This article originally appeared in the March 2014 issue of Wall Street Lawyer, (vol. 18, no. 3), a Thomson Reuters publication.
There is a surprising amount of media interest in the U.S. Securities and Exchange Commission’s (SEC’s) proposed investment crowdfunding rules, gaining mass media coverage in publications ranging from The Huffington Post to USA Today. It seems, however, that most of the discussions about the pending rules have overlooked the simple fact that most startup companies can raise funds much more easily in the “crowd” through donation crowdfunding without worrying about compliance with the new crowdfunding rules or the other securities laws. Although structured as donation (as opposed to investment) crowdfunding, the practice has allowed many new companies to raise substantial amounts of seed capital through popular online funding platforms like Kickstarter, Indiegogo and RocketHub. The most important factor in these offerings is that the companies are not selling securities.