Crowdfunding Terms

Donation-Based Crowdfunding
Rewards-Based Crowdfunding
Equity-Based Crowdfunding
FINRA
SEC
JOBS Act
Accredited Investors
General Solicitation
Regulation D for Crowdfunding
Bootstrapping
Seed Round Funding
Series A Funding
Venture Capital
Angel Investors
Executive Summary
Investor Deck
Term Sheet
Convertible Note
Pre-Money Valuation
Post-Money Valuation


Donation-Based Crowdfunding

Donation-Based Crowdfunding: This is similar to reward-based crowdfunding. An investor makes a “donation” to a company and receives value in the form of a product in return. Kickstarter uses this model to essential pre-sale products.


Rewards-Based Crowdfunding

Reward Crowdfunding involves the pre-sale of items that will be created if funding goals are met. This type of funding does not attract investors who are looking for monetary gains, but instead attracts individuals who are looking to have new, one-of-a-kind products before anyone else. This means that most projects that are looking for reward crowdfunding have a new product that requires initial investment to begin production. This is essentially the model that Kickstarter uses.


Equity-Based Crowdfunding

Equity-based crowdfunding involves an investor receiving a portion of the company in return for his or her investment. Essentially, the investor will become a shareholder in the company and be able to vote on decisions to be made. Furthermore, the investor will be able to sell his or her share, or a portion thereof, in the future for the current market value. There are certain risks to equity-based crowdfunding as with any other types of investments. This is the type of crowdfunding Crowdfunder operates under.


FINRA

The Financial Industry Regulatory Authority is responsible for governing business between brokers, dealers and the investing public. FINRA aims to eliminate regulatory overlap and cost inefficiencies.


SEC

The SEC is a federal agency that enforces federal securities laws and oversees the securities industry.


JOBS Act

Jumpstart Our Business Startups Act (JOBS) act: The JOBS act was created in order to ease security regulations on small businesses. The JOBS act was signed by Barack Obama on April 5, 2012.

JOBS ACT – Title II (Access to Capital for Job Creators): Title II lifts the ban on advertising for regulation D, Rule 506 and Rule 144A offerings. It also lifts the ban on general solicitation.

JOBS ACT – Title III (Crowdfunding): Title III allows individuals to make investments in small companies without being accredited investors. The company is allowed to receive up to $1 million over any 12-month period. Investors may not purchase more than $2,000 in securities or a certain percentage of his or her annual income or net worth as long as it is under $100,000 during a 12-month period.


Accredited Investors

There are two (2) ways in which an individual can be an accredited investor. One of the following must be true in order for an individual to be an accredited investor. (1) First, an accredited investor must have at least $1 million in net worth at the time of investment. This worth can be measured jointly with a spouse as well. (2) Second, an accredited investor must have an income of more than $200,000 in each of the two previous fiscal years. However, if the income is joint with a spouse, the previous yearly income must be more than $300,000.


General Solicitation

General solicitation involves publicly seeking an offer through advertising or mass communication such as social media.


Regulation D for Crowdfunding

Regulation D Crowdfunding is the process of seeking funding, either equity or debt, online done by private companies.


Bootstrapping

Bootstrapping involves a founder, or founders, using personal finances to fund a new company. This is often sought after due to the fact that founders will not have to dilute their ownership in a company they are starting. Crowdfunder can be essential to a bootstrapped company as it provides a platform for communicating and networking between new companies and the individuals working at them.


Seed Round Funding

Seed Round Funding involves an investor making an early stage investment in a company in return for a share of the company. This can be an investment made by a family member or friend, an angel investor, and even through crowdfunding.


Series A Funding

Series A Funding is typically done by a company who is looking to raise significant financial capital. This type of funding is often sought after angel funding has already finished. A series A funding round usually involves a venture capital firm making a significant investment in a company in return for a percentage share of it.


Venture Capital

Venture capital usually involves an investment made by a firm in a small company that is seeking growth. This investment is usually much larger than an angel investment and results in the venture capital firm becoming integral in the decision making of the company.


Angel Investors

An angel investor is an individual who makes an early investment in a start-up or company in exchange for debt or equity in said company. Angel investors can often organize themselves into groups in order to pool investments. This investor can also be an early advisor to the company as well.


Executive Summary

A nontechnical summary statement at the beginning of a business plan that’s designed to encapsulate your reason for writing the plan.


Investor Deck

The pitch deck is the first thing you will use when interacting with a potential investor. In many ways, it is one of your most important tools. The content of the pitch deck, along with your presentation, can help the investor to determine whether or not to continue evaluating your business opportunity.


Term Sheet

A non-binding agreement setting forth the basic terms and conditions under which an investment will be made. A term sheet serves as a template to develop more detailed legal documents.


Convertible Note

Convertible notes are structured as loans at the time the investment is made. The outstanding balance of the loan is automatically converted to equity when a later equity investor appears, under terms that are governed by the terms set by the later-stage equity investor.


Pre-Money Valuation

Pre-money valuation refers to the value of a company not including external funding or the latest round of funding.


Post-Money Valuation

Post-money refers to its value after it gets outside funds or its latest capital injection.

 

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