Crowd Funding Economics
Web 3.0 Community Financing meets Social Networks
There’s been a huge roar building around crowdfunding and the marketing implications are clear. The democratization of accessing capital sped through Congress at a speed previously thought unachievable, led by the Crowd Fund Advisors. Crowdfunding platforms raised almost $1.5 billion in 2011, doubled to $3 billion in 2012, and is predicted to double again to $6 billion in 2013.
Crowdfunding can take various forms: Lending, Reward, Donation, and Equity. The forms currently legal in the US include the first three. In lending crowdfunding, funders receive interest income from their loan and expect repayment of original principal investment. In reward crowdfunding, there is a non-pecuniary benefit. Donation crowdfunding provides for not return and is purely philanthropic.
Equity crowdfunding allows companies to raise startup capital by selling small amounts of stock online to a large number of buyers. The Jumpstart Our Business Startups Act (the JOBS Act) signed into law in April 2012. However in order to get going, the JOBS Act requires that the SEC publish rules to regulate online equity crowdfunding of business startups. Those rules, due in January 2013, have yet to be published.
There is a swelling demand by entrepreneurs looking for funding mechanisms in addition to venture capital and angel investors. Pent up demand from unaccredited investors wanting to access startup investment opportunities also continues to grow. The internet and social technologies that have evolved over the last decade provide the structure to electrify this market, as soon as the rules are established.
Crowdfunomics is a term coined by Crowdfund Capital Advisors, LLC for economic impact of crowdfunding. Once the new crowdfunding legislation is published, friends and family financing will be extended to the public; local communities will be able to pick up where Wall Street, the banks and VC’s left off. Equity crowdfunding has become even more important given the limited capital access many small businesses face through traditional channels, following the Dodd-Frank regulatory complexity and restrictions, and the drying up of investment caused by financial crisis.
Once the SEC regulation is available, it will provide the framework for the infrastructure, technology and ecosystem to regulate and expand the process. It will put the power into the hands of people who decide what they want to do with their investible capital. Crowdfunomics will ignite entrepreneurship and harnesses the power of communities of interest, origin, geography and diaspora, via the power of the social web to drive innovation, job growth, and socio-economic development!
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