The Race to the Bottom is happy to announce its launch of a special projects editorial section, which will focus on prominent issues concerning corporate governance and securities laws. The first project will focus on crowdfunding.

Crowdfunding is an evolving alternative form of capital raising that typically involves seeking small individual contributions from the general public. These campaigns generally have a specific fundraising goal to support a project, cause, idea, or business within a specific time period. Individuals who wish to contribute to a crowdfunding campaign can communicate on the crowdfunding platform about its credibility and whether it should be funded.

A number of entities facilitate crowdfunding campaigns by utilizing website platforms. Crowdfunding websites vary by interest and industry. According to Forbes, Kickstarter, Indiegogo, Quirky, Crowdrise, Tilt, and Invested.in were a few of the leading crowdfunding websites in 2014. Kickstarter and Indiegogo are perhaps the best known of these websites. Each of these websites offers its own twist on crowdfunding. For example, Kickstarter focuses more on creative projects, which require project approval to be launched, while Indiegogo operates an expansive international platform that funds almost anything. Others allow users to: collaboratively develop a product or prototype pitched by inventors and makers; fund charitable causes, and focus on smaller fundraising campaigns.

Crowdfunding exists in two models: rewards and equity. All of the above listed platforms operate on the rewards based model, meaning individuals contribute money to a campaign and do not receive any interest in the project – other than feeling involved. The equity based model, on the other hand, provides an ownership interest in the project for invested capital.

The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) is credited with providing a framework for equity crowdfunding. Title II of the JOBS Act currently regulates general solicitations to accredited investors for private equity crowdfunding. Title III of the JOBS Act, which has not yet been implemented, addresses regulating general solicitations to non-accredited investors for private equity crowdfunding. The Securities and Exchange Commission (“SEC”) has issued its proposed Crowdfunding rules (the "Proposed Rules") and received public comment. The Proposed Rules are on the SEC’s rulemaking agenda, scheduled for final action in October 2015.

This series will examine the comments received by the SEC regarding the Proposed Rules, the likelihood that the SEC will implement the rules, and the response by some states to the approach taken by the SEC and required under the JOBS Act.

Additional posts will cover interviews with business entrepreneurs who have utilized the crowdfunding platforms for capital formation, the ins and outs of a successful crowdfunding campaign, and procedural safeguards individuals should consider when raising capital through crowdfunding campaigns in both rewards and equity.