is a way of raising finance by asking a large number of people each for a small amount of money. Until recently, financing a business, project or venture involved asking a few people for large sums of money. Crowdfunding switches this idea around, using the internet to talk to thousands – if not millions – of potential funders. Typically, those seeking funds will set up a profile of their project on a website such as those run by our members. They can then use social media, alongside traditional networks of friends, family and work aquaintances, to raise money. There are three different types of crowdfunding: donation, debt and equity.

Donation/Reward crowdfunding People invest simply because they believe in the cause. Rewards can be offered (often called reward crowdfunding), such as acknowledgements on an album cover, tickets to an event, regular news updates, free gifts and so on. Returns are considered intangible. Donors have a social or personal motivation for putting their money in and expect nothing back, except perhaps to feel good about helping the project.

Debt crowdfunding Investors receive their money back with interest. Also called peer-to-peer (p2p) lending, it allows for the lending of money while bypassing traditional banks. Returns are financial, but investors also have the benefit of having contributed to the success of an idea they believe in. In the case of microfinance, where very small sums of money are leant to the very poor, most often in developing countries, no interest is paid on the loan and the lender is rewarded by doing social good.

Equity crowdfunding People invest in an opportunity in exchange for equity. Money is exchanged for a shares, or a small stake in the business, project or venture. As with other types of shares, apart from community shares, if it is successful the value goes up. If not, the value goes down.

A little bit of history The first online crowdfunded project is thought to have occured in 1997. Rock band Marillion were unable to afford to tour after the release of their seventh album so American fans used the then fledgling internet to raise $60,000 so they could play in the US. Although the band wasn’t involved in the first round of fundraising, they have since used the same techniques to successfully fund the production of their following three albums. Other creative projects soon followed suit, such as films and journalism, and the first crowdfunding website appeared in 2001.

With the passing of President Obama’s JOBS Act, the word of the day seems to be crowdfunding. While this concept has arguably been around for centuries, it is still formally recognized as a new industry to many consumers, particularly those outside the United States. Crowdfunding is by definition, “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.”

In a seemingly nonstop recession wave, small businesses are struggling more than ever to stay afloat, and entrepreneurs are not facing great odds. Crowdfunding offers these individuals a chance at success, by showcasing their businesses and projects to the entire world.

There are numerous crowdfunding platforms where consumers can safely ask for or donate money such as Gofundme, , , RocketHub, and . While each site offers their unique spin, the general concept is the same across the board. Project creators can create a profile typically containing a short video, an introduction to their project, a list of rewards per donation, and some images to elaborate. The idea is to create a compelling message that readers will be drawn towards.

Utilizing social media, creating email distribution lists before the project launches, contacting local media, are all necessary steps to take if you are serious about your goal.

There are three main reasons why people unconnected to a project or business would support it:

1. They connect to the greater purpose of the campaign 2. They connect to a physical aspect of the campaign like the rewards 3. They connect to the creative display of the campaign’s presentation

Knowing these points is extremely key to creating a successful campaign. Each campaign should contain a powerful reason behind the idea, exciting and unique rewards, and an eye-catching display.

Video definitely plays a huge role in this last point, and novice film makers might want to consider taking the time to ask for assistance from an educated friend, or seeking a crowdfunding platform that assists with the video editing. In this age of the digital reign, many consumers will stop reading your campaign if they don’t connect to the video, so this is really the gateway to your proposal.

Crowdfunding – US perspective

Key Points of CROWDFUND ACT under The JOBS Act

• A company will be able to crowdfund up to $1 million over a 12 month period. • Individuals with annual income or net worth of less than $100,000 may invest up to $2,000 or 5 percent of their annual income or their net worth, whichever is greater, over a 12 month period. Individuals with annual income or a net worth of $100,000 or more may invest up to 10% of annual income or net worth, capped at $100,000 maximum aggregate amount, over a 12 month period. • Investors can fund one company or several companies as long as they remain within these annual limits. • Minimum Review & Checks: Companies that seek to crowdfund a securities-based round must have background checks done on all principles with 10% or greater ownership in the company and provide full and adequate disclosures with a business plan and a full description of their ownership and capital structure. • Crowdfunding portals must, alongside the legally required background checks, must do a full review of the company, disclosures and the raise in order to approve a company prior to fundraising. • An investor must wait a minimum of 12 months before selling her/his securities unless the sale is to a family member, the issuing company, or an accredited investor, in addition to other restrictions normally placed on the transfer of securities. • A crowdfunding round does not prevent a company from raising capital through other legal channels. • Companies crowdfunding will be exempt from the 500 shareholder cap pursuant to rules and regulations of the SEC.

Crowdfunding – An Indian perspective Crowdfunding, a popular concept started in the US and the UK, is an emerging way of raising capital, entails the use of internet or social networking sites such as Facebook or LinkedIn or Twitter or even some dedicated websites. So, if you want to raise funds, what you are required to do is create an online profile and explain your project and fund-raising goals and share the same with public at large, including your peers, relatives, friends of friends, and so forth.

Recently, platforms such as and Ignite Intent have been launched in the country. Most of them are in the rewards and donation space, as there aren’t too many regulatory issues around this model.

Crowdfunding is slowly becoming an alternative funding channel for the film industry. Film Director Pawan Kumar from Karnataka recently raised Rs 51 lakh using Facebook and other platforms.

Challenges in India 1. The idea of crowdfunding is not new in India. Places of worship, for example, are built overnight using a large number of donations. However, the concept of online crowdfunding is new to the country. 2. The industry is also not very investor-friendly. It seems people are still not ready for this concept. 3. Low trust levels of doing the things online is also a challenge. India’s ecommerce space needs to really mature before anything substantial can happen in this space. People need to be spending more and more online for them to even start thinking about backing online projects online. 4. As long as the crowdfunding platforms are not making any financial promises to the contributors, they should be theoretically safe to operate. However to build a credible case for the industry to grow in India, it would do help if these platforms proactively approach the regulators and work with them to processes so as to build long-term credibility and transparency. 5. Ecommerce in India only got a boost when they initiated the concept of cash on delivery. Similarly, crowdfunding will have to look at building an offline base to finally induce mass awareness and encouraging larger participation.

Legal issues

There are legal issues around crowdfunding in India, since equity-based online crowdfunding is not legalised in India yet. It was made legal in the US recently when the Jumpstart Our Business Startups Act (JOBS) act was passed. Some of the key points of this Act are: 1. The JOBS Act has put much restriction on the amount that can be borrowed via crowdfunding. 2. The Act has put an audit compulsion by certified public accountant in some cases of crowdfunding. Disclosures need to be made by the company raising funds and utilising it. 3. The company needs to explain everything about its project for which it is raising funds. The fund utilisation plan needs to be disclosed.

Of the three crowdfunding models, donation-based crowd funding is the most pragmatic approach as of now. Lending-based microfinance platforms like need approvals from the central bank. The Reserve Bank of India in 2011 approved Milaap, a non-profit microfinance institution to crowdfund from the overseas.

Crowdfunding – Singapore perspective

Is crowd funding regulated by the Monetary Authority of Singapore (“MAS”) in Singapore? Crowd funding may be regulated under various legislation in Singapore depending on the form or method of fundraising. For example, if the equity-based model is used, the crowd funding exercise would involve an offer of securities. This is subject to the requirements set out in the Securities and Futures Act (Cap. 289) (the “SFA”).

On the other hand, crowd funding arrangements which do not involve the offer of securities (for example, where contributions are in the form of donations or pre- payment for merchandise) are not subject to MAS’ regulations.

Are overseas crowd funding platforms that facilitate any offer of securities to Singapore investors caught under the applicable legislation? This depends on the business model of the overseas crowd funding platforms. For example, offers made through an overseas crowd funding platform that solicits funds from investors in Singapore will be subject to prospectus and other applicable (e.g. licensing) requirements under the SFA, as described under question (3) above. However, given the borderless nature of the internet and the fact that many such crowd funding platforms do not have any presence in Singapore, there are practical limits to the enforcement of local requirements. Thus, it is all the more important that consumers exercise vigilance when considering participating in such offers.

Before you contribute funds through such overseas crowd funding platforms, you should ascertain if the platform is authorised or required to be authorised to facilitate such offerings, including in Singapore. You are encouraged to deal with regulated persons. MAS’ regulatory regime aims at safeguarding investors’ interests by ensuring that only competent and professional persons provide financial services to investors in Singapore. If you deal with an unregulated entity, you should be aware that the protection afforded under laws administered by MAS will not apply.

Regulators in some other jurisdictions (such as the United States and United Kingdom) are looking into developing rules and regulations to cater specifically to offers of securities made through crowd funding. Would MAS consider introducing similar rules? MAS notes that crowd funding is emerging in some countries as an alternative source of financing for start-ups and small companies. MAS is closely monitoring the developments in other jurisdictions on this front and looking into an appropriate regulatory framework for such new business models.

Crowdfunding – UKperspective

What are the legal issues facing crowdfunding platforms? The financial services regulatory regimes exist primarily to ensure investor protection through the regulation of financial services providers. Retail investors who have little or no knowledge of financial instruments are the most in need of protection. To the extent that crowdfunding combines indiscriminate online marketing with speculative start-up investment opportunities, it runs contrary to the core regulatory objective of providing consumer protection.

Advocates of crowdfunding point out that users know they are not buying 'safe' investments. Crowdfunding websites typically carry notices advising users to spread investments and never to spend more than they can afford to lose. Where so much legislative energy has been devoted to the development of a National Lottery and the Big Society, it is difficult to dismiss the social good behind crowdfunding, which facilitated retail participation in business innovation and enterprise. The key is to ensure that consumers are aware of the level of risk they are taking, that platforms are accountable for fraud, misrepresentation or improper accounting and that safeguards are put in place to reduce the risk of platforms going bust leaving un-administrable investments behind them.

The UK financial services regulatory regimes apply differently to the different crowdfunding models. The key issues are set out below.

The donations and rewards model

As funding under the donations and rewards models are provided as a donation or for non-financial reward, it does not involve the issuance of financial instruments or grant of consumer loans, and is therefore not subject to securities regulation in the UK.

What next for crowdfunding? The continuing rapid growth in the crowdfunding industry shows no sign of abating. P2P lending has proved to be by far the largest growth sector, with £749m being raised towards P2B lending and £547m raised towards consumer lending in 2014 (see the 2014 Alternative Finance Industry report produced by NESTA and the University of Cambridge). Both the donations and lending models may also benefit from further support in the form of the UK Government's £80m Community First matched-funding scheme, which will run until 2015.

In contrast with a number of other countries, the UK approach is widely praised for having encouraged the development of the crowdfunding sector. In the US, which blazed the crowdfunding trail on a global scale, the JOBS Act was regarded to be a step in the right direction for crowdfunding. However, its stalled implementation (the Securities and Exchange Commission is now almost two years late for the implementation deadline of December 2012) has meant that it has lost momentum. Some individual states (such as Texas) have taken action in the face of the national void to enact their own, far more lenient state-specific rules. The resulting fragmented approach between states makes it difficult for platforms to prepare a consistent marketing strategy to reach a mass audience. The interest shown by the European Commission in removing administrative barriers to cross-border activity and the interest of the UK Financial Services Commissioner bode well for Europe and its largest crowdfunding market, the UK, to take the lead as the primary global centre for crowdfunding going forwards.

The key proposals relating to loan-based crowdfunding are as follows: • Minimum capital requirements will be required for the operator of the platform. The financial requirement will be the higher of a percentage of the volume of loaned funds or a fixed minimum of £50,000 (or before April 2017, £20,000). • For larger firms, the metric is being re-calibrated so that prudential requirements are reduced for those subject to the volume-based requirement and a further tier will be inserted into the metric. • From April 2014, there will be an FCA regulated activity of operating a loan-based crowdfunding platform. If the loans meet certain criteria, FCA authorisation will be needed. These include that the investor and/or borrower must be a partnership consisting of two or three persons not all of whom are bodies corporate, an individual, or an unincorporated body of persons which does not consist entirely of bodies corporate and is not a partnership. Consequently, persons providing business-to-business loans not meeting these criteria will not be regulated by the FCA. • Firms will not fall within the remit of the Financial Services Compensation Scheme (“FSCS”). However, the firm will hold this money as trustee and such monies must be held subject to the FCA's client money rules. • Information about the platform must be disclosed and advertised so customers know who they are dealing with. • Platforms must have plans in place so that loan repayments continue to be collected even if the online platform gets into difficulties. • Any promotions (such as print, broadcast or online advertising) must be fair, clear and not misleading and, if inappropriate, can be banned by the FCA. In relation to investment-based crowdfunding: • The restrictions the FCA placed on the marketing of UCIs will apply to crowdfunding platforms that offer these investments, limiting promotion of UCIs primarily to retail clients who are certified as high net worth investors or are certified or self-certify as sophisticated investors, and professional clients. • If offering an opportunity to invest directly in unlisted shares or other securities to retail clients, firms may only promote these platforms to: retail clients who confirm they will receive regulated investment advice or investment management services from an FCA authorised person, certified high net worth investors, certified or self-certified sophisticated investors or retail clients who certify they will not invest more than 10% of their portfolio in unlisted shares or unlisted debt securities. • In addition, firms will need to think about whether information they provide amounts to advice as the firm may need to apply to the FCA for permission to advise on investments.

Current Platforms in Crowdfunding 1. Kickstarter - Probably the hottest crowdfunding site on the Internet is Kickstarter, which raised a total of $220 million from 61,000 launched projects so far. Thousands explore its listed projects every second waiting to give away their money to the project they think is most deserving! According to the guidelines, Kickstarter accepts all major kinds of creative projects but not for causes or awareness campaigns, charity or scholarships, and definitely not for vacations or a new digital camera. 2. Indiegogo - Indie is the short form of ‘independence’, so from the name you already know that this crowdfunding site is aimed to help you raise funds and make you personal project ‘go-go-go’ without any difficulty. The site’s layout is similar to Kickstarter so it’s easy to adapt to if you have tried Kickstarter. Unlike Kickstarter though, you can kick-start any project including donations for charity. Its "Backer Rewards" feaure is known as "Perks" here. 3. RocketHub - RocketHub is definitely a popular station to fuel your project for launch. The site boasts a 3-step simple process to upload your project. You can then track the progress and status of your project. If you are just interested in crowdfunding, you can go for FuelPad, but RocketHub’s winning feature is the launchpad. 4. GoFundMe - If you’re looking to just raise money online, for a cause, or for yourself even, GoFundMe is the best fundraising option you can use. In here, you get supporters to donate for your personal campaign, and it could be everything from a personal traveling fee to your pet’s medication fee. It’s truly about donation. 5. Razoo - Claiming to have raised more than $97,000,000 for thousands of worthy causes, Razoo is the next crowdfunding behemoth that you, as a fundraiser should seek help from. The site focuses heavily on causes than profitable projects, but they do have a dedicated section for non-profit fundraising projects. Razoo divides fundraisers into 4 major categories: Nonprofits, Individuals, Corporations, and Foundations, and they each have their own benefits. 6. - Crowdrise specializes more on dealing with real world issues than fueling profitable creativity. They fund for animal welfare, arts, cultures, diseases, education, and even religion. It even labels itself as a platform that help raises money for Charity. 7. PledgeMusic - This one is a crowdfunding effort to bring in new talent into the music industry. The career of a music artist is an expensive one that requires major funding and publicity. PledgeMusic is one such crowdfunding site. Music-related sites are usually philosophical, with a hardcore user interface, but PledgeMusic is clearly an exception. Its interface looks persuasive and intuitive at the same time, just like the Kickstarter and Indiegogo! 8. - Since its launch in 2006, Sellaband has coordinated recording sessions of more than 80 music artists, and, over $4,000,000 have been funded to music bands via the site. Different from its earliest version, Sellaband offers 100% freedom for your music creation: you are free to make the deal with any label, management company, or publisher without any limitations. 9. Appbackr - You want to do something on mobile devices? There’s an app for that! You want to fund your app? There’s a site for that! And it’s called Appbackr. It offers you a chance to let the backers fund the apps that are currently on sale or in the stage of development, but backers could earn back their money by backing the app! 10. Crowdfunder - So you’ve browsed through a list of quality crowdfunding sites, but in the end you still prefer to let an Angel Investor fund your company. If you need help getting their attention, Crowdfunder can help. Crowdfunder allows U.S. startup and small businesses to raise funds by selling equity, debt and revenue-based securities, while attracting Angel Investors and Venture Capital to your company. 11. BITGIVING - BitGiving is a Social Crowdfunding platform, which focuses on fund-raising for causes online. With an immense focus on Social Media integration and inherent virality, BitGiving envisions bringing together projects and social campaigns and helping individuals, organisations and NGOs raise funds for their projects. 12. MILAAP - Milaap disburses loan of which 100% goes to the borrowers. Milaap is not a charity where you donate money, but actually loan them to people who need it. The idea of not making people dependent, but making them independent, making them productive is fantastic. 13. - Starting a campaign on Ketto is FREE. There is no penalty if you don’t raise the total amount. Whatever funds your raise will still get disbursed. The campaign raiser can offer rewards to the backers. 14. Onlinesensor.com - OnlineSensor is a Crowdfunding platform, which helps individuals & organisations raise funds online! Whether you are an individual or organisation looking to raise funds for an initiative you are working on, OnlineSensor is the platform for you.