Crowd Funding Information and its tax accounting update for a corporation doing business in the USA
Why Crowd Funding
There are a few main reasons for using crowd funding instead of traditional means of raising capital as follows.
(1) Accessibility
The crowd funding has the appeal of a direct investment, particularly one that is relatively seamless online because the public is very comfortable with electronic platforms for commerce, shopping, and investing its costs are relatively low while financial institutions were not good at evaluating risk for technology innovation or creative ventures, making traditional access to capital more tightened and more difficult.
(2) Community
By building a community around a venture or an idea, entrepreneurs and business owners immediately connect with customers, clients, and supporters. Such connection is invaluable to entities as they grow and evolve. And the community serves as a venue for market research as well, not only for minimally viable products, but also for testing new ideas, gauging enthusiasm, and soliciting feedback. Furthermore, investors—particularly younger ones—crave a connection with the companies they support, and crowd funding is a way to connect these early adopters more closely with a company's brand. Financial institutions have relatively poor relations with the public.
(3) Return
Those with funds in savings accounts may be looking for slightly better returns on their cash, while minimizing risk through pooled (or crowd-based) investments while Interest rates on savings accounts of a financial institution are very low (close to zero).
(4) Diversity
Not only is there diversity in investment options, but crowd funding investors appreciate the inherent diversity these investments provide to their overall portfolios.
(5) Regulation
The Jumpstart Our Business Startups (or JOBS) Act of 2012 by Obama Administration and subsequent regulations facilitates startups and small businesses funding through the crowd funding, which contributes to startups and small and medium sized business ecosystem, and represents a disruption in the environment that will change some aspects of the industry.
Crowd funding comparison
Category
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Equity crowd funding
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Debt crowd funding
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Contribution crowd funding
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Definition
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Investors exchange cash for a share of future profits in the company (equity).
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When investors exchange cash for debt, this is often called microlending. Microlending is "a form of financing that provides [relatively] small amounts of money to entrepreneurs.”
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Members of the public in contribution crowd funding make a contribution (gift) to something they find compelling in exchange for a small token of gratitude.
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Funding scale
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$662 million in the first quarter of 2015 and $483 million in the fourth quarter of 2014
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As of March 15, 2016, 1,394,336 lenders have loaned $827,356,850 through Kiva with a 97.1% repayment rate.
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9.3 million people, $1.9 billion pledge, and 91,000 projects since 2009 for Kickstarter
Monthly 15 million people visit in its site from 224 countries for Indiegogo
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Platform
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Grow Venture Community, MicroVentures, Angel List, CircleUp, Alpha Works, Founders, and Seed Invest, Quirky, Crowdrise, Rock the Post, Fundable, Early Shares, Razoo, Sprigster (for veterans), Empasis (for journalism projects), Microryza (for science projects), TuneFund (for music projects), FundOurPark (for parks), SportyFunder (for sports projects), etc.
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Kiva, Prosper, Endurance Lending Network, etc.
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Kickstarter, Indiegogo, Rocket Hub, GoFundme (commonly for medical expenses, funerals, memorials or educational endeavor), etc.
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Accounting treatment
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The cash raised from equity crowd funding investors is recorded as equity, and fee to host platform is booked as investment expense.
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The cash raised from debt crowd funding investors is recorded as payable, fee to host platform is booked as investment expense, and the debt’s interest is recorded as interest expense.
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Contributions are recorded as unearned income until token are distributed to contributors.
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Tax treatment
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Investment expenses are generally deductible.
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Investment and interest expenses are generally deductible.
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Incomes including unearned income are taxable and ordinary and necessary business expenses are generally deductible.
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※ Note: there may be subtle differences among the crowd-funding platforms, including fees (who is charged and how much), timing (how long a campaign will remain open), and type (an all-or-nothing funding model versus an anything-goes model).
Funding reference
Type
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Platform
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Description
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Contribution crowd funding
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Kickstarter
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Zach Danger Brown raised $55,492 from 6,911 people to make potato salad during the summer of 2014. Tokens of gratitude ranged from a thank-you message posted to Brown’s website to a copy of his recipe book.
Source: ttps://www.kickstarter.com/projects/zackdangerbrown/potato-salad
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Contribution crowd funding
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Indiegogo
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Stone Groundbreaking Collaborations California raised $2,532,180 from 13,977 people to produce rare craft brews from Stone Brewing Co during the summer of 2014. Perks raged from one 1.5-liter bottle of beer to an invitation to pre-opening party
Source: https://www.indiegogo.com/projects/stone-groundbreaking-collaborations--2#/
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Contribution crowd funding
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GoFunMe
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One family raised $101,350 from 922 people in 23 months to repair their home and cars, which were severely damaged by the storm in Colorado during 2013.
Source: https://www.gofundme.com/McCroskey-Family-Fund
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Contribution crowd funding
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Kickstarter
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A total of 91,585 backers pledged $5,702,153 to support to revive the cancelled TV show, the Veronica Mars. Contributors received movie swage, tickets to advance screenings, copies of the DVD, and even a walk-on role in the movie in exchange for contributions.
Source: https://www.kickstarter.com/projects/559914737/the-veronica-mars-movie-project
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Contribution crowd funding
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Kickstarter
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About 24,833 people pledged $1,192,793 to support the next album of artist Amanda Palmer whose record label was disappointed with the low sales figures on the previous album of her.
Source: https://www.kickstarter.com/projects/amandapalmer/amanda-palmer-the-new-record-art-book-and-tour
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[Attention] Crowd Funding Platform may require your SSN or ITIN during the process of opening the Crowd Funding Platform account or even after the Crowd Funding Platform account is delivered.
Source: Becker, Kickstarter, Indiegogo, GoFunMe, etc.
The following tax information is for your reference, and is not legally binding.
[미국법인] 미국진출기업을 위한 크라우드펀딩(Crowd Funding) 정보와 세무회계 업데이트
왜 크라우드펀딩(Crowd Funding) 인가
자본증식을 위한 전통적인 방식 대신 크라우드펀딩을 활용하는 주된 이유는 아래와 같이 몇가지 있습니다.
(1) 접근성
금융기관들은 기술혁신과 크리에이티브한 벤처의 위험 평가에 능숙하지 못하며 그에 따라 전통적인 자본증식은 더 힘들고 어려워진 반면 대중들은 이미 상대적으로 비용이 낮은 전자방식의 교역, 쇼핑, 투자에 매우 익숙하기 때문에 온라인상 별어려움없이 직접투자를 할 수 있는 크라우드펀딩에 큰 매력을 느끼게 되었습니다.
(2) 커뮤니티
벤처와 아이디어의 커뮤니티를 형성함므로써, 기업가들과 사업주들은 즉시 고객과 지지자들을 접촉할 수 있습니다. 그런 연결성은 사업이 확장함에 있어서 중요한 부분입니다. 또한 커뮤니티는 시제품뿐만 아니라 새로운 아이디어 시험, 반응 측정, 피드백 권유등의 시장조사 장소로써도 사용할 수 있습니다. 더욱이 투자자들 특히 젊은 투자자들은 본인들이 지지하는 회사와 연결성을 가지는 것을 선망하고 크라우드펀딩은 이런 얼리어답터(early adopter)를 회사의 브랜드와 더 친밀하게 연결시켜줄 수 있도록 해줍니다.
(3) 수익성
금융기관 저축계좌의 이자율이 ‘0’에 가까울 정도로 매우 낮아 수익성이 거의 없는 반면 공동출자 또는 크라우드(Crowd)기반의 투자를 통해서 위험을 최소화하면서 더 나은 수익성을 기대할 수 있습니다.
(4) 다양성
크라우드펀딩 투자는 투자선택의 다양성이 있을 뿐만 아니라 전반적인 포트폴리오에 고유한 다양성의 가치를 높여 줍니다.
(5) 규정
오바마정부의 The Jumpstart Our Business Startups (or JOBS) Act of 2012와 그 후속 규정들은 크라우드펀딩을 통해서 스타트업과 소규모 비즈니스 펀딩을 활성화해왔습니다. 이런 활동들은 스타트업과중소기업 비즈니스 생태계에 기여하고 몇몇 산업의 구조를 바꾸며 산업 환경들을 변화시켜왔습니다.
크라우드펀딩 비교
※ 주의: 수수료(누가, 얼마나), 타이밍(얼마나 오래 캠페인이 진행되는지), 유형(프로젝트 완성기준모델VS 진행기준모델)등과 같은 부분에서 크라우드 플랫폼마다 미묘한 차이점이 있을 수 있습니다.
펀딩사례
[주의] 크라우드펀딩플랫폼은 크라우드펀딩플랫폼 계정을 개설하는 과정에서 또는 크라우드펀딩플랫폼 계정이 개설 완료된 이후라도 SSN 또는 ITIN의 제출을 요구할 수 있습니다.
출처: Becker, Kickstarter, Indiegogo, GoFunMe, etc.
이 자료는 참고자료이며 법적으로 효력이 없습니다.
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