily accessible through the Internet. By simply surfing to their pages, people can give money to any company asking for it. In 2012, 2.2 million donators pledged $320 million on Kickstarter alone, more than triple 2011's dollar amount.

One thing those 2.2 million individuals will not receive, however, is a share of the company they're helping. They get the satisfaction of contributing, and they might get some perks such as early versions of products.

But they won't get equity, because as one clean technology consultant notes, the U.S. Securities and Exchange Commission (SEC) has not yet established the framework that would support it. That's despite encouragement from President Obama. Nearly a year ago, Obama signed the Jumpstart Our Business Startups Act (the JOBS Act) which eases securities regulations on investments in small businesses and clears the way for equity investments through crowdfunding sites.

"In a time when early stage capital in cleantech is hard to come by, this would be a welcome source of funds for small, struggling companies," says Dallas Kachan, managing partner of clean technology research and consulting firm Kachan & Co. "But today, a year later, the Securities and Exchange Commission has yet to issue guidelines on the topic, effectively stalling its widespread adoption. Why? Because today, crowdfunding is limited to donations. Equity investors in the U.S. can't technically put their money to work in most crowdfunding & microfinance systems yet with the expectation of a return."

Some people might be happy to keep the equity hawks out. I've seen enough of the television show Dragons' Den to know that startups prefer to hand over as little of their company as possible. And as Huffington Post commentator Victoria Silchenko notes, crowdfunding's recent successes demonstrate that altruism can indeed play an important role in a capitalist system.

If the equity came in, then I guess you could say that crowdfunding by any other name is venture capital. Still, it seems to me that equity should be an option - and perhaps a way to make early stage investing accessible to regular people. It's a capital idea!

Image from savorthesuccess.com

Looking to "crowdfund" a company? Consider these:

— By on March 13, 2013, 10:54 PM PST

Mark Halper

Contributing Editor

Mark Halper has written for TIME, Fortune, Financial Times, the UK's Independent on Sunday, Forbes, New York Times, Wired, Variety and The Guardian. He is based in Bristol, U.K. Follow him on Twitter. Disclosure