Crowdfunding as a method to raise capital is nothing new. For example, the Statue of Liberty was, in part, funded by the crowd. But the history of crowdfunding goes back much further than that. What is (relatively-speaking) new is technology and its ability to connect and enhance the otherwise disparate power of crowds and communities to impact the sought after outcomes of fundraisers.
In the United States, until recently, crowdfunding generally could not involve the offer or sale of a share in any financial returns or profits that the fundraiser expected to generate from its business activities. In other words, companies generally couldn’t sell securities. This is because, under the Securities Act of 1933, any offer or sale of securities is required to be registered with the SEC unless an exemption from registration is available. Yet, registration is an expensive endeavor and not for the faint of heart. And, prior to the changes brought about by the Jumpstart Our Business Startups Act (the “JOBS Act”) in 2012, there was no effective exemption from registration by which a company could conduct a securities-based crowdfunding campaign.
Now that the SEC has implemented all of the JOBS Act provisions (and then some), companies in the United States can now effectively raise capital in securities-based crowdfunding campaigns.
Want to learn about the different methods of conducting a securities-based crowdfunding campaign in the United States? We have high-level primers and links to additional materials here:
Contrast these with the requirements for Private Placements.