Crowd funding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.
The Jump start Our Business Start ups Act (JOBS Act) was passed with bipartisan support by Congress and signed into law by President Obama in April 2012. Following on the success of donation-based crowd funding, the JOBS Act now enables businesses to solicit funding from the general public.
Securities-based crowd funding allows investors to receive a financial return through the purchase of equity, debt, or revenue-based securities.
Broadly Speaking:
Equity-based crowd funding is asking a crowd to invest in your business or project in exchange for a share of the ownership.
Debt-based crowd funding is asking a crowd to invest in your business or project in exchange for financial return and/or interest at a future date. It’s a loan.
Revenue Based Securities-are typically structured as notes or trust certificates issued against a pool of capital which has been set aside for making investments. The securities serve as a conduit to pay the pool’s investment return to the crowd investors.