Crowdfunding Models

 

Do these new exemptions apply to Kickstarter?

 

No.  These new exemptions apply only to equity crowdfunding.  The safeguards offered by the start-up crowdfunding exemptions DO NOT apply to other forms of crowdfunding.

 

Within the crowdfunding exemptions there are specific requirements about the information that all businesses must include in their submission. This information helps readers to become an informed investor.

 

Here is a comparison of common crowdfunding models:


 Equity
Donation or Rewards Based
Lending-Based
How does it work?

Investors purchase securities such as common shares.

 

Click here to see the types of eligible securities.

 

Individuals are able to invest in entrepreneurial start-ups through an intermediary, known as a “funding portal.”


Backers donate varying sums of money to support a specific cause or project without expecting a financial return through sites such as Kickstarter, Indigogo, or Crowdrise.

Individuals lend money to a project and the money is repaid (with or without interest)

 

They may be set up as a traditional lending agreement, a forgivable loan, or a pre-sales agreement.

 

These are facilitated through sites such as Kiva.


What do you get?

Investors receive securities from the business.

 

This means they may become part owners of the company, as they would if they had purchased a share or stock on an established stock market.

 

Investment returns from early stage and start-up companies are extremely uncertain and these are high-risk investments.

If donating to a charity using this model, backers may receive special mention or thanks, maybe a physical token of thanks, however, the pledge is essentially a donation.

 

If funding a tangible project, backers may be rewarded with an item that has a clear monetary value in exchange for their financial support.


The lender may receive interest on the loan, a copy of the finished product, or nothing in return, depending on how the loan agreement is set up.


 

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