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By: Stephen A. Florek III, Esq. 

May 29, 2014 

Crowdfunding is going mainstream; Crowdfunding is going to be HUGE;  Crowdfunding will save our economy; Crowdfunding is here to stay; Crowdfunding is the next bubble; The proposed crowdfunding Rules and Regs are overly burdensome; Compliance costs will kill equity crowdfunding; Title III of the JOBS Act will incubate fraud…enough is enough! Attempting to filter through all the speculation to find unbiased, accurate and objective information on the current climate of crowdfunding is a daunting task. However, if you, like most, prefer to simply analyze and review the facts to reach your own educated conclusions, I encourage you to read on.

This is the first of a four-part series of articles, which aims to provide an unbiased and objective factual insight into the history of crowdfunding. Discussed within this article is an up-to-date chronological evolution of the practice, including growth rates of the industry and success rates of crowdfunded projects across several popular platforms. Later we will delve into the JOBS Act and examine the required compliance measures set forth by the proposed rules and regulations of Title II and Title III. 


While the rest of the U.S. anxiously awaits the release of the finalized rules and regulations of Title III of the JOBS Act, several U.S. States, such as Kansas, Georgia, Wisconsin, and Michigan, have already legalized intrastate equity crowdfunding. Today, it is clear that equity crowdfunding has begun entrenching itself into the financial fabrics of our society. However, in order to fully appreciate and analyze the prospective impact (or lack thereof) of equity crowdfunding on the financial market, it is prudent to understand the evolution of the practice.    

Crowdfunding is defined as “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.” In 2006, the term “crowdfunding” was coined by Michael Sullivan with the launch of Fundavlog, even though the practice was established many years prior.

One of the first instances of crowdfunding via the Internet was coordinated back in 1997, by the British rock band Marillion. Using an Internet campaign to finance a U.S. Tour, appropriately titled “Tour Fund”, Marillion gathered 60,000 USD purely through fan donations. Several years later, in 2000, a site called ArtistShare tweaked Marillion’s idea and provided a way for fans to directly donate money to specific artists. In return for these donations, fans would receive perks, such as permission to watch the talents’ creative process or gain exclusive access to extra material.

It was not long before the potential of this funding model was realized, emulated, and shaped into what is referred to today as perks-based reward crowdfunding. The allure of this funding structure was derived from the fact that it fell outside the scope of Rule 506 Regulation D of the Securities Act of 1933.

Rule 506 stated that any company offering private placements of securities could not make general solicitations to the public to attract investors. Carefully cognizant of these restrictions, early crowdfunding platforms circumvented this regulation by utilizing a “perks-based” compensation structure, which offered “rewards” rather than equity. This compensation structure allowed crowdfunding start-ups to ultimately solicit capital from a new and much larger pool of investors, namely, the general public. The only catch was that they could not sell equity in return for capital.  

Despite this restriction, the number of crowdfunding platforms grew at a notable rate of 300% between 2008 and 2012.[1] During this time period, two of today’s most popular perks-based reward crowdfunding platforms emerged, IndieGoGo (2008) and Kickstarter (2009). Kickstarter, the current industry leader, has since seen a total of $1.137 billion dollars pledged towards 148,677 projects launched across their site. Of these 148,677 projects, 62,538 have successfully met their funding goals, correlating to a 43.45% success rate for the platform.[2]

In 2013, a small-scale independent qualitative study was conducted analyzing the success rates of the three most popular crowdfunding platforms, Kickstarter, IndieGoGo and Rockethub. For this study, thirty entrepreneurs all launched funding campaigns across these three platforms. Surprisingly, the study found that 76% percent of the creators met their funding goals.[3] This finding was noticeably higher than nearly any study conducted earlier, as well as more fruitful than the held industry belief, which recognized the average project success rate across crowdfunding platforms to be closer to 50%.

These rapid emergence rates and notable success rates are both indicative of the vitality of the current crowdfunding industry. However, the increasing growth rate of annual crowdfunding revenue is perhaps the most important factor to consider. Worldwide crowdfunding revenue tripled from $530 million in 2009 to $1.5 billion in 2011.[4] In 2012, worldwide crowdfunding revenue grew by 81% to $2.7 billion, and yet again in 2013 by 88% to 5.1 billion.[5] These growth rates made perks-based crowdfunding a hot issue even before the arrival of the JOBS Act.

The JOBS Act, which stands for the Jumpstart Our Business Start-ups Act, was signed into law on April 5, 2012 by President Barack Obama putting an end to an 80-year-old ban on the general solicitation of securities. This was all with the legislative intent to make it easier for small U.S. businesses to find the necessary start-up capital to stand a chance against a tempestuous economy. The proposed rules and regulations of Title II and Title III of the JOBS Act would permit crowdfunding sites, a.k.a. “Funding Portals,” to publicly solicit private equity offerings for investments rather than just offering perks or rewards. 

In April of 2013, the SEC adopted Title II of the Act, which lifted the general solicitation ban of certain equity shares to “accredited investors.” Since a majority of the population does not qualify as “accredited investors”, most of the hype has surrounded Title III, which aims to allow the general solicitation and advertising of equity shares to “unaccredited investors.”

Optimistic anticipation that Title III of the JOBS Act will be adopted shortly has sent predictions for market growth into hyper-drive. In light of the historical growth patterns, as well as the increasing frequency of US States legalizing intrastate equity crowdfunding, SEC approval of Title III can be seen as looming on the horizon.

With the approval of Title III lurching ever closer, those in the industry have assumed their positions and attentively await the SEC’s firing of the starting gun.

The next article, part two of the four-part series, will examine the preparatory measures currently being implemented within the industry in anticipation of the SEC’s approval of Title III. Also, the article scrutinizes the JOBS Act and discusses the compliance requirements for Investors, Funding Portals, and Entrepreneurs as set forth by Title II and Title III of the Act. 

 While these articles aim to provide an accurate, objective and up-to-date portrayal and review of the facts concerning crowdfunding and crowdfunding compliance with Title III of the Jumpstart Our Business Start-ups Act (JOBS Act), the information contained in these articles is intended for informational purposes only and should not be construed as legal advice. No reader should act on the basis of the content without seeking appropriate legal counsel.

[1]    Espositi, C. Crowdfunding Industry Report (Abridged Version) : Market Trends, Composition and Crowdfunding Platforms. 2012.


[3]    Julie Hui, Michael Greenberg, Elizabeth Gerber, Understanding Crowdfunding Work: Implications for Support Tools, CHI 2013 Extended Abstracts (2013)

[4]    Http://

[5]    Catherine Clifford, Your Crowdfunding Cheat Sheet,