Crowdfunding: The Brave New World of Raising Capital

Traditionally, aspiring entrepreneurs looking for easy, low cost access to capital to fund their start-up businesses had limited means. Recently, sites such as Kickstarter and GoFundMe provided a platform, but the most companies could offer in exchange for a cash investment was a first look to the particular product or other creative reward, each of which, however, was not stock.

The elusive reward of stock was still available only to the general public if a company could afford to register its offer and sale of securities with the U.S. Securities and Exchange Commission (SEC) and meet its continuing obligation to file certain required reports, or could qualify for an exemption to registration under the Securities Act of 1933 (the “Securities Act”) and Securities Exchange Act of 1934 (the “Exchange Act”). This exemption would most likely be the offer and sale to those few who could meet the definition of being an “accredited investor,” generally an entity with assets exceeding $5 million or an individual whose net worth exceeded $1 million, and only after such accredited investor was provided with comprehensive disclosures on the part of the company, which are costly and time consuming to prepare.