Crowdfunding is defined as funding of a project via raising smaller denominations of money across a large body of number of people.
New businesses that need access to more capital may also conduct crowdfunding.
Generally, crowdfunding is performed through an online community, social media, or crowdfunding websites such as Kickstarter, GoFundMe, and RocketHub.
Depending upon which jurisdiction an investor resides within will dictate the sort of restrictions that are applied to the crowdfunding process.
This determines how much can be invested or which new business may receive the contributions.
These restrictions are established to help shield investors from the high risk of losing their investment.
Like any other investment, there is a risk of new businesses failing and are similar to those used in hedge fund trading.
Why Crowdfunding is Becoming More Popular
One form of crowdfunding that’s becoming more popular would be equity-based crowdfunding, where new businesses can raise capital without losing control to venture capital investors.
Crowdfunding has gradually become much more popular and mainstream over the past decade.
Private businesses receive much larger amounts of liquidity that is generated by having several or tens of thousands of investors.
More shareholders generally correlate to a larger market which in turn creates more liquidity which is what investors seek out when considering equity-based crowdfunding.
Both entrepreneurs and investors can significantly benefit from crowdfunding while regulations are continuing to place an increasing role in protecting investor capital.
The Securities and Exchange Commission (SEC) is the entity responsible for regulating equity-based crowdfunding in the United States although crowdfunding did not pick up traction until 2011 after President Obama signed the JOBS Act.