Equity Crowdfunding = Selling Securities on the Internet

A review of articles, media and public references to “crowdfunding” and equity crowdfunding suggest the terms do not have a commonly understood meaning.dreamstime_xs_28025528

Crowdfunding” typically refers to non-equity Crowdfunding which includes donation, pre-purchase and rewards and perks platform models and includes portals such as KickStarter, Indiegogo and RocketHub.

Equity Crowdfunding” involves the selling of securities through the internet on a web-based platform to the public or the so-called ‘crowd.’ The “public” means exactly what you think it means – everyone – and not a sub-class of the public such as accredited investors which, according to statistics published by the Ontario Securities Commission, represent approximately 4% of the Ontario and Canadian population.

So what is the confusion?

The confusion is arising from those who are equating equity Crowdfunding to selling securities to accredited investor in Canada and the United States. To a purist, equity Crowdfunding does not equal accredited investor Crowdfunding.

In such circumstances, it should really be called “Accredited Investor Crowdfunding” “Accredited Crowdfunding” or arguably a similar term that does not involve the term “crowdfunding” at all.  However, this is unlikely to happen today since the public generally understands that Crowdfunding, be it equity or non-equity Crowdfunding, means selling securities on the internet.

Equity Crowdfunding = Selling Securities on the Internet

Therefore, you will see and hear references to equity Crowdfunding involving accredited investors and the public and although there is a technical difference that Crowdfunding purists like to make, it may be a distinction without a difference at this point.

So is not making this distinction a bad thing?

Not really.  At this point, making the distinction between crowdfuding to the public versus crowdfunding to a group that is not the public, like accredited investors, may further confuse things.  Since the public needs something simple and understandable,  the common understanding that “equity Crowdfunding equals selling securities on the internet” is fine. However, when people confuse equity and non-equity Crowdfunding, that is where we draw the line.

For example, in a recent article in the Investment Executive (a Canadian publication catering to investment advisors), a journalist was making a point about a campaign on Kickstarter and linking it to issues and concerns involving equity Crowdfunding.  See the article  here titled, “Montreal firm pulls plug on Kickstarter campaign project“.   Kickstarter is a non-equity Crowdfunding platform and therefore, in our view, linking it to equity Crowdfunding is incorrect.  It would be like comparing apples to oranges although they are both fruit.  They are different types of fruit.  Anyways, all one can do is continue educating the public and media about these distinctions so they get it right.

What do you think?

So what do you think?  Are you a Crowdfunding purist and concerned that certain portals and the media are equating equity Crowdfunding to selling securities on-line to accredited investors?

Let us know.

By Brian Koscak and Guest Blogger, Oscar Jofre, President, CEO and Founder of BoardSuite

Comments

  1. Great blog. Funding portals with different target investors/ investees will have different business definitions depending on the progress of global securities rules and regulations. The JOBS Act contemplated the involvement of the non-accredited investor crowd, however, regulatory delays have prompted certain players like Healthy Crowdfunder to start with the accredited investors, which seems to have a universal definition. At the end of the day, all we are doing is reinventing the broken capital markets ecosystem which requires all traditional actors/ customers to adopt. Every one has to retool, reinvent themselves just because technology continues to optimize our business practices. Fortunately, we now have US SEC chairperson Mary Jo White who seems to be more tech savvy than her predecessors. Within the SEC reside traditional gatekeepers who refuse or slow to accept technology advancement, not to mention the challenges brought about by the Dodd Frank issues. Since the US SEC plays a significant leadership role, the Canadian securities regulators are tip toeing waiting for its US counterpart to take the lead. Meanwhile, business must go on between securities issuers and investors searching for the investment opportunities. Now financing a business does not have to start with issuing securities. As Pebble Watch demonstrated, pre selling prototype products is a practical financing phase to go through prior to issuing their Series A preferred shares. Therefore, crowdfunding can cross different funding classes depending on the business being financed.

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