Changes to federal crowd-funding rules

[GreyCoyote]

I'm not sure if this will run afoul of ePlaya's TOS, but I will put it out there as an informational item.

MODS: please feel free to edit to taste.

The SEC rules with regards to crowdfunding have just changed and it may be to the betterment of both those folks who are asking for $$$, and those who would consider contributing to a startup or playa project. The new SEC rules allow average guys like you and I to not just donate, but to become an actual equity partner in a startup. Since there are plenty of requests here on eplaya for folks trying to get $$$ for art cars, camps, etc, I felt this might be relevent information for all parties involved.

You can google "new crowdfunding rules" or, for a quick overview, see this link (which offers no funding or funding-related products, its just a commercial news site related to tech, albeit with some unrelated embedded Google advertisements): http://www.cnet.com/news/f-u-n-d-e-d-ne ... CAD1acfa04

[DrYes]

I'm not sure if this will run afoul of ePlaya's TOS, but I will put it out there as an informational item.

MODS: please feel free to edit to taste.

The SEC rules with regards to crowdfunding have just changed and it may be to the betterment of both those folks who are asking for $$$, and those who would consider contributing to a startup or playa project. The new SEC rules allow average guys like you and I to not just donate, but to become an actual equity partner in a startup. Since there are plenty of requests here on eplaya for folks trying to get $$$ for art cars, camps, etc, I felt this might be relevent information for all parties involved.

You can google "new crowdfunding rules" or, for a quick overview, see this link (which offers no funding or funding-related products, its just a commercial news site related to tech, albeit with some unrelated embedded Google advertisements): http://www.cnet.com/news/f-u-n-d-e-d-ne ... CAD1acfa04

Why would you want to be an equity partner in a money-losing enterprise?

And if it's intended to be a brand-building exercise to turn a profit elsewhere, well, I say boo hiss.

[trilobyte]

I'm making a slight change to the thread's title for clarity, so people don't confuse this with a change to this site's crowd-funding rules.

I don't know that the SEC's rules change on crowdfunding would have any real impact on the kind of crowdfunding here. We allow camps and on playa art projects to post fundraisers - they are decidedly different and decidedly not either a startup or business venture. If a camp or project were 'selling equity stakes via kickstarter, it is something that would not be welcome on this board. I couldn't comment on whether such a move would also constitute becoming a commercial entity, which might negatively impact a camp or project in getting placed, vehicle application getting approved, etc.

On the commerce side, we very specifically do not allow business startup crowdfunding campaigns.

[GreyCoyote]

DrYes: I dont think this new rule really applies to 95% of the BM-related campaigns out there. But for the guys (and there have been several instances of this) who solicit "donations" to an art car or camp, and they then turn around and make it a for-profit center, this info may indeed be relevent. Sure, being a fixed-equity partner in a losing enterprise sounds stupid, but as long as your damages are capped, so what? You can call it a "donation" and be done with it. The upside is if the deal gets turned into a profitable venture, you at least can get your money back out of it. THAT is the important point. When the art car you "donated" to shows-up on national TV pitching Red Bull and pulling down advertising contracts, the scoundrels who took your money to grow their commercial enterprise now OWE you money.

Please dont shoot the messenger. The intent of my post is simply to tell you the rules have changed. Period. What you ultimately do, or do not do with this information is up to you.

Trilo: thanks for changing the moniker. Your point about profiteering is actually my point. Now there may need to be another layer of scrutiny for crowdfunded efforts posted on eplaya in order to assure there is not a profit motive.

When rules change, its a good thing to talk about the subtle effects of those changes.

[mooserider]

Actually, I see this as a positive thing.

Right now, I would assume that very few of the crowdfunded projects at BM are registered 501(c)3 educational or cultural charities, so donations made to them cannot be deducted on one's US Federal taxes as a charitable donation. If the project was selling shares, then it would be a capital investment, and losses could be deducted as a capital loss by the donors (assuming the IRS accepted the project as a failing business), and, as GreyCoyote so clearly states, profiteers would be obligated to pass on some of their profits to those who funded them.

The question is whether any project would want to go through the SEC paperwork to sell and manage shares as a IPO corporation. I would assume that the profiteers especially wouldn't want to do that, as the cost of the paperwork on top of paying dividends would really cut into their profits.

[GreyCoyote]

The question is whether any project would want to go through the SEC paperwork to sell and manage shares as a IPO corporation. I would assume that the profiteers especially wouldn't want to do that, as the cost of the paperwork on top of paying dividends would really cut into their profits.

This is the reality of it, right there. The small-time guys wont change their donation-based models at all because there isn't any reason to do so. The existing crowdfunding models will work just fine for them. But when someone does something big (I'll use an art car as an example) that has a much long(er) shelf life and could see utility at venues other than at BM, thats when we start seeing the change being used.

The new models may make it more attractive to the big money. Unlike the "hey, give me $20 and I'll give you swag / don't ask where the money really goes" models, Big Money wants some transparency in accounting, and the possibility of an equity interest really could pique their interest.

So it's interesting. Not sure what, if any, real effect this will have, but its interesting just the same. (I'm gonna laugh like hell if BMORG makes an announcement they now have a crowdfunding campaign for things like the Temple, etc. That would just leave me rolling...)

[EnergyFiend]

The question is whether any project would want to go through the SEC paperwork to sell and manage shares as a IPO corporation. I would assume that the profiteers especially wouldn't want to do that, as the cost of the paperwork on top of paying dividends would really cut into their profits.

This is the reality of it, right there. The small-time guys wont change their donation-based models at all because there isn't any reason to do so. The existing crowdfunding models will work just fine for them. But when someone does something big (I'll use an art car as an example) that has a much long(er) shelf life and could see utility at venues other than at BM, thats when we start seeing the change being used.

The new models may make it more attractive to the big money. Unlike the "hey, give me $20 and I'll give you swag / don't ask where the money really goes" models, Big Money wants some transparency in accounting, and the possibility of an equity interest really could pique their interest.

So it's interesting. Not sure what, if any, real effect this will have, but its interesting just the same. (I'm gonna laugh like hell if BMORG makes an announcement they now have a crowdfunding campaign for things like the Temple, etc. That would just leave me rolling...)

I don't know all the fiscal details, but the Temple does indeed do tax-deductible crowdfunding (we just finished an IndieGoGo campagin for $60k). The temple website says it is possible through a 501(c)(3). It's an art project like any other, with only 1/4 of it funded by a BMORG art grant. However, we promise to burn it, ensuring it won't end up on a Red Bull commercial.