Origins: It started about five years ago as a means for creative types to raise money online for personal projects, whether it’s a poetry book, a film documentary, a band’s CD or artwork.
How it works: Using sites such as Kick- starter, IndieGoGo and RocketHub, individuals create an online funding goal with a time limit. Donors make online pledges, in amounts as small as $5 to $5,000 and up. Instead of a stake in the company, their “return” is usually a simple thank-you, T-shirt or token gift.
Coming soon: Under the federal Jumpstart Our Business Startups Act enacted in April 2012, small businesses will be allowed to use “equity crowd funding” to raise money from small investors. Under rules being devised by the SEC, entrepreneurs and startups can sell up to $1 million a year in shares, without going through costly state and federal regulation and permits. Those rules are expected to be issued later this year.
Source: Sacramento Bee