Crowd-Fund Sites Eye Boom

Source: Wall Street Journal
Date: 5/12/2011
Author: Angus Loten

With regulators considering easing fund-raising rules for start-ups, social-networking sites that link entrepreneurs to large pools of donors are gearing up for a boom.

The sites—which facilitate “crowd-funding”—have taken off in the past few years. Small businesses pitch ideas to people in a site’s online network, who decide whether to donate. The sites typically make money by charging the small business a fee.

Until now, U.S. regulations permitted these sites only to facilitate donations—not purchases of equity stakes. The Securities and Exchange Commission now is reviewing those rules, and many crowd-funding sites are pushing to axe the stake ban.

The sites hope that the incentive of an equity stake will draw more donors, prompting a surge in business for the companies that run the sites.

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