Over the past year several funding sources for entrepreneurs have experienced dramatic changes. One of them, crowd funding, has attracted much interest. Crowd-funding is financing your business or project by soliciting small contributions from a large number of people to reach a monetary goal. Due to the Securities Act of 1933, this may work best for getting small donations for public good projects.
While Kickstarter.com is perhaps the the best-known crowd-funding site. Circleup.com is a crowd-funding site for high-growth consumer and retail companies with at least $1 million in revenue. It provides equity for small businesses from accredited investors, rather than donations from individuals. CircleUp is a private, password-protected network for accredited investors for a private offering.
With the JOBS Act of 2012, we are likely to see more sites like Circleup where startups can give actual equity to qualified investors – not just thank-you gifts such as T-shirts, coffee mugs, and postcards. It’s expected to draw a vast amount of capital to crowd funding.
Recently, crowd-funding sites have gotten bad press about lack of IP protection, but other funding sources like angels or VCs don’t provide IP protection either. Usually VCs do not sign NDAs. IP protection must be done through early filing of patent applications and use of copyright and trademark protection. On the flip side of patent rights, publishing ideas to a crowd funding site may protect startups from someone else being granted a patent for their idea. Crowd-funding can be a great way to test the market for a product. The feedback is quick, and very specific when people vote by spending money.