Question

Describe securities crowdfunding and the background and purpose for which it was created.

Answer 1

Crowdfunding is the process through which an individual or a business can raise small amounts of money from large number of people, typically via the internet. The objective is to raise sufficient funds in order to carry out a specific project.

Securities crowdfunding is when a business raises funds by issuing debt securities( such as bonds) or securities giving the right to participate in future profits (such as shares). In Quebec, issuing securities offered to the public is subject to legal and financial obligations.

Background of Crowdfunding:-

• Crowdfunding has a long and rich history with roots going back to the 1700s. Here we look at how the past decade has shaped modern day crowdfunding and contributed to the recent surge in crowdfunding activity.
• The First recorded successful instance of crowdfunding occured in 1997 when a british rock band funded their reunion tour through online donations from fans. Inspired by this innovative method of financing, Artistshare became the first dedicated crowdfunding platform in 2000. Shortly thereafter, more crowdfunding platforms began to emerge, and the crowdfunding industry has grown consistently each year.
• The first known equity based crowdfunding platform was launched in 2007 in Australia, called the Australian small scale offerings board( ASSOB). ASSOB now trades as Enable Funding, a securities licensed equity raising platform that has raised over $150 Million for 176 private companies.

The purpose for which securities crowdfunding was created :-

• It was created to raise funds for a specific cause or project by asking a large number of people to donate money, usually in small amounts, and usually during a relatively short period of time, such as few months.
• It offers the company's securities to a number of potential investors in exchange for financing. Each investor is entitled to a stake in the company proportional to their investment.