When investors are looking for additional alternative investments to add to their estate, crowdfunding may come to mind. Accredited and non-accredited crowdfunding platforms are two examples of passive income streams that are taking shape in the realm of personal finance. Crowdfunding is quickly growing in popularity for art investors, small technology start-ups, and more. If you are a high net worth investor who is interested in crowdfunding to balance your estate, you need to make sure your money is safeguarded. Knowing the basics of crowdfunding and the difference between accredited and non-accredited platforms is critical.
What is Crowdfunding?
Crowdfunding is the practice of funding a venture by raising money on a platform that consists of investors. Each company or project will start a campaign outlining what he or she hopes to achieve with the funds they receive. It is one of the prime examples of passive income that is steadily growing in popularity among investors.
There are two types of crowdfunding: donation based and equity crowdfunding. Donation-based platforms are used to raise smaller amounts of money for projects. In return for their donation, investors receive a small token of appreciation but have no stake in the project.
Equity crowdfunding works differently. These platforms are typically designed for serious, high net worth investors who want a financial stake in the project or venture. Investors provide a large amount of money, sometimes in the millions of dollars, in return for a portion of the company's profits. The companies who gain funding on these platforms are typically startups or new projects that are not yet listed on the stock market.
What is Accredited Crowdfunding?
Accredited crowdfunding is governed by the Crowdfunding Accreditation for Platform Standards, also known as CAPS. The CAPS program is an initiative that was set forth to practice and promote ethical behavior on crowdfunding platforms. An advisory council of leading experts in the industry implements and reviews certain criteria that constitute accreditation. This criterion is reviewed each year to make sure that the expected high standards are met as the industry continues to grow.
Accreditation is not granted to just any crowdfunding platform. Platforms gain accreditation through a rigorous application process that is based on an interview and a review of the platform. Meeting the necessary criteria is also a factor of gaining accreditation. Those platforms that do not meet the criteria will receive a report outlining what they will need to do in order to pass the interview. Once the recommended feedback is implemented, the platform may re-apply.
How is Accredited Crowdfunding Different from Non-Accredited Crowdfunding?
Due to the thorough application process, accredited platforms are constantly monitored with a tight series of checks and balances that ensure a crowdfunding platform performs responsibly. Serious investors often utilize accredited crowdfunding because they can be confident that they will not lose money through fraud or dishonest crowdfunding applicants.
Non-accredited crowdfunding platforms do not have the same set of checks in place. There is no official oversight outside of those who are placed in an executive capacity. While most crowdfunding platforms are honest and position a high value on integrity, there is always a chance that some are malicious in intent, which could lead to a serious loss of money and time on part of investors.
These two examples of passive income streams can be very lucrative and are great additions to your estate. The key is to invest carefully in a reputable, fully vetted accredited crowdfunding platform if you intend to see a high yield return. For more information, contact a business such as Lisa Cappolella Attorney at Law.