The idea of these new crowdfunding regulations are to make it safer and easier for small businesses and startups to raise money from small investors, just as artists and musicians do on Kickstarter.
The difference is small-time investors in small companies are crowdfunding equity in a company, not just getting goodwill or a token reward. The new law provides a regulatory exemption from the Securities and Exchange Act on the sale of crowdfunded securities, but it also sets limits on how much a company can raise — $1 million in a 12-month period — and provides thresholds on how much can be invested.
Michael Durwin is a so-called visual content expert who ran a Kickstarter campaign to raise money to make a film using Google Glass, a technology that is not yet available to the public except as a test.
This wearable device consists of eyeglasses that can take pictures and video, search for information on the Web or give directions, all of which are projected onto the lens of the glasses and are visible to the wearer.
Durwin, who has done some award-winning commercial video work, wanted to raise $1,500 to produce a short video called “Glass: A Love Story.” He raised $3,700 from 47 backers.
In all, there are about 140 different crowdfunding platforms in the United States. Besides Kickstarter, there is Fundable for small businesses, and Indiegogo, an international platform that funds technology, film, politics, music or charitable efforts.
It’s expected that crowdfunding sites will attract $5.1 billion in funding this year, up from $900 a year in 2010, Durwin said. About 40 percent of crowdfunding projects get funded.
Sites that are all or nothing, like Kickstarter, generally have lower fees than those that allow one to keep a portion of the money if only a partial goal is raised, Durwin said. One should keep those fees in mind. Of the $3,700 Durwin raised, he netted $3,400 after fees.