Definitions of Crowdfunding Terms

Here are definitions of terms commonly used in Crowdfunding.

Since the industry is new, the terms change and new ones evolve, so this will never be complete.

For more information about crowdfunding visit the Resources page.

 

Accredited Investor

An accredited investor is a person or institution that the Securities and Exchange Commission (SEC) defines as being presumed to be qualified to invest in unregistered securities, such as privately held corporations, private equity investments, and hedge funds. The qualification is based on the value of the investor’s assets, or in the case of an individual, annual income. An accredited investor must have a net worth of at least $1 million or a current annual income of at least $200,000 with they are anticipated to earn at least as much in the next year. If you’re married, that amount is increased to $300,000. Institutions (compared to an individual) are required to have assets worth $5 million to qualify as accredited investors. The underlying principal is that investors with these assets are presumed to have the sophistication to understand the risks involved in the investment and can afford to lose the money should the investment fail.

All or Nothing Campaign

All or Nothing is the term used to mean a fundraiser has to raise at least their target amount to be able to receive the money. If a fundraiser raises all the money they set out to, they’ll receive the money raised (minus commission and fees). However, if they don’t reach their target, they won’t be eligible to receive anything at all. The all or nothing principle is designed to make sure that fundraisers have enough funds to achieve their aims, and avoids insufficient funds being transferred. This term is relevant to crowdfunding campaigns of a limited duration.

Backer

This is a name for the people who provide funding for a person or project. Also called Contributor or Funder.

Creator

Another term for the person who runs a crowdfunding campaign, used most commonly for an artist, author or musician.

Crowd Equity

This is used to describe the type of crowdfunding which offers equity in a business in exchange for the funds.

Crowdsourcing

Crowdsourcing is a broader concept identified with bringing in more than just money. It might include requests for money, in-kind goods and labor to achieve a common cause. For example, Habit for Humanity may “Crowdsource” the construction of a new home by soliciting money plus constriction materials, and requests skilled labor from contractors. Crowdsourcing is most associated with charitable causes, but that identification could change over time as businesses take and solicit money in addition as talent from the crowd.

Crowd Lending

The type of crowdfunding used for loans. Fundable is a good example of a crowd lending Portal.

Crowdfunding

Crowdfunding is a phrase that describes a manner of raising money through collected contributions of a group. In the United States it is generally associated with “donation Crowdfunding”, through websites like kickstarted.com. It’s essential core is aggregating small amounts of money from a broad group to achieve an established purpose. There are very distinct types of Crowdfunding. As referenced, “donation Crowdfunding” is where people contribute money on a charitable basis for either a business or common cause. “Equity Crowdfunding” is allowed under the JOB Act, which allows a large group on money to invest small amounts toward a business or invention. Other varieties include “Reward Crowdfunding”, where the soliciting party will give some token as a reward for paying a set amount of money (for example giving a sample of a new invention in exchange for making a minimum donation of $50). Finally, “pre-sale Crowdfunding” is where money is raised from people who are giving some form or certificate to get free product once the business is operational.

Community Shares

Community shares are investments in community-owned enterprises that are co-operative in nature and aim to benefit the community in which they operate. They are run democratically with investors becoming members of the organisation. The risk associated with community shares varies, depending on the individual organisation. In the UK, they are commonly shares in Industrial & Provident Societies.

Donation

A donation is the giving of money, without any expectation of a financial return. This form of finance is commonly used for charitable and philanthropic purposes. Donations can be very large or small and may be eligible for tax relief depending on the law of your country.

Donation-Based Crowdfunding

This form of Crowdfunding is where a group (or crowd) of people make contributions, typically small dollar contributions, to a charitable campaign. They typically do not receive anything in return, other than gratitude. This form of finance is commonly used for charitable and philanthropic purposes.Donors do not get equity or ownership in the charity

Equity

An equity investment means buying shares or stock in a company and is generally regulated by a national regulatory organisation. Equity investment (known as venture capital and angel investing when referring to young companies) is a useful source of finance, as it enables growth without having to pay back the money straight away. An investor may get voting rights on company matters.

Fan

A fan is someone who is dedicated to a Crowdfunded project, but who maybe doesn’t contribute money to it. Instead they promote the project, comment on the page and create a buzz and enthusiasm for the project.

Fishbowl

An exercise in which an audience makes suggestions or analytical comments whilst observing the Creator (or someone in his/her team) as they make suggestions about their project. In Cyberfunded Creativity this can be done online, usually on a live blog. The fishbowl technique can also be used for brainstorming business projects or other ideas.

Funder

Another term for Contributor or Backer: the people who provides funding for a campaign

JOBS Act

The “Jumpstart Our Business Startups Act” or JOBS Act, is a law intended to encourage fund raising for small businesses in the United States by creating a new exception from the Securities Laws. It was passed into law on April 5, 2012. The term “The JOBS Act” is also sometimes used informally to refer to just Titles II and III of the legislation, which are the two most importance pieces. Title III is the focus of this website, which allows equity crowdfunding for the first time in generations. It provided a new exemption from the requirement to register public offerings with the SEC, for certain types of small offerings, subject to several conditions. This exemption would allow use of the internet “funding portals”, similar to Kickstarter.com, registered with the government, the use of which in private placements is extremely limited by current law. Companies can raise up to $1,000,000 annually. The JOBS Act included many of the basic terms of the new law, but the full scope of the implementation is delegated to the SEC who are charged with preparing the Regulations to implement the new law.

Hub Site

this is another name for a crowdfunding portal, used especially for the largest portals which host many campaigns.

Keep it all/Keep what you raise

Keep it all means that whatever finance is offered a fundraiser can keep, regardless of overall need. This system recognises that even if the full amount isn’t raised, a lesser amount can still be useful. This term is relevant to crowdfunding campaigns of a limited duration.

Membership/Subscription

A project may invite a recurring subscription from supporters to achieve their aim. Subscription members then receive ongoing access to the product or service they have supported.

Microfinance

Microfinance refers to a range of financial options involving small amounts of money being offered. Microfinance services are often offered to entrepreneurs in developing countries to enable them to establish a business and therefore become self-sufficient. Microloans may or may not be repaid, and may or may not carry interest. Microfinance organisations may offer microloans, or accept microdonations.

Patron

this is another word for someone who contributes money ot a crowdfunding campaign.

Peer-to-Peer

Peer-to-peer usually refers to a loan (sometimes using an auction process) that is made directly between two people (or a person and a business) via a website. It is sometimes regulated by a national regulatory organisation.

Perk

A Perk (slang for perquisite) is a benefit for doing something in a crowdfunded project, such as making a donation or linking back to a post. Perks may be individual (if you pay X amount, you get a signed copy of the script) or collective (if total donations reach Y amount, an extra behind the scenes episode is produced for everyone who has donated to enjoy). There are many types of perks and ways to earn them.

Pitch

This is the promotion of the crowdfund used to garner interest from potential funders.

Platform

Another term for Portal: a web site that facilitates crowdfunding (eg: Kickstarter is a crowdfunding platform).

Pledge

the promise that a Contributors makes to pay the specified amount to the crowdfunding campaign through the Portal site.

Project

Another term for a crowdfunding Campaign.

Pre-Sales Crowdfunding

Pre-Sales Crowdfunding is an offset of rewards Crowdfunding. It is most associated for a new product or invention where the company looking for funds will promise the contributor a sample of the product on completion in exchange for a minimum payment.

Reward

Reward refers to a pledge of money in support of a project or business in return for a gift. For example, this gift could be a thank you email, a version of the product, or an invitation to an event. Where products are given routinely as a reward for giving money, this is sometimes called ‘pre-purchase’ or ‘pretail’, as it is similar to ordering an existing product before it has been made.

Rewards-Based Crowdfunding

This form of Crowdfunding is a broadly used term made common by sites like Kickstarter.com. Typically a company, organization or individual will look to raise money from the crowd for a set purpose. In the request for money they offer “rewards” for contributions at certain levels. These might include a token for donations of $10.00, all the way up to a talking part in a movie for someone who contributes a minimum of $10,000 (as made famous by the Veronica Mars offering).

Security

A Security is a financial asset, such as a share of stock, bond or ownership in any other form (such as holding units or a percentage in a partnership or limited liability company). According to the SEC, anything that is offered for value in exchange for money or an investment might also be a security (and thus require registration or the application of some other securities exemption).

Sponsor

A person who pays for a specific item to be released. A sponsor covers the whole price; some projects allow for several cosponsors to split the price. (This is distinct from general patrons who may donate toward the project as a whole, rather than individual items)

Swag

The items that are used as perks or promotions as rewards for a project. These may include bookmarks of a book’s cover, copy of the dvd or book and other merchandise related to the project.

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