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Equity Crowdfunding for Investors: A Guide to Risks, Returns, Regulations, Funding Portals, Due Diligence, and Deal Terms by Matthew R. Nutting, David M. Freedman

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CHAPTER 1

The Foundations of Online Crowdfunding

A History of Rewards-, Donation-, and Debt-Based Crowdfunding Platforms

The emergence of online crowdfunding platforms over the past decade, like the birth of e-commerce in the 1990s, has generated a lot of excitement among entrepreneurs, Web developers, consumers, and investors (and their lawyers) eager to exploit new opportunities. Crowdfunding also threatens to disrupt some existing financial institutions and professions, as e-commerce disrupted the retail landscape two decades ago.

In fact, some exuberant pioneers and early participants have predicted that crowdfunding will spark a revolution in private capital markets, if not the redefinition of Wall Street.1 At this early stage, nobody can say definitively whether their exuberance is misplaced.

It perplexes those pioneers, therefore, that so many people still have not even heard of crowdfunding, or have heard of it but barely understand how it works, or don't realize that there are big differences between the various kinds of crowdfunding.

So we begin with a broad definition. Crowdfunding is a method of collecting many small contributions, by means of an online funding platform, to finance or capitalize a popular enterprise. It is a new, high-tech version of a centuries-old practice. As crowdfunding is so new, there is much confusion in the marketplace about it—for example, many people still think of Kickstarter as the epitome of crowdfunding. Kickstarter may be the prime example ...

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