Crowd funding is hot! It has taken form in recent years, allowing anyone with a project, cause, or company to secure donations online in exchange for various gifts, or simply just for the sake of donating. Typically, sites like Kickerstarter, Indiegogo and Rockethub serve as conduits for the campaigns and their gift givers.
One recent example is Veronica Mars, the defunct TV series now poised to be a motion picture thanks to its wildly successful crowd funding campaign. Veronica Mars’ Rob Thomas spearheaded the capital raising campaign via Kickstarter, attracting 91,585 backers donating over $5.7 million dollars! Not bad for what typically turns out to be a thirty day time frame. While not all campaigns are successful, the amount of money raised by this budding industry has caught the attention of Congress.
In April of 2012, the President signed the JOBS ACT and TITLE III of that Act permits equity crowdfunding: selling shares or units in your company in exchange for cash. Until the SEC issues rules as required by TITLE III of the Act, it’s still illegal to offer equity in exchange for investments online; however, once that happens, we will see a whole new industry blossom. Entrepreneurs and other business people will be able to use third party intermediaries to conduct campaigns to raise capital online. There are parameters upon how it all works-the devil is in the details, but it’s expected that sometime this year those rules should be in place to make this a reality.
Perhaps Veronica Mars could have set up a campaign for equity crowd funding, seeking investment in its production company. The cap per twelve month period for the production company would be $1 million; and the investors would have a stake in the company, but perhaps if you have a well known brand like Veronica Mars, you might want to stick to the donative model that they used (they raised more money). If you are the “next” Veronica Mars and don’t yet have brand recognition or a proven fan/customer base, perhaps you might want to use the equity model (once legalized) so as to incentivize investors that even though you can only raise $1 million per year, investors may possibly make more on a return (the donative concept doesn’t allow any return-it’s just a gift).
Time will tell how this space evolves, but one thing is for sure, it will be a show worth watching!