The emerging market of crowdsourcing is exciting for start-ups of all kinds. While I am not a Registered Investment Advisor, nor am I am invetment or securities lawyer I would like to post a word of caution for those that are exploring this model in the United State (well, any where for that matter).
Securities are regulated
Securities is a regulated industry. Offering and selling equity in your business is a regulated market. There are laws. Laws about to whom a offer can be made (SEC definition of an accredited investor). rules about when an offer can be made. Laws about how an offer can be made. There are laws about how many people who don't know each other can invest in a company before a Private Placement Memorandum must be put together. There are rules about how an offering is publicized which trigger Public Offering requirements and disclosurws. There are rules about offering investment opportunities to people from different countries. There are rules about what you can say and promise and project.
It is not just an issue of fines -- these are issue of going to jail. SEC agents can carry guns. Even IRS officials can't do that.
I have a hard time seeing how offering equity in your company in a crowd-sourced model would be anything but making a public offering. I have a hard time seeing how offering equity to to non-accredited investors would be anything but a problem. In fact, offering a security of any kind through a website is just a dam poor idea at the moment based on my review of every one of these sites.
Here is the SEC guide for small businesses.
Selling Your Product is Not (usually)
Now, there are ways to raise money which don't involve selling an equity or offering a loan. One option is preselling product. Another is selling premeir or special access to the product/service. Most of these are not regulated -- unless the sale of the product itself is regulated -- like drugs or medical devices.
When I review the sites above people are just saying thanks (like this example on startupaddict) pre-selling product (like this example on Kickster), selling special features like VIP seats and back-stage access to a show (like this example on Rockethub),
Will it Work for you?
If your product can be configured in a way that people would like to pre-purchase your product -- and that there are premiums that can be added to the product to allure folks to make donations to your endeavor.
I think the safest way to think about these sites is not as a investment funding source-- but a source of beta customers.
Change Comming?
On April 9, 2011 the Wall Street Journal reported (sorry -- I think the full article is behind a paywall) that the SEC was looking into opportunities to bring securities law into the 22nd century and allow social mediium and crowdsourcing to be used to solicit investment for small and startup business without trigger Public and/or Private Placement requuirements. he story cites a letter SEC Chair Mary Schapiro recently wrote to lawmakers this way:
The agency has "been discussing
crowd-funding and possible regulatory
approaches" with small-business
representatives and state regulators
... A petition calling for the
securities rules to be eased for
crowd-funding share issues of up to
$100,000 has been backed by almost 150
organizations and individuals.
However, Schapiro also made clear that
any relaxation of the rules must be
accompanied by adequate safeguards to
protect investors from the
"enterprising fraud operators" common
in the 1990s.
But no changes to the law have been made yet. Here are some links to articles which use the WSJ as it's source docuement: BNET, Gaebler, Triple Pundent You know, just for your evening reading.
