Being called a financial institution "makes our legal folks scream," says Beth Kuenstler, vice president of marketing and communications at Kiva. "Kiva is a nonprofit organization."
Josh Tetrick, founder of the crowdfunding site 33Needs.com, says he gets around securities laws-which he says he researched exhaustingly-because people who go through his site buy into the right to receive a percentage of revenue for a period of time.
That is technically different than equity or debt ownership in a corporate entity. Donorschoice, Kickstarter, RockHub and other crowdfunders rub up against the same regulatory parsing of words and definitions.
To be sure, these definitions aren't as vague as trying to define what "is" is. But it's still an issue to be addressed, especially for investors and financial advisors who have allocated funds to these organizations.
Many see value in these investor matching services. There are all kinds, from technology to those that specialize in specific local businesses. But the matching services that gain the most attention are the socially responsible ones. These are essentially micro-lenders for small, social enterprises in the developing world. And they handle millions of dollars in what may be deemed entry level impact investing: seeking profit as well as social return.
For U.S.-based enterprises, Congressman Patrick McHenry (R-NC) has been vocal about passing crowdfunding legislation and has written The Entrepreneur Access to Capital Act. The act, H.R. 2930, provides a crowdfunding exemption to SEC registration requirements for firms raising up to $2 million, with individual investments limited to $10,000 or 10% of an investor's income.
The legislation also erases limits on the number of investors who can participate in crowdfunding. McHenry says crowdfunding allows everyday investors the opportunity to support intriguing startups and small businesses, providing much-needed capital for economic growth and job creation.
Crowdfunding is all well and good when things run smoothly. But like with any crowd, investors should know where the exits are.