Just like the folks who criticized blogging, online publishing and social media as merely a playground for kids and amateurs – deriding digital media for not having an obvious ROI model (like newspapers) –  crowdfundmetapreneurship.net predictable arguments.  What these critics really never understood is that, today, people invest in new projects and new ventures for a variety of reasons that may only loosely be related to a direct cash reward.  And just like any other industry on the verge of  disruption: While the critics carped, the visionaries built. 

Crowdfunding for individual projects of all kinds (technical to creative to social) is one of the most viable and convenient methods of raising money from like minded individuals and kindred spirits. At the end of 2011, the demand for equity Crowdfunding, that is – having hundreds and thousand of people invest small amounts (that add up to large amounts) in promising companies in return for stock – has gained a fever pitch in the US, culminating with the introduction of several bills in the US House and Senate.  Up until now, antiquated SEC regulations dating back to 1934 prohibits the concept of equity crowdfunding.   In December the US House passed a Crowdfunding bill that is currently under consideration in the US Senate.

In some form or another, it appears that equity crowdfunding, along with its first cousins donation crowdfunding and microlending will soon become a permanent part of the entrepreneurial funding toolkit.  Before it catches the traditional investor and entrepreneurial communities by surprise, let’s take a look at the crowdfunding landscape and the major issues.

Today, when most use the term crowdfunding, they are referring to ‘donation’ crowdfunding aka ‘rewards based investing’: What is becoming known as “the Kickstarter model”.  Kickstarter has refined and perfected the method of allowing people with interesting ideas for projects to present to ‘the crowd’ asking for funding.  The essential steps are:   

By late 2011, the movement pushing congress to revise SEC regulations to allow for equity crowdfunding culminates in several bills in the US House and Senate.  The goal:  Allow startup companies to raise money using “the wisdom of the crowds” by accepting small  investments from thousands of ‘grassroots’ investors. 

While there is not enough space on this page to list the known cases of fraud from the traditional financial community, here’s a list of all the known cases of fraud and other scams via crowdfunding sites:

2. 

3. 

4. 

Well, you get the picture.

As of Jan 2012, the bill(s) seem to be stalled in the Senate: