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Crowdfunding is the convergence of social media, Big Data, and cloud tech- nologies to significantly revolutionize the means by which small and mid-sized entities (SMEs) and start-ups can access capital in a cost-effective manner. The use of this new channel of funding will impact management accountants around the world who serve the SME and start- up marketplace.
There are at least four types of crowd- funding platforms: (1) Donation-based crowdfunding, where backers essentially donate money to support a cause but don't get anything in return; (2) rewards- based crowdfunding, where the backer receives a reward, such as a pre-purchase of a product or service, in exchange for the pledge; (3) credit-based crowdfund- ing (or peer-to-peer lending), where the backer loans the money in exchange for an interest rate-money is usually pledged in the form of a credit loan; and (4) equity-based crowdfunding, where the backer gets an equity investment (i.e., a return on his or her investment) in exchange for the money pledged.
New Gold Rush
Through the passage of the Jumpstart Our Business Startups (JOBS) Act in 2012, policy leaders and members of Congress have recognized the nexus of social media, cloud computing, and Big Data technologies and the rise of crowdfund- ing as an opportunity to expand the reach of capital to assist the underserved SME marketplace. The law is designed to cre- ate cost-effective access to capital to facil- itate expansion of small business and jobs through crowdfunding. Crowdfunding offers SMEs a new, cost-effective mecha- nism to raise funds to support their busi- ness expansion, and it provides investors with...