“Token Crowdfunding,” where crowds of individuals donate to funding campaigns, prepay for yet-to-be-developed products, or receive token rewards for contributions, has come under increased scrutiny. Contributors have been disappointed that fund-raisers sometimes renege on promises after receiving funds, while token crowdfunding purists fret that the “pre-purchase” model (where individuals buy products in advance, betting on successful development) has evolved into a discount shopping platform, particularly for video gamers.
Investment Crowdfunding, the next generation of crowdfunding, contrasts sharply with token crowdfunding, which we think of as Crowdfunding 1.0:
- Investment Crowdfunding is regulated. Both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) will govern and oversee the operations of Investment Crowdfunding intermediaries. Token crowdfunding has no similar oversight.
- Accountability is the fabric of Investment Crowdfunding. First, only registered companies can raise funds. Second, Investment Crowdfunding portals will conduct background checks on company managements and large shareholders. Third, the JOBS Act mandates that funded companies provide periodic reports of progress. Crowdfunding 1.0 fund-raisers face no similar requirements.
- Individuals Invest. They don’t donate. Investors have rights. Token Crowdfunding contributors don’t: Crowdfunding 1.0 fund-raisers have NO obligations. Donations, tokens, and pre-purchase are not part of the Investment Crowdfunding model. Instead, investors receive securities.
- You don’t just invest, you become invested. Fund-raisers create emotional ties with donors through token crowdfunding. Otherwise, the model would not attract contributions. However, once funded, the emotional link is severed. With Investment Crowdfunding, entrepreneurs establish bonds with impassioned investors that persist beyond the funding campaign. Individuals invest in companies that resonate with them and then become the supportive network that can boost enterprises in a social media-linked world. They will become brand evangelists, customers, and the source of collective knowledge unavailable in the previously unconnected world.
At iCrowd, our mission is to help individuals and entrepreneurs meet their investment and capital-raising goals in a transparent community that treats all parties fairly.
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