What is Crowd Funding? We already talked about IPOs, Initial Public Offerings, and how ICOs brought the good parts of that in coming up with this concept of ICOs. However, they also borrowed something from the Crowd Funding world. They merged the two to create what are known as ICOs. So to understand that, we also have to discuss Crowd Funding.
Crowd Funding is when people, projects, or company raise money from the general public. There are websites like Kickstarter, GoFundMe, AngelList. People can go on these sites and say, “My car is broken down, I need to raise some money. Can you help me fix my car?” or “I’m trying to travel to go see my sick aunt. Can you donate some money to me, or donate money to my project?” or maybe “I’m trying to build this nice thing on Kickstarter or fund a film. Can you invest us?” Basically, people have something they’d like to raise money for, and they leverage social media and the online web to spread this message and raise money for this.
Now, let’s first take a step back. Crowd Funding was enabled in 2012 when Obama passed the JOBS act that, basically, said, “Typically, only sophisticated investors or accredited investors can invest in companies prior to them being public, but now we’re going to open it up to the general public. Now you don’t have to be an angel investor and invest a minimum of 25 grand or have over a million dollars net worth or make over 200 grand in two years in a row to invest in a company. Now anybody can come and invest in this company or project.” This makes sites like Kickstarter and AngelList available, which are for start-ups to raise money from everybody. However, although it was good and opened up the space, there is still regulations and stipulations as to how much you could raise. I believe there was a cap in terms that each individual could only invest 100 grand if they weren’t a sophisticated investor. There’s still laws tying the people down. Although it was a good concept, there are still restrictions. I feel Initial Coin Offerings took the concept of raising money from the general public, like Kickstarter or AngelList, and took the concept of IPOs in terms of people getting back shares as opposed to a product, and they merged the two to create something that’s totally disruptive.
by Ian Balina