CrowdfundingThat’s often the vision of crowdfunding. But slow down, buckaroo, it’s not that easy. Crowdfunding has two main categories: reward and equity.
Reward based crowdfunding means people on the internet can “buy” a reward, like perhaps a change to attend an opening of a show, or get a first edition of a product. Once you get your reward, you have no further interest in the company – you don’t own any part of it. Equity based crowdfunding means you are buying a “security” which is often a direct, if minuscule, ownership interest — the most common being stock. But you could also get a bond, or a note or a “membership unit.” Equity based crowdfunding is a highly regulated process. You may have heard it that it is easier and cheaper than traditional investment paths – but that doesn’t mean it’s easy or cheap. There are still many many regulations with which you must comply. And at the end of the day – you have people who’ve paid to be part of your company. It can be like inviting a very large number of in-laws into your home. They can be very intrusive. On the other hand, if well conducted, a crowdfunding campaign can be a much needed infusion of early capital into a company.