Crowdfunding

1. What is Crowd-funding?

Crowd-funding is defined as the borrowing of capital in small sums by large numbers of people. In this day of widespread communication and connectivity, any business person can raise large sums of cash through a computer and internet connection by offering the masses a stake in the venture. Typically due to prohibitions by the Securities and Exchange Commission (SEC), businesses have been unable to provide an equity stake for the capital, however in April 2012 the JOBS Act signed by President Obama directed the SEC to loosen the regulations and provide new regulations in support of Crowd-funding.

Crowd-funding sites have proliferated throughout the internet and several have become household names such as Kickstarter, which funds creative projects in return for rewards, Kiva, which gives people an opportunity to finance microloans around the world, and Indiegogo, which enables people to make donations while cutting out middlemen.

One of the most famous displays of crowd-funding came in 2009 when two Advertising executives, Michael Migliozzi II and Brian William Flatow, attempted to raise $300 million to buy Pabst Brewing, the manufacturer of PBR and Schlitz. Their idea was to create a website, buyabeercompany.com, to raise money via pledges. Investors would collect two things: a “crowd-sourced certificate of ownership” — and beer worth the amount of the pledge. Within a matter of months the two executives had raised $200 million. Their efforts were eventually shut down for failing to register with the Securities Exchange Commission (SEC).

Another powerful example of crowd-funding at work came about when Kickstarter, one of the premiere crowd-funding portals, announced that it was going to fund the National Endowment for the Arts in America, by $150 million a year.

Crowd-funding is also changing pop culture, in ways both humorous and not foreseen. For example, the City of Detroit pushed back on a proposal to erect a...