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Crowdfunding v. Traditional Funding

By Nivine Richie

Crowdfunding is a way for startups or new ventures to raise capital from many investors in small amounts. The Securities and Exchange Commission (SEC) has rules in place for crowdfunding, and here is a recent excerpt from an SEC bulletin:

Crowdfunding generally refers to a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people.  Over the last few years, crowdfunding websites in the United States have proven a popular way by which to solicit charitable donations and to raise funds for artistic endeavors like films and music recordings. 

Under rules adopted by the SEC in 2015, the general public now has the opportunity to participate in the early capital raising activities of start-up and early-stage companies and businesses by way of crowdfunding.  Companies can use securities-based crowdfunding to offer and sell securities to the investing public.

Can I make a crowdfunding investment?

Anyone can invest in a securities-based crowdfunding offering.  Because of the risks involved with this type of investing, however, you are limited in how much you can invest during any 12-month period in these transactions.  The limitation on how much you can invest depends on your net worth and annual income.



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From Visually.