University of Limerick

OLLSCOIL LUIMNIGH

Crowdfunding: “A Potential Game Changer”

Name: Naomi Ní Shé

Student ID: 12130311

Degree Programme: Law Plus

Module Code: LA4052

Supervisor: Ms. Sinead Eaton

Date: 21st April 2016

Table of Contents

Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

I. Crowdfunding Defined……………………………………………………3

II. History: Kickstarter Revolution…...…………………………………….…4

III. Preparation and Requirements. ………….………………………………6

IV. Relevant Laws…………………………...…………………………………7

V. Expansion…………………………………………………….……...…......11

VI. Advantages…………………………………………...…………………….15

VII. Disadvantages………………………………………………………………17

VIII. Case studies…………...……………………………...………………….…19

IX. Conclusion………………………………………………………………….21

I. Crowdfunding Defined

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

Crowdfunding is a recently developed mechanism for financing1 which allows the public to choose whether or not they wish to provide finance, usually a small portion, to a specific project in exchange for shares in a company, a product that business will make or even nothing at all.2 It is generally online and offers the public the chance to invest in a wide range of projects and opportunities.3 This collective effort results in one large “fund” created for a specific purpose, but the rules have been blurred since the practice has expanded to entrepreneurs.4

There are several forms of crowdfunding platforms.5 The most frequently used types of crowdfunding are profit-sharing schemes which occur when investors are given a share of future profits and revenue gained by the company in exchange for the capital they have invested in the company, and securities based crowdfunding which concerns shares or debt securities being issued.6

‘Crowd Sponsoring’ is a critical way for charitable organisations and community based initiatives to gain capital.7 It is comprised of two types of crowdfunding, those are (i) donation-based crowdfunding which allows people who are willing to invest in a project for nothing in return and (ii) reward-based crowdfunding also known as pre-payment crowdfunding which involves an exchange for the investment such as a product or service that was created using the funds.8

Other types of crowdfunding such as ‘crowd investing’ and ‘crowd lending’ are slowly becoming more popular also as a result of the possible financial return for investors.9 Crowd lending involves an organisation or person lending capital subject to specific terms in the hopes of being repaid the loan along with interest.10

1 Gerard Ryan , ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>2Paul Belleflamme et al. ‘Crowdfunding: Tapping the right crowd’ (Journal of Business Venturing: entrepreneurship, entrepreneurial finance, innovation and regional development, Vol. 29, no. 5, (2014) 585-6093 Eden Burkett, ‘A Crowdfunding Exemption? Online Investment Crowdfunding and U.S Securities Regulation’ (13 Tenn. J. Bus. L. 63 (2011) , http://trace.tennessee.edu/transactions/vol13/iss1/4 <accessed 9 February 2016>4 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 7 5 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>6 Ibid7 Ibid8 Ibid9 Ibid10 Ibid

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

II. History: Kickstarter Revolution

Crowdfunding was originally formed as a means to support the arts on the Internet so that artists could raise money for a new album for example.11 It also became popular amongst start-up companies due to difficulties small to medium sized enterprises (SMEs) have had in obtaining finance.12

The Securities and Exchange Commission (SEC) released rules relating to crowdfunding in the US which are to come into effect on May 16 th 201613 and which state that crowdfunding transactions must take place through funding portals under the Securities Act.14 Funding portals are defined as a ‘crowdfunding intermediary that does not offer investment Mi or recommendations, or solicit purchases’.15 Kickstarter is a funding portal which provides for project creators to publicise their projects in the hopes of raising sufficient funding to create the projects. It allows individuals to invest in worthy causes or business ventures without giving the investors equity in the company they invest in, nor does it offer loans, only some form of reward for investors.16 These online platforms act as an intermediary between project creators and investors in the beginning stages of the project creation.

Kickstarter began in 2002 when Perry Chen wanted to hire two musicians for a jazz fest in New Orleans but was unable.17 He thought of a plan where he could propose something like this, be supported by the public and people would only be charged if everybody agreed upon it. 18 Chen later relocated to New York in 2005, where he was originally from.19 While working in a diner, Chen met Yancey Strickler whom he told about his Kickstarter idea.20 The two attempted to create Kickstarter but it took time.21 Within that time, they met Charles Adler, the designer and

11 Aarti Shahani, ‘When a Kickstarter campaign fails, does anyone get the money back?’ (NPR, 3rd September 2012) www.npr.org/sections/alltechconsidered/2012/09/03/160505449/when-a-kickstarter-campaign-fails-does-anyone-get-their-money-back <accessed 02 April 2016>12 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>13 U.S Securities and exchange Commission ‘SEC Adopts Rules to Permit Crowdfunding’ (Sec.Gov, 2015) https://www.sec.gov/news/pressrelease/2015-249.html <accessed 10 April 2016>14 s.4(1)(6)(c) Securities Act 1933 as amended in 201215 s.3(a)(4) Securities Exchange Act 1943 as amended in 201216 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 8517Kickstarter, ‘A Brief History of Kickstarter’ (Kickstarter.com) https://www.kickstarter.com/stories/fiveyears <accessed 11 April 2016>18 Ibid19 Ibid20 Ibid21 Ibid

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

the new co-founder of Kickstarter, who helped with the work on the site.22 In 2008 Time Magazine described crowdfunding as “one part social networking and one part capital accumulation.”23

On April 28 2009 Kickstarter was launched with the first project being that of a man who wanted to make t-shirts and had a goal of $1,000.24 The project failed.25 However, soon after other projects began to succeed.26 Kickstarter began to expand and so employees were hired and a new office was bought in New York.27 With about ten employees, Kickstarter organized a film festival on a rooftop where 1,000 people attended.28 More and more inspired project creators contacted Kickstarter and by 2011 one million people had backed projects on the site.29 The company continued to expand and by 2012 the company had roughly thirty employees in a three story office.30 In February 2012 the project “Double Fine Adventure” was the first project to raise over $1,000,000 on the site.31 This was quickly followed by many other projects exceeding the same amount.32 In 2013, the number of employees increased to fifty and the company was becoming more recognised as famous people began to create projects and it was referred to in the New Yorker, Grand Theft Auto and the television show Jeopardy.33 By 2014 the team had grown to seventy and a new office was acquired in Brooklyn allowing it to continue its expansion.34

Since Kickstarter was established, over seven million people have invested over a billion dollars in various projects ranging from cat calendars to a toy helicopter guided by human brainwaves.35 In 2012 Kickstarter alone raised roughly $320 million from 2.2 million investors.36 The reason for Kickstarter’s success is the considerable range of areas to choose to create a project in or

22 Ibid23 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 8924 Kickstarter, ‘A Brief History of Kickstarter’ (Kickstarter.com) https://www.kickstarter.com/stories/fiveyears <accessed 11 April 2016>25 Ibid26 Ibid27 Ibid28 Ibid29 Ibid30 Ibid31 Ibid32 Ibid33 Ibid34 Ibid35 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995 <accessed 22 February 2016>36 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 91

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

invest in.37

Kickstarter in now in Ireland and competing with Fund it, the Irish reigning online investment website.38

III. Preparation and Requirements

According to the chief executive of Galvanic, David Ingram, you must be prepared to work rigorously for at least six weeks in order to commit to Kickstarter.39 Ironically, in order to raise money for a project, you also need a large amount of money to prepare and promote your project.40 Fund it recommends three months preparation for the project before the general period of five or six weeks of campaigning followed by up to three weeks processing and up to as long as two years for delivery.

In order to crowdfund you must build a community, which websites such as Kickstarter give you access to and enable you to expand.41 A good example of this is when Galvanic were looking for investors, they offered those the chance to endorse as low as $1 to show support, $79 to buy the product or $5,000 to spend three days with the team that created the product. This enabled the company to create a community that cares about the product enough to endorse in it and offer helpful feedback.42 Fund it looks for popular people who may have awards or may be of a high profile or have a high profile product as they generally have the consumers attention already and have the chance to raise more. Knowing someone who has previously created a project may also help as they are more inclined to support you.

More than 80% of projects use videos in an effort to stand out from other projects and those that use gadgets show prototypes of the product as photorealistic renderings are prohibited on Kickstarter.43 There are several rules which must be met in order to crowdfund on Kickstarter. Crowdfunding for charity, repayments, memberships, political fundraising or contests are banned from the site along with products claiming to cure illnesses.44 However, there are fifteen wide-ranging categories such as technology, journalism, crafts, games and food which roughly 80% of

37 Ibid38 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995 <accessed 22 February 2016>39 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995 <accessed 22 February 2016>40 Ibid41 Ibid42 Ibid43 Ibid44 Ibid

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

projects successfully apply through. 45 Similarly to Fund it,46 if the project is successfully funded, Kickstarter will charge a five percent fee along with a further three to five percent processing fee depending on the amount raised.47

Although there is no formula for financial success for projects on Kickstarter,48 the top three tips that should be taken into consideration when planning to crowdfund are:

1. Prepare well by creating a day-to-day plan and a strong pitch2. Gather as many contacts as possible, get help from family and friends3. Do not be discouraged during the process, be prepared and aware of the possibilities of

failure49

IV. Relevant LawsThere is currently no legislation governing crowdfunding in Ireland or at EU level, however, there are various regulatory frameworks that crowdfunding platforms may have to adhere to.50 Crowdfunding platforms based on investing may fall within the breadth of several scopes such as banking, investment and payment services regulations governed by legislation such as the Central Bank Act 1971,51 the European Communities (Payment Services) Regulations 2009,52 the Markets in Financial Instruments Directive (the MiFID Regulations) 200753 and the Investment Intermediaries Act 199554 depending on their structure.55

45 Ibid46 Fund It, ‘About Fund It’ (Fundit.ie, 2016) http://fundit.ie/info/about/ <accessed 02 April 2014> 47 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995 <accessed 02 April 2016>48 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 9149 Doug Monro, Crowdfunding vs VC Money – an entrepreneur’s perspective’ (TheNextWeb.com, August 2015) http://thenextweb.com/insider/2015/07/31/crowdfunding-vs-vc-money-an-entrepreneurs-perspective/#gref <accessed 08 April 2016>50 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>51 Central Bank Act 1971 http://www.irishstatutebook.ie/eli/1971/act/24/enacted/en/html <accessed 03 April2016>52European Communities (Payment Services) Regulations 2009 http://www.irishstatutebook.ie/eli/2009/si/383/made/en/pdf <accessed 03 April 2016>53 Markets in Financial Instruments Directive (the MiFID Regulations) 2007 http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1398325978410&uri=CELEX:02004L0039-20110104 <accessed 03 April 2016>54 Investment Intermediaries Act 1995 http://www.irishstatutebook.ie/eli/1995/act/11/enacted/en/html <accessed 03 April 2016>55 The European Communities (Payment Services) Regulations 2009

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

Crowdfunding is not recognised as a distinct means of raising capital under Irish law.56 Authorisation from the Central Bank of Ireland (Central Bank) is required for ‘banking businesses’, those are businesses that focus on taking deposits as a key business that trigger the necessity for authorisation.57 If the business does not take deposits it does not have to have a bank license though other licenses may be required.58 Furthermore a crowdfunding platform may be liable under the Central Bank Act 197159 if they hold themselves out to be a bank, which is prohibited, so they are limited in the names they can choose for the platform so as not to imply that it is a banking business.60 Furthermore, a firm may not act or claim to be an investment firm without authorisation under the MiFiD Regulations.61

A private company limited by shares is prohibited from offering shares, debentures or other securities (equity or debt) to the public.62 It is worth noting that the Companies Act 2014 states that those in breach of this may also be liable63 under the Prospectus (Directive 2003/71/EC) Regulations 2005.64 The aim of this is to prevent consumer damage as soliciting unsophisticated investors is very risky. If offering shares online was considered to be an ‘offer of securities’ under the Directive, this form of crowdfunding would not be available to companies unless they issued a prospectus or availed of an exemption from generating one.65

A crowdfunding platform must have the relevant authorisation, passport or exemption if it acts as an ‘investment firm’, that is a firm that offers investment services on a professional basis to third parties.66 These services are regulated by the Investment Intermediaries Act (IIA) and the

56 Joe Beashel, Review of Crowdfunding Regulation’ (European Crowdfunding Network, October 2013) p.105 http://www.matheson.com/images/uploads/documents/Crowfunding_Regulation_Irish_chapter.PDF <accessed 11 April 2016>57 Ibid58 Ibid59 s.7 Central Bank Act 197160 Joe Beashel, Review of Crowdfunding Regulation’ (European Crowdfunding Network, October 2013) p.105 http://www.matheson.com/images/uploads/documents/Crowfunding_Regulation_Irish_chapter.PDF <accessed 11 April 2016>61 Part 4 s.7(1)(a) MiFiD Regulations 200762 s.68(1)(a) Companies Act 2014 http://www.irishstatutebook.ie/2014/en/act/pub/0038/sec0068.html#sec68 <accessed 03 April2016>63 s.68(6) Companies Act 2014 http://www.irishstatutebook.ie/2014/en/act/pub/0038/sec0068.html#sec68 <accessed 03 April2016>64Prospectus (Directive 2003/71/EC) Regulations 2005 (S.I. No. 324 of 2005) http://www.irishstatutebook.ie/eli/2005/si/324/made/en/print 65Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>66 Joe Beashel, Review of Crowdfunding Regulation’ (European Crowdfunding Network, October 2013) p.105 http://www.matheson.com/images/uploads/documents/Crowfunding_Regulation_Irish_chapter.PDF <accessed 11 April 2016>

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

Markets in Financial Instruments Directive.67 It is worth noting that under the IIA, offering advice to an individual on where they should get investment advice will constitute as investment advice.68

The transmission of money is governed by two statutes in Ireland, those are the European Communities (Payment Services) Regulations 200969, and Statutory Instrument No. 383 of 200970 (‘PSD Regulations’).71 Those services which are not governed by the PSD may be regulated by the Central Bank Act 1997 if they fall under the definition of ‘money transmission business’.72 However, platforms may avoid registration for authorisation under the PSD Regulations and the Central Bank Act by avoiding money transmissions.73 Currently, Irish platforms use the services of regular payment service providers in order to allow prospective investors transfer funds themselves, and thus are not required to be regulated to provide payment services.74

Funding platforms have limits on the amount of money that can be invested. Small platforms such as Fund it have lower limits on the amount that can be invested and investors get a product or ticket for something rather than shares. In the UK only a certain class of certified clients who have been advised can invest no more than 10% of their net worth in one year, but there are no limits placed on professional investors.75 In the US limits placed on investors depend on their financial status, for example if an individual’s net worth including their income is lower than $40,000 then they can only invest up to $2,000, but if an individual’s net worth is more than $100,000 then they can invest 10% of their income. The UK and the US have similar limits with regards to how much can be invested in one single project, that is 10% of the individual’s portfolio, in order to limit the impact a failed or fraudulent project would have on the investor.76

According to Andrew Hetherington, the founder of Fund it, it should be noted that Fund it cannot advise investors whether they should invest in a certain product or not as they are not solicitors, only a solicitor or an investment firm authorized under the MiFiD Regulations may offer advice. If the business falls outside of the scope of MiFid then the relevant European Economic Area 67 Ibid68 Ibid69 European Communities (Payment Services) Regulations 200970 Statutory Instrument No. 383 of 2009 (‘PSD Regulations’)71 Joe Beashel, Review of Crowdfunding Regulation’ (European Crowdfunding Network, October 2013) p.106 http://www.matheson.com/images/uploads/documents/Crowfunding_Regulation_Irish_chapter.PDF <accessed 11 April 2016>72 Ibid73 Ibid74 Ibid75 Gary A Gabison, ‘Understanding Crowdfunding and its Regulations’ (European Commission JRC Science and Policy Report 2015) p. 23 http://publications.jrc.ec.europa.eu/repository/bitstream/JRC92482/lbna26992enn.pdf <accessed 11 April 2016> 76 Ibid

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

(EEA) state laws should be considered before offering advice incase separate regulation and authorisation of that business is necessary.77 Fund it has their own solicitors who are present until project managers launch their projects and deal directly with investors themselves, then the project managers should have their own solicitors. Similarly, proposals by the SEC in the US to prohibit funding portals from giving investment advice or making recommendations have been approved and will come into effect on May 16th 2016.78

As a result of the expansion of crowdfunding the Central Bank, who is considered to be the relevant authority to draft papers regarding crowdfunding, issued a consumer information notice on 17 June 2014 in order to inform consumers of the risks associated with crowdfunding investments indicating that crowdfunding is not a regulated activity in Ireland as of yet.79 The notice further stated that protections such as the Central Bank’s code of conduct, the Deposit Guarantee Scheme along with the Investor Compensation Company Limited scheme are not available to crowdfunding platforms.80

Kickstarter states that if a legal dispute arises with the platform, the dispute is governed in New York under New York State laws and the laws of the United States and will not apply the Uniform Computer Information Transaction Act or the United Nations Convention of Control for International Sale of Goods nor will it give effect to principles of conflicts of law.81 The site states that by using it, one agrees that any legal or equitable action in relation to or arising from the terms or use of Kickstarter will only be filed in the State or Federal Courts of New York. 82 It further states that one agrees to submit to the personal jurisdiction of the courts in the case of litigation or similar actions and waives their right to have a trial by jury in any action, proceeding or any dispute.83

In the UK, most foreign investments are not regulated except for investments in sensitive areas such as banking and financial services.84 In considering whether the investment constitutes a banking of financial service the type of crowdfunding used must be considered. Two types of non-financial types of crowdfunding are; donation-based, which involves investing without 77 Financial Conduct Authority, ‘Factsheet – Investment advisers’ (FCA.org.uk) https://www.fca.org.uk/static/documents/factsheets/fs025-passporting.pdf <accessed 20 April 2016> 78 U.S Secutiries and Exchange Commission, ‘SEC Adopts Rules to Permit Crowdfunding’ (Sec.gov, November 2015) https://www.sec.gov/news/pressrelease/2015-249.html <accessed 03 April 2016> 79Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>80 Ibid81Kickstarter, Terms of Use (Kickstarter.com, October 19 2014) https://www.kickstarter.com/terms-of-use <accessed 20 April 2016>82 Ibid83 Ibid84 Herbert Smith, ‘A legal guide to investing in the UK for foreign investors’ (4th edn, Herbert Smith, July 2012) 3 http://www.herbertsmithfreehills.com/-/media/HS/L050712154578912171416219.pdf <accessed 20 April 2016>

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

return and reward-based, which is investing for a thank you or a result of the project.85 The two forms of financial crowdfunding are; lending-based which concerns the borrowing of money from a group of people which is later repaid with interest, and equity-based crowdfunding which is generally used by start-ups and concerns the gathering of investment from a group of people who often get shares or dividends as a result.86 CrowdCube is the world’s fits equity finance platform and is based in the UK.87 and therefore are regulated in the UK by the Financial Conduct Authority (FCA).88 Foreign investors are advised to have an understanding of the rules of EC competition law and sector-specific policies.89

There is not a great deal of cross-border investments on Irish platforms even though there are no restrictions and it is not geo-blocked. However, according to Andrew Hetherington cross-border investments will be governed by the consumer regulations in the country where the project exists. If a crowdfunding platform partakes in a ‘banking business’ it must inform the European Commission of any difficulties encountered when providing investment services or activities in a third country.90

V. Expansion

Barack Obama stated in 2012 that “Crowdfunding is a potential game changer”.91 It has been increasing in popularity despite many people still being completely unaware of the scheme. The increase in the use of crowdfunding may be a result of the decline in lending by creditors subsequent to the economic crisis coupled with the growth of digitalization of many day-to-day services.92

Crowdfunding has been around for hundreds of years and was used to for the printing of books in the seventeenth century, UK parks which were crowdfunded in the nineteenth century and a number of Bollywood films were also crowdfunded in the 1970’s.93 The most basic and every-day-example which has been done for years is churches who raise money at mass for the upkeep

85 WSBI-ESBG, ‘The Crowdfunding Phenomenon and Opportunities for Banks’ (Savings-Banks.com) http://www.savings-banks.com/experience/Pages/Crowd-funding.aspx <accessed 20 April 2016>86 Ibid87 Ibid88 Jason Pope, A review of the regulatory regime for crowdfunding and the promotion of non-readily realisable securities by other media) (Financial Conduct Authority, February 2015) https://www.fca.org.uk/static/documents/crowdfunding-review.pdf <accessed 20 April 2016>89 Herbert Smith, ‘A legal guide to investing in the UK for foreign investors’ (4th edn, Herbert Smith, July 2012) 3 http://www.herbertsmithfreehills.com/-/media/HS/L050712154578912171416219.pdf <accessed 20 April 2016>90 Part 5 s.42(1) MiFiD 200791 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 1592 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

of the church.94

In July 2013 the Independent noted that the three crowdfunding platforms based in Ireland are Linked Finance in Dublin which lends to small businesses instead of them borrowing from the banks, Fund it, ran by Business to Arts, a non-profit organization95 which is also in Dublin and allows worldwide followers, fans and friends invest in artists with creative ideas and Seed Ups in Donegal which gives tech start-ups and investors the chance to raise capital where they may have failed using the traditional methods.96

Previously, a project could not be set up using an Irish bank account.97 Therefore, Irish companies used Kickstarter though UK and US platforms for years before the Irish platform was established last year.98 For example, in 2013 Galvanic became the first Irish company to raise over $100,000 through Kickstarter for its Pip product which measures stress.99

People all over the world can invest in a project through Kickstarter, subject to capital movement restrictions outside the EU for example. However only individuals in certain countries may create a project as of yet.100 Those countries include: Ireland, The United States, The United Kingdom, Canada, Australia, New Zealand, the Netherlands, Denmark, Norway, Sweden, Germany, France, Spain, Italy, Austria, Belgium, Switzerland, and Luxembourg.101

The highest rate of success is generally with dance projects (68%), closely followed by theatre (63%) then music (54%), and finally journalism (29%), technology (27%) and fashion (27%) having surprisingly low success rates.102

93 BBC News, The Statue of Liberty and America’s crowdfunding pioneer’ (BBC.com, 25 April 2013) http://www.bbc.com/news/magazine-21932675 <accessed 10 April 2016>94 Alison Partridge, ‘Crowdfunding City Futures?’ (URBACT, 01 July 2015) http://urbact.eu/crowdfunding-city-futures <accessed 10 April 2016>95 Fund It, ‘About Fund It’ (Fundit.ie, 2016) http://fundit.ie/about/ <accessed 03 April 2014> 96 Independent.ie, ‘Crowd-funding companies in Ireland' (Independent.ie, 14 July 2013) http://www.independent.ie/lifestyle/crowdfunding-companies-in-ireland-29417104.html <accessed 19 February 2016> 97 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995 <accessed 22 February 2016>98 Ibid99 Ibid100 Kickstarter.com, 'Who can use Kickstarter' (Help Center, Kickstarter.com) https://www.kickstarter.com/help/search?utf8=&term=other+countries <accessed 23 February 2016>101 Ibid102 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995 <accessed 22 February 2016>

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

While considering developments overseas, it is evident that crowdfunding is expanding as more countries are introducing relevant regulations. ‘Crowdfunding and the Promotion of Non-Readily Realisable Securities Instrument 2014’ was implemented in the UK by the Financial Conduct Authority (FCA) on 1st April 2014 in order to safeguard investors who lack essential knowledge in the area while also encouraging competition.103 Furthermore the FCA introduced “operating an electric system in relation to lending” in relation to crowd lending which falls under core FCA provisions and principles such as client money protection rules; minimum capital requirements; conduct of business rules including promotions and disclosure; dispute resolution rules and also the prerequisite that reasonable steps must be taken in order to confirm that current loans will be carried out if the company collapses.104

Another requirement under the rules is that in order to ensure loan-based crowdfunding platforms monetary resources must not be less than the rules stipulate, they must conform with the basic solvency requirement.105 In addition, the FCA also imposed further requirements on unlisted securities as they considered them to be riskier and should only be offered to professional clients, advised retail clients or those classified as corporate finance or venture capital contacts, retail clients who will not invest over ten percent of their net investable capital in unlisted equity and debt security, or retail clients qualified as sophisticated or high net worth investors .106

The situation regarding crowdfunding in Europe also demonstrates how this method of investment is expanding. In 2013 alone it was estimated that crowdfunding platforms in Europe raised roughly €1 billion.107 As a result of the expansion, the European Commission published the communication ‘Unleashing the Potential of Crowdfunding in the European Union on the 27th of March 2014 which focused on the Commission’s concerns such as highlighting crowdfunding and informing the public about it, calculating regulatory developments made at national level and considering the necessity of regulatory intervention at EU level.108 In addition, the Commission also initiated the European Crowdfunding Stakeholders Forum which offers advice to the Commission, enhances policies and examines the possible creation of a ‘quality label’ for crowdfunding platforms.109

The United States has, of course, made further developments. Todd Lippiatt, the Managing Principal at Aristone Reality Capital, who spent ten years working on Wall Street is of the

103 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>104 Ibid105 Ibid106 Ibid107 Ibid108 Ibid109 Ibid

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

impression that crowdfunding could change Wall Street.110 This led him to launch the crowdfunding website Propellr.com which he believes is more suited to crowdfunding as he aims to create a funding platform consisting of finance experts as opposed to technophiles which he believes will be a major step forward in the crowdfunding industry.111 The Jumpstart Our Business Start-ups (JOBS) Act was enacted in 2012 which sought to lessen the regulatory hurdles in relation to crowd investing in America.112 However, it did assign certain responsibilities on funding portals such as the requirement to research companies listed on the site, register with the SEC, control financial transactions, disclose the risks to investors and provide necessary information to prospective investors.113 Until Title II of the Act came into effect in 2013, private companies could only solicit investors who they already had an established relationship with, however the Act now allows private companies to advertise that they are involved in crowdfunding once they take the reasonable steps to confirm that the investor is accredited (that the individual has a net worth of over $1 million excluding the value of their home, or has had an income of over $200,000 in the previous two years).114

Title III of the JOBS Act was slow to be enacted as there were fears concerning the financial burden and compliance risks being placed on start-up companies and SME’s.115 However, Title III was subsequently introduced as a result of the major growth in online crowdfunding along with the lack of issues with the JOBS Act thus far.116 The expansion of crowdfunding was evident as it was expected to make $34 billion this year, surpassing Venture Capital, before Title III was even enacted.117 Title III allows companies raise up to $1 million within one year from unaccredited investors, (investors who do not meet the net worth requirement under the SEC’s Regulation D to be accredited investors)118 through crowdfunding but requires that both the

110 Louis Bedigian, ‘How Crowdfunding Will Change Wall Street’ (benzinga.com, January 22 2014) http://www.benzinga.com/general/entrepreneurship/14/01/4243441/how-crowdfunding-will-change-wall-street <accessed 11 April 2016>111 Ibid112 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>113 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 133-135114 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 03 April 2016>115 Ibid116 Chance Barnett, ‘SEC Approves Title III of JOBS Act, Equity Crowdfunding with Non-Accrediteds’ (Forbes Entrepeneurs, October 30 2015) http://www.forbes.com/sites/chancebarnett/2015/10/30/sec-approves-title-iii-of-jobs-act-equity-crowdfunding-with-non-accredited/#29dee7886535 <accessed 08 April 2016>117 Ibid118Investopedia ‘Definition Non- Accredited Investor’: an investor who has a net worth of less than $1 million with a spouse and who has earned less than $200,000 per annum, or $300,000 with a spouse in the last two years. (Investopedia) http://www.investopedia.com/terms/n/nonaccreditedinvestor.asp <accessed 15 April 2016>

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funding portal and the company to meet certain criteria and make certain disclosures to the SEC.119 According to the securities attorney, Sam Cuzik who is associated with the regulatory and legislative aspects of crowdfunding, Title III was “great for everyday people who have been shut out from investing to date” as Title III allows unaccredited investors and everyday citizens enter the market and invest in start-ups, providing startup companies with the opportunity to acquire far more capital.120 This can be contrasted with Ireland where there are no restrictions on who can or cannot invest through equity crowdfunding.121 While the JOBS Act provides for private investments to be advertised to high net worth investors through the internet, Kickstarter stated that it will not allow project creators offer equity on the site.122

VI. Advantages

Crowdfunding creates long-term relationships between creators and those following the project.123 According to Dr. Richard Swart, the director of research on crowd finance at UC Berkeley, crowdfunding isn’t just about raising money for large companies, it also provides an opportunity to “increase social reach and get massive amounts of feedback from customers”.124 This was evident when Coke launched a crowdfunding campaign to help dig wells after receiving several complaints about using excessive water at the bottling plants in Mexico.125 Those who successfully fund through Kickstarter take advantage of the opportunity it offers to connect with backers by offering insights into their campaigns and attracting attention from the media as was seen when the creator of the television programme Veronica Mars created a campaign to which he regularly posted updates to fans who responded by pledging $2.5 million.126

119 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 08 April 2016>120 Chance Barnett, ‘SEC Approves Title III of JOBS Act, Equity Crowdfunding with Non-Accrediteds’ (Forbes Entrepeneurs, October 30 2015) http://www.forbes.com/sites/chancebarnett/2015/10/30/sec-approves-title-iii-of-jobs-act-equity-crowdfunding-with-non-accredited/#29dee7886535 <accessed 08 April 2016> 121 Claire Lord and Conall Geraghty, ‘Crowdfunding Creativity’ (Mason Hayes & Curran- MHC Times Autumn 2014) http://www.mhc.ie/uploads/00123_-_MHC_CrowdFund.pdf <accessed 20 April 2016>122 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995 <accessed 10 April 2016>123 Fund It, ‘About Fund It’ (Fundit.ie, 2016) http://fundit.ie/about/ <accessed 03 April 2014> 124 Louis Bedigian, ‘Coke, Microsoft and 3 Other Big Companies That Have Used Crowdfunding’ benzinga.com, August 25 2014) http://www.benzinga.com/general/crowdsourcing/14/08/4802231/coke-microsoft-and-3-other-big-companies-that-have-used-crowdfun <accessed 11 April 2016>125 Ibid126 BBC News, The Statue of Liberty and America’s crowdfunding pioneer’ (BBC.com, 25 April 2013) http://www.bbc.com/news/magazine-21932675 <accessed 10 April 2016>

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There is a range of crowdfunding methods available as mentioned above. Another form of crowdfunding is civic crowdfunding which allows communities work together and invest in their own area to improve the environment in which they live, an example of which was the Eiffel Tower which was crowdfunded in Paris127 in 1889 as the entrance to the World’s Fair128 and has been a major attraction for a long time.

Using a platform such as Fund it to crowdfund provides the opportunity to avail of assistance from local experts in fundraising and cultural and creative industries to aid in the preparation for the project to be made available to the public.129 Furthermore, small platforms such as Fund it ensure that each project is ready to crowdfund by studying the campaign and communication plan, testing the fundability, arranging for the owner of the project to discuss it with a project creator,130 and ensuring that professional advisors and accountants are available to clarify that you have the means to go ahead with the project. Furthermore, small platforms are less likely to be litigated against than large platforms like Kickstarter as less money can be invested due to the limits placed on them.

Another advantage to using these platforms is that both Kickstarter131 and Fund it have an ‘all or nothing’ attitude and charge no fee unless projects meet their targets within the campaign time allotted to them, so unlike equity investing, creators of a crowdfunded projected keep all ownership and control over the project regardless of the amount of money raised.132 This was evident when Kickstarter got nothing when Oculus Rift used the platform to raise $2.4 million for a virtual reality headset in 2012 and Facebook later paid $2 billion in stocks and cash to purchase the company.133 Had Kickstarter gone against its principles and traded the headset for stock in the company they would have earned $43,500 but that is not how they operate.134

127 Alison Partridge, ‘Crowdfunding City Futures?’ (URBACT, 01 July 2015) http://urbact.eu/crowdfunding-city-futures <accessed 10 April 2016> 128 Michael Howes ‘Anyone for crowdfunding? (Tayabali Tomlin, 13 December 2013) http://www.tayabalitomlin.com/anyone-crowdfunding/ <accessed 15 April 2016>129 Fund It, ‘About Fund It’ (Fundit.ie, 2016) http://fundit.ie/about/ <accessed 03 April 2014> 130 Ibid131 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995 <accessed 02 April 2016>132 Fund It, ‘About Fund It’ (Fundit.ie, 2016) http://fundit.ie/about/ <accessed 02 April 2014> 133 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975997 <accessed 02 April 2016> 134 Ibid

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

Using an Irish platform such as Fund It can also be of great advantage as the funds raised remain in Ireland and one fifth of funds pledged to the site come from abroad which brings capital to the creative sector.135

VII. Disadvantages

Crowdfunding involves a lot of hard work from preparation to pitches, crucial meetings, phone calls and interactions with prospective investors.136 It also involves a lot of emotion as potential investors back out, fears of failure, and online trolling by competitors who attempt to acquire your confidential plans.137

Ingram notes that projects which have not secured outside investment prior to selling their product on Kickstarter may not succeed as they are unlikely to raise the cost of manufacturing the product through crowdfunding alone.138

Although over 70,000 projects have succeeded through the use of Kickstarter, the website has a failure rate of roughly 60%,139 a huge factor one must consider when deciding whether or not to launch a project through the use of crowdfunding. An example of this is Paula Rowan, who in 2013 created a project which she hoped would raise £30,000 for her glove company but failed miserably when only 21 investors endorsed £1,751 in the project.140 She believes the project failed as it was not ‘exciting enough’ and the social media campaign surrounding it was not strong enough for her stiff competition with ‘media friendly projects’.141 In contrast to this however, it is important to note that using a site of smaller-scale such as Fund it allows for less chance of failure as the site claims to be amongst the most successful reward-based sites worldwide and has a consistent success rate above 71%.142

Furthermore, if a project fails, Kickstarter’s policy notes that the creator of the project must refund investors, however there is no procedure on the website which allows for this, as was seen with David Barnett who refunded forty out of 500 investors for an iPhone case project that 135 Fund It, ‘About Fund It’ (Fundit.ie, 2016) http://fundit.ie/about/ <accessed 03 April 2014> 136 Doug Monro, Crowdfunding vs VC Money – an entrepreneur’s perspective’ (TheNextWeb.com, August 2015) http://thenextweb.com/insider/2015/07/31/crowdfunding-vs-vc-money-an-entrepreneurs-perspective/#gref <accessed 08 April 2016>137 Ibid138 Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995 <accessed 02 April 2016>139 Ibid140 Ibid141 Ibid142 Fund It, ‘About Fund It’ (Fundit.ie, 2016) http://fundit.ie/about/ <accessed 03 April 2014>

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failed.143 An even worse case was that of ZionEyez (later named Zeyez due to the association of the name ZionEyez’s with failure) where Joe Taylor, an experienced entrepreneur who worked with a multi-million dollar firm that created mobile video recorders, created a Kickstarter campaign to create glasses with digital functions.144 The project succeeded tremendously however as a result of the number of investors owed a pair of the glasses, manufacturing and shipment issues quickly arose.145 ZionEyes struggled to meet demands and investors became furious and began complaining online.146 Joe Taylor later disappeared, founders names were removed from the Kickstarter page, no updates were published and nobody received the product nor were they refunded.147 It is worth noting that the spokesman of the company stated that “some of the people who utilize Kickstarter don’t understand what it’s all about”, the point being that the aim of Kickstarter is to aid projects in the beginning stages, not to launch a company into extensive production.148 Another commentator noted that “backers are not backing companies, they are backing ideas about things that might be possible to do or make”.149 However, the fact that Joe Taylor simply disappeared and made no effort to reimburse the investors at all shows the risk attached to crowdfunding on a large funding portal which does not enforce refunds to investors who have lost out.

In comparing crowdfunding to Venture Capital, a firm that gives funding to a start-up company in exchange for equity in the company,150 some may opt for Venture Capital as there is less of a burden to build your brand, there is more of a chance of success and it is more sophisticated. 151 Venture Capital may be regarded as a better route for companies who are looking to gain investment exceeding five million euro, who are in need of connections as they cannot raise 50-75% from their own network.152 Despite this, the healthy competition Venture Capital offers crowdfunding may encourage further developments.

VIII. Case Studies

143 Aarti Shahani, ‘When a Kickstarter campaign fails, does anyone get the money back?’ (NPR, 3rd September 2012) http://www.npr.org/sections/alltechconsidered/2012/09/03/160505449/when-a-kickstarter-campaign-fails-does-anyone-get-their-money-back <accessed 06 March 2016>144 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 100-101145 Ibid146 Ibid147 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 102-103148 Ibid149 Ibid150 Venture Capital Definition http://www.businessdictionary.com/definition/venture-capital.html <accessed 08 April 2016>151 Doug Monro, Crowdfunding vs VC Money – an entrepreneur’s perspective’ (TheNextWeb.com, August 2015) http://thenextweb.com/insider/2015/07/31/crowdfunding-vs-vc-money-an-entrepreneurs-perspective/#gref <accessed 08 April 2016>152 Ibid

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Despite the failed cases above which should be considered in order to avoid the same mistakes and learn from, there have also been some very interesting successful crowdfunding stories considered below which also offer guidance.

The Statue of LibertyNot many are aware that the pedestal for the Statue of Liberty was crowdfunded through a newspaper campaign which led to donations from hundreds of people while it was being shipped from France to New York.153 The French government paid for the statue as it was a gift to the US, however the US had to raise $250,000 (roughly $6.3 million in today’s currency) for granite plinth.154 The American Committee of the Statute of Liberty was given the job of raising the money which they failed to do by about a third.155 The New York Governor refused to use city funds to cover the costs and Congress were unable to agree on a funding package.156 In the meantime, Baltimore, Boston, Philadelphia and San Francisco offered to cover the costs if the statue would be relocated.157 Eventually Joseph Pulitzer, a well know publisher launched a fundraising campaign in his newspaper The New York World.158 160,000 people of all ages and classes backed the project and more than 75% of the pledges were less then a dollar.159 The goal of $100,000 was surpassed in five months and the surplus of $1,091 was given to the sculptor as a gift.160 The campaign was similar to the way crowdfunding operates today, the newspaper was the only collection point and agent of the project and funds were raised from a large pool of investors, rewards were offered such as gold coins, and the money was raised very quickly through small donations.161 The success of the campaign for the Statue of Liberty led to a number of well-known campaigns and the newspaper subsequently raised capital for a memorial to Ulysses Grant, a Civil War General and President of the US and also launched a campaign for tax reform.162

The Pebble wristwatch

Eric Migicovsky created a project for a watch that he connected to his Blackberry and could view his text messages on.163 After a failed attempt to attract investment through Y-Combinator, a

153 BBC News, The Statue of Liberty and America’s crowdfunding pioneer’ (BBC.com, 25 April 2013) http://www.bbc.com/news/magazine-21932675 <accessed 10 April 2016>154 Ibid155 Ibid156 Ibid157 Ibid158 Ibid159 Ibid160 Ibid161 Ibid162 Ibid

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firm that helps technology start-up founders, he turned to Kickstarter in early 2012.164 He offered email updates as a reward for investing and a Pebble watch for the first 200 investors who pledged $99 which cost subsequent investors $155 and which sells for $150.165 There was also an effective video included in the campaign.166 Migicovsky reached his goal of raising $100,000 for his company Pebble in less than one day, and by the time the campaign closed Pebble had reached a new record for Kickstarter investments by raising over $10 million in total from 68,929 investors.167 Shortly after, rumours that Apple were creating the apple-watch began to circulate.168 Migicovsky’s project shows that although there may be issues regarding manufacturing and shipment when more investors buy the product than was originally expected so more of it has to be created, technophiles are still given the opportunity to bring their ideas to fruition through the platform by bringing a new class of consulting companies into the market to assist successful project creators manufacture their products.169 Furthermore, Migicovsky did so well with his first project he decided to go back to Kickstarter and create a project for Pebble Time, an updated smart watch in December 2015 which raised $20,338,986 from 78,471 investors.170

Sandra’s Dog Rescue

This is an Irish case which involved Sandra, a woman from Waterford who rescued 39 dogs which impacted heavily on her finances and led to her being warned that she would be served an eviction notice if she could not pay her dues171 by the end of February 2016 meaning that she will have to rehome some of the dogs or some may be put to sleep due to their ages.172 Although 163 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 84164 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 85165 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 86166 Ibid167 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 86-87168 Ibid169 Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013) 88170Pebble Technology, ‘Pebble Time – Awesome Smartwatch, No Compromises’ (Kickstarter.com December 15 2015) https://www.kickstarter.com/projects/597507018/pebble-time-awesome-smartwatch-no-compromises <accessed 10 April 2016>171 Cianan Brennan, ‘Waterford woman and her 39 dogs fighting eviction with crowdfunding campaign’ (The Journal.ie, February 24th 2016) http://www.thejournal.ie/gofundme-waterford-dogs-2620625-Feb2016/?utm_source=shortlink <accessed 09 April 2016)172Sandra A Hennessy, ‘Sandra’s Dog Rescue’ (GoFundMe, February 11 2016) https://www.gofundme.com/nuva3cp8 <accessed 09 April 2016>

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Sandra updated her GoFundMe profile one month ago thanking those who have donated, she has only raised less than half of the €5,000 she aimed to raise and made no comment regarding the eviction notice which was to be served in late February. Despite this the case has attracted the attention of lots of people and the photos of the dogs she published on her GoFundMe page has clearly tugged on people’s heartstrings worldwide as is evident from the comment section where inquiries regarding investing from the US were made along with requests for more photos of the dogs.

IX. Conclusion

As a result of technological developments, the expansion of enterprises and new methods of financing offering investors, funders and supporters the opportunity to gain social benefits,173 the use of crowdfunding has grown tremendously and it is likely to continue doing so. Although crowdfunding has been around for a long time, the internet has catapulted it into a major funding industry.174 However, the risks above should be considered as they may determine any future developments of crowdfunding.175

It is evident that the method of acquiring finances through online crowdfunding is quickly expanding as an alternative route to traditional methods.176 It is evolving along with new challenges particularly with regards to regulatory issues.177 Crowdfunding platforms in Ireland can lend without the requirement for regulation as long as the platform avoids offering investment and payment services,178 although it has been recommended that specific legislation regulating crowdfunding platforms be enacted at an EU level by the EU Commission179 and also in Ireland as the current situation requires the platforms to continually determine whether the

173 Mónika Kuti – Gábor Madarász, ‘Crowdfunding’ (Public Finance Quarterly, March 2014) p363 https://www.asz.hu/storage/files/files/public-finance-quarterly-articles/2014/a_kutim_madaraszg_2014_3.pdf?download=true <accessed 10 April 2016>174 BBC News, The Statue of Liberty and America’s crowdfunding pioneer’ (BBC.com, 25 April 2013) http://www.bbc.com/news/magazine-21932675 <accessed 10 April 2016>175 Mónika Kuti – Gábor Madarász, ‘Crowdfunding’ (Public Finance Quarterly, March 2014) p363 https://www.asz.hu/storage/files/files/public-finance-quarterly-articles/2014/a_kutim_madaraszg_2014_3.pdf?download=true <accessed 10 April 2016>176 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 10 April 2016>177 Richard Harrison, ‘Crowdfunding and the revitalisation of the early stage risk capital market: catalyst or chimera?’ (Venture Capital – An International Journal of Entrepreneurial Finance 2013, Volume 14, Number 4, Routledge Taylor & Francis Group, 12 November 2013) pp.283-287 http://www.tandfonline.com/doi/pdf/10.1080/13691066.2013.852331 <accessed 10 April 2016>l178 Joe Beashel, Review of Crowdfunding Regulation’ (European Crowdfunding Network, October 2013) p.107 http://www.matheson.com/images/uploads/documents/Crowfunding_Regulation_Irish_chapter.PDF <accessed 11 April 2016>179 Ibid

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work they are engaged in comes under existing financial regulatory frameworks180 that are designed for other business models.181

Bibliography

Books:

Jonathan Frutkin, ‘Equity Crowdfunding, Transforming Customers into Loyal Owners’ (1st edn, Cricca Funding LLC, 2013)

Articles/Online Websites:

180 Gerard Ryan, ‘Crowdfunding – An Overview’ (Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014 <accessed 08 April 2016>181 Joe Beashel, Review of Crowdfunding Regulation’ (European Crowdfunding Network, October 2013) p.107 http://www.matheson.com/images/uploads/documents/Crowfunding_Regulation_Irish_chapter.PDF <accessed 11 April 2016>

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Paul Belleflamme, Thomas Lambert and Armin Schwienbacher, ‘Crowdfunding: Tapping the right crowd’ (Journal of Business Venturing: entrepreneurship, entrepreneurial finance, innovation and regional development, Vol. 29, no. 5, (2014) 585-609

Eden Burkett, ‘A Crowdfunding Exemption? Online Investment Crowdfunding and U.S Securities Regulation’ (13 Tenn. J. Bus. L. 63 (2011) http://trace.tennessee.edu/transactions/vol13/iss1/4

Aarti Shahani, ‘When a Kickstarter campaign fails, does anyone get the money back?’ (NPR, 3rd September 2012) http://www.npr.org/sections/alltechconsidered/2012/09/03/160505449/when-a-kickstarter-campaign-fails-does-anyone-get-their-money-back

Gerard Ryan, ‘Crowdfunding – An Overview’(Eversheds.com, 1st August 2014) http://www.eversheds.com/global/en/what/publications/shownews.page?News=en/ireland/crowdfunding-an-overview-august-2014

U.S Securities and exchange Commission ‘SEC Adopts Rules to Permit Crowdfunding’ (Sec.Gov, November 2015) https://www.sec.gov/news/pressrelease/2015-249.html

Dillon Eustace, A Guide to Qualifying Investor Funds in Ireland’ (October 2010) 3 http://www.dilloneustace.ie/download/1/A%20Guide%20to%20Qualifying%20Investor%20Funds%20in%20Ireland.pdf

Kickstarter, ‘A Brief History of Kickstarter’ (Kickstarter.com) https://www.kickstarter.com/stories/fiveyears

Fiona Reddan, ‘What you need to know before you take the plunge with Kickstarter crowdfunding’ (The Irish Times, 27 October 2014) http://www.irishtimes.com/business/what-you-need-to-know-before-you-take-plunge-with-kickstarter-crowdfunding-1.1975995

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Independent.ie, ‘Crowd-funding companies in Ireland' (Independent.ie, 14 July 2013) http://www.independent.ie/lifestyle/crowdfunding-companies-in-ireland-29417104.html

Fund It, ‘About Fund It’ (Fundit.ie, 2016) http://fundit.ie/info/about/

Kickstarter, Terms of Use (Kickstarter.com, October 19 2014) https://www.kickstarter.com/terms-of-use

WSBI-ESBG, ‘The Crowdfunding Phenomenon and Opportunities for Banks’ (Savings-Banks.com) http://www.savings-banks.com/experience/Pages/Crowd-funding.aspx

Jason Pope, A review of the regulatory regime for crowdfunding and the promotion of non-readily realisable securities by other media) (Financial Conduct Authority, February 2015) https://www.fca.org.uk/static/documents/crowdfunding-review.pdf

Herbert Smith, ‘A legal guide to investing in the UK for foreign investors’ (4th edn, Herbert Smith, July 2012) 3 http://www.herbertsmithfreehills.com/-/media/HS/L050712154578912171416219.pdf

Claire Lord and Conall Geraghty, ‘Crowdfunding Creativity’ (Mason Hayes & Curran- MHC Times Autumn 2014) http://www.mhc.ie/uploads/00123_-_MHC_CrowdFund.pdf

Louis Bedigian, ‘Coke, Microsoft and 3 Other Big Companies That Have Used Crowdfunding’ benzinga.com, August 25 2014) http://www.benzinga.com/general/crowdsourcing/14/08/4802231/coke-microsoft-and-3-other-big-companies-that-have-used-crowdfun

Louis Bedigian, ‘How Crowdfunding Will Change Wall Street’ (benzinga.com, January 22 2014) http://www.benzinga.com/general/entrepreneurship/14/01/4243441/how-crowdfunding-will-change-wall-street

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

Alison Partridge, ‘Crowdfunding City Futures?’ (URBACT, 01 July 2015) http://urbact.eu/crowdfunding-city-futures

Michael Howes ‘Anyone for crowdfunding? (Tayabali Tomlin, 13 December 2013) http://www.tayabalitomlin.com/anyone-crowdfunding/

Chance Barnett, ‘SEC Approves Title III of JOBS Act, Equity Crowdfunding with Non-Accrediteds’ (Forbes Entrepeneurs, October 30 2015) http://www.forbes.com/sites/chancebarnett/2015/10/30/sec-approves-title-iii-of-jobs-act-equity-crowdfunding-with-non-accredited/#29dee7886535

Investopedia ‘Definition of Non-Accredited Investor’ http://www.investopedia.com/terms/n/nonaccreditedinvestor.asp

Doug Monro, Crowdfunding vs VC Money – an entrepreneur’s perspective’ (TheNextWeb.com, August 2015) http://thenextweb.com/insider/2015/07/31/crowdfunding-vs-vc-money-an-entrepreneurs-perspective/#gref

Joe Beashel, Review of Crowdfunding Regulation’ (European Crowdfunding Network, October 2013) p.105 http://www.matheson.com/images/uploads/documents/Crowfunding_Regulation_Irish_chapter.PDF

Gary A Gabison, ‘Understanding Crowdfunding and its Regulations’ (European Commission JRC Science and Policy Report 2015) p. 23 http://publications.jrc.ec.europa.eu/repository/bitstream/JRC92482/lbna26992enn.pdf

Financial Conduct Authority, ‘Factsheet – Investment advisers’ (FCA.org.uk) https://www.fca.org.uk/static/documents/factsheets/fs025-passporting.pdf

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

Business Dictionary, Venture Capital Definition http://www.businessdictionary.com/definition/venture-capital.html

BBC News, The Statue of Liberty and America’s crowdfunding pioneer’ (BBC.com, 25 April 2013) http://www.bbc.com/news/magazine-21932675

Pebble Technology, ‘Pebble Time – Awesome Smartwatch, No Compromises’ (Kickstarter.com December 15 2015) https://www.kickstarter.com/projects/597507018/pebble-time-awesome-smartwatch-no-compromises

Cianan Brennan, ‘Waterford woman and her 39 dogs fighting eviction with crowdfunding campaign’ (The Journal.ie, February 24th 2016) http://www.thejournal.ie/gofundme-waterford-dogs-2620625-Feb2016/?utm_source=shortlink

Sandra A Hennessy, ‘Sandra’s Dog Rescue’ (GoFundMe, February 11 2016) https://www.gofundme.com/nuva3cp8

Mónika Kuti – Gábor Madarász, ‘Crowdfunding’ (Public Finance Quarterly, March 2014) p363 https://www.asz.hu/storage/files/files/public-finance-quarterly-articles/2014/a_kutim_madaraszg_2014_3.pdf?download=true

Richard Harrison, ‘Crowdfunding and the revitalisation of the early stage risk capital market: catalyst or chimera?’ (Venture Capital – An International Journal of Entrepreneurial Finance 2013, Volume 14, Number 4, Routledge Taylor & Francis Group, 12 November 2013) pp.283-287 http://www.tandfonline.com/doi/pdf/10.1080/13691066.2013.852331

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Name: Naomi Ní ShéStudent ID: 12130311Project Title: Crowdfunding: “A potential game changer”Supervisor: Ms. Sinead EatonModule Code: LA4052Word Count: 5,858Date: 21st April 2016

Legislation:

Security Exchange Act 1934 (as amended in 2012 USA)

Securities Act 1933 (as amended in 2012 USA)

Central Bank Act 1971

Statutory Instrument No. 383 of 2009 (‘PSD Regulations’)

European Communities (Payment Services) Regulations 2009

Investment Services Act 1995

Markets in Financial Instruments Directive (MiFID Regulations) 2007

Investment Intermediaries Act 1995

Companies Act 2014

Prospectus (Directive 2003/71/EC) Regulations 2005 (S.I. No. 324 of 2005)

Jumpstart Our Business Start-ups (JOBS) Act (USA)

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