Stop Calling It Crowdfunding

sang-leeThis article is contributed by Sang Lee (@rocsang), CEO and founder of Return on Change, the next generation’s investment crowdfunding portal (www.returnonchange.com). Follow Return on Change @rocspeaks for investment crowdfunding advice and updates.

As we are (hopefully) nearing the implementation of investment crowdfunding, it is becoming ever more critical that we better understand the differences between crowdfunding as it has existed to date and the manner in which it will change with the implementation of investment crowdfunding. As such I would suggest that the public and the industry embrace and official a new name, crowdinvesting.

The new regulations that are being stipulated as well as the general subject matter are confusing as is for potential investors and issuers, without running into the problem of having multiple names and concepts constantly floating around. Crowdfunding is a term that should be using in the rewards/perks/donations based arenas while crowdinvesting is the terminology that should now officially be used for the new wave of investors from the crowd.

There are multiple facets to why this will likely provide a huge support for the industry.

Standardization of Terminology

The material is confusing enough as is with different people using different terms. We heard the gamut from crowdfunding, investment crowdfunding, equity crowdfunding, etc. If we can consolidate it all securities issuances by companies (not p2p or otherwise), the industry will have a single terminology to use for communications, press and any associated media. It disambiguates all information floating out there, which may or may not deal with ‘real’ crowdinvestments.

Huge Benefit for Startup and Investor Education

Photo courtesy jamescridland on FlickrI am guilty of this as well, but portals and industry professionals often take it for granted that potential future startup issuers and/or potential investors are highly cognizant and well versed in the subject matter of crowdinvestments. Most people have only heard of it in the media and have a very limited understanding of the subject material. Additionally, with multiple terminology floating around it’s already becoming very clear that there are many individuals that are not discerning the clear and extremely important differences in the types of crowdsourcing capital that exists today.

Investing is a Word Most People Understand

Crowdfunding is a great concept and has been a huge provider of capital to charitable organizations, creative projects and other worthy endeavors to which backers have provided capital on a rewards or donations basis. Crowdinvestment is an entirely new concept that is not entirely funded on empathetic concepts and also imply contractual arrangements, legal documentation and a much more structured relationship between the investor and/or issuer company, which exists in a regulated realm. Including the word investing and coining the term of ‘crowdinvestment’ is something that will be easier for the general population to understand and comprehend as something that is distinctly different from crowdfunding in the rewards and perks based industries. Even the everyday investor that may not be the most sophisticated investor will clearly be able to discern the difference between investment and donations.

The industry has many countless players, some of which may be counterparties to deal with and others that may be less prepared to do so. However, the industry as a whole has seen adolescent growth and to ensure that we grow into adulthood it is becoming ever more imperative that terminology is standardized and subsequently utilized to make startup issuer and investor education more streamlined. The industry exclusively relies on investors understanding the risks with this brand new asset class and ultimately benefiting from the risks that they undertake in the early stages.

So let’s stop calling it crowdfunding and use crowdinvesting to characterize the new securities based capital sourcing method that will be made available to us in the (hopefully) near future.

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  • John Arnott

    I heartily agree with the search for clarity, but let’s be very clear about proposed legislation (in both the US and Canada) for equity crowd investing – it will really not be for the crowd – it will still be for sophisticated investors, even when managed by Exempt Market Dealers. There will simply be more pressure on investors to conduct their own due diligence, what is otherwise included in a prospectus – a device that has been used to imply certainty where none is possible!

    • Milo

      John I would disagree with you on your point. My assumption is that you live in Ontario where only so called “sophisticated” investors are allowed to invest in the Exempt Market (private equity), however in every other province an exemption referred to as an Offering Memorandum can allow average everyday people to invest in some projects as low as $1,000 and not need to be accredited. I do however agree that investors will need to do
      More of their own research

      • Milo

        Regarding the original article I think altering “CrowdInvesting” for equity and “CrowdFunding” for donation based is a good idea for both industry/regulator/public perception but also investor protection. Check out http://www.emgateway.ca for more info on the Exempt Market in Canada

  • Danny

    There has already been a term coined for this… it’s Crowdfund Investing (CFI)

    • http://www.crowdfundinsider.com/ Charles Luzar

      There’s been a few terms coined, but in the end adoption will determine a winner as it is now. “Crowdfunding” has the adoption, and therefore it is the winner. Crowdfund Investing/CFI doesn’t exactly roll off the tongue, although if the world decides to adopt a term that matches our brand I’m OK with that on multiple levels!

  • http://twitter.com/keepATXfunded Lance McNeill

    Interesting! Maybe Crowdfund Insider or @crowdsourcing.org should conduct a survey to see if we call it Crowdinvestment or Crowdfund Investing.

  • Raphael Otten

    In Germany the term “Crowdinvesting” is quite established for equity crowdfunding. It’s also used in most research papers for that topic.

    • Sang Lee

      It’s definitely one of the terminologies that we need to keep pushing out as the industry standard. This will help general users from falling into states of misunderstanding. Creating a solid foundation of appropriate usage of terms will be critical to industry success.

  • http://twitter.com/CFReTweeter CrowdFnd4Good

    I agree with Sang…up to a point. We do need a simple way to distinguish between CrowdFunding as it currently exists in the US and Investment-based CF. However, “CrowdFunding” as a term has entered the public’s vocabulary and trying to get people to only apply to it Donation/Reward-Based CF will be difficult and potentially self-defeating for the industry as a whole. I suggest that “CrowdFunding” remain the general term for all forms of CF and that “CrowdInvesting” be used to refer only to those forms of CF involving some form of potential return on investment or payment of interest. “CrowdInvesting” would include Equity, Debt, Revenue, Profit, and Royalty-based Crowdfunding — as well as Accredited CF, which will refer to the form of CrowdInvesting that will eventually be permitted by Broker-Dealers (working with or without register CFPs) under the SEC’s long-delayed regulations regarding General Solicitation of Regulation D offerings). Does that sound like a reasonable solution?

    • http://www.crowdfundinsider.com/ Charles Luzar

      I think so. This is the conclusion I came to. “Crowdfunding” as the general term, crowdinvesting as a more specific term to describe one half of the industry. (Or less, technically)

  • http://www.thecrowdcafe.com/ Jonathan Sandlund

    I prefer crowdinvesting as well. I’ve avoided using it to-date, however, because it’s not commonly used in the media, and could create even further confusion. Have you reached out to CfPA/Cfira to see if they can push for standardization in the industry and in the media? If everyone agrees on a single term it would be hugely helpful. We definitely need the parity.

    • http://www.crowdfundinsider.com/ Charles Luzar

      I’d want to chew on it for a couple months at least before turning to any industry groups. This has been a progression more than an epiphany for me personally, and I think I see indications of that throughout.

  • sevec

    Look up OffRoad Capital. Conceived this in 1999. Digital private placements. Look at this as CrowdCapitalism. Supporting the dictates of the ’33 Act while leveraging the power of the Net. Fabulous. Just need to do it transparently.

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