Definition of crowdfunding

Crowdfunding is a new and emerging way of funding new ideas or projects by borrowing funding from large numbers of people often accessed through a website.

crowd funding

 

 

 

 

 

 

 

 

 

 

 

 

In these markets, any individual can propose an idea that requires funding, and interested others can contribute funds to support the idea. These markets have recently emerged as a viable alternative for sourcing capital to support innovative, entrepreneurial ideas and ventures.

A novel aspect of crowdfunded markets is the nature of the publicly observable popularity indicators typically recorded and published within the marketplace. For instance, the information on prior investments in crowdfunded markets typically includes a time stamp and the specific amount contributed, or both. These values contribute to what is often referred to as a project’s current ‘funding status'. This status encompasses prior funding decisions made by others regarding a particular project, indicating the total funds raised, the number of contributors, and the duration over which that funding has taken place.

Most crowdfunding offerings don't involve an "ownership" stake. Hence, equity sales are prohibited by regulatory bodies such as the Securities and Exchange Commission in the US. Recently, however, regulation is in the works to ease such constraints and enable equity stakes. [1]

 

crowdfunding in the news

In May 2013 an FT columnist noted that the time was right for new faces in finance. The report noted that the UK Crowdfunding Association had been set up earlier in the year with 12 members and that Crowdonomic, a website for Asian crowdfunding sources, had also launched in Singapore.

Despite the popularity of the idea, a report published in April 2013 noted that crowdfunding on a large scale was hampered in the US by onerous filing and disclosure requirements and by caps on the amount lenders could lend and borrowers could borrow.