Skip to comments."Kickstarter" online investment system--legal ramifications?
Posted on 03/09/2013 7:59:28 AM PST by Mamzelle
Have been watching young people i know "invest" small amounts usually to design video games...what in the world is this? The potential for trouble and fraud seem enormous. Iit istough trying to keep young people out of Internet trouble these days. I'm as concerned for those who seek this capital as for those who "invest"--
you should see this as a way that start ups get around BANKS and the constant crap of silicon valley investors. Kickstarter has been a big deal for several years. Due dilegence is always a key in investing.
Microloans have been around for a while. This is geared towards different customers and different investors. As with any investment risk is involved and investors should take that into consideration if contemplating pitching in $20 on a microloan.
Characterizing it as an investment is false; you have a promise of some reward for your donation, but no security in the company. You have no control over how that money is spent, or voting rights in determining course of action. You will get nothing from your donation without positive and sincere effort by those you are donating to.
How Kickstarter has survived is a careful eye by donors as to the realistic nature of the proposed project, the record of success (or failure) of previous ventures, and a self policing by Kickstarter staff to ensure that fraudulent activities are kept to a minimum.
I've donated to a few Kickstarter campaigns, knowing full well that the money was gone, and it was quite likely that any promised return or premium was a bonus if it actually came to be.
Kickstarter is not an investment system. Nor is it a loan system.
Surf the site.
Basically, people post their ideas and inventions. They solicate funding and promise something in return, besides repayment. For products, this is usually some of the products. Sometimes the lowest donation only gets you “satisfaction of knowing you helped.”
It is called crowd sourcing and I think it is a phenomenal tool for entrepreneurs to get a feel for the market before they invest time and money.
I believe I have read that kickstarter cannot be an investment because it would be illegal.....
KickStarter has been around for a while, allowing people to seek donations for their project. Most of the projects (until now) have been either artistic/cultural (films, music, etc.) or humanitarian (I need money for surgery). The law was that the individual could not provide anything of value in return.
About 18 months ago BHO signed the JOBS act (yes, right after Steve Jobs passed) allowing what has come to be known as Crowdfunding. The SEC is still working through the regulatory aspects, but Companies will be able to offer equity and raise up to $1MM (I think this is the amount) from individuals in small amounts (I think $1000 is the maximum “investment.”).
What has happened is that these companies have become places where startups can pre-sell their products in order to get the money necessary to complete their product and go into production. The biggest deal so far has been the Pebble Watch. They raised over $10M in pre-orders and are just starting to fulfill them, seven months late. Another big success has been Jane Jensen, the game developer, who pre-sold enough games to pay for the creation of the game.
Interesting idea, but due diligence is the key.
It’s a good idea to allow small startups to find funding, to get started. Unfortunately, it will be stomped out quickly by the SEC and financial lobby before it can really take a hold. Can’t have a bunch of “uppity” upstarts challenge the status quo, can we?
BTW, assuming this was correct, it bugs me that there is some "law" that governs whether I can ask people for money for something, and whether I can then offer them something of value if things work out for me.
My kid is running a Kickstarter campaign this very second. He is about half way to the goal. He wants to make a movie. Most of the investors are friends of his who believe in him.
As others have said - it is a donation system. He has rewards for different levels of contribution. You get your name on the credits for so much. You get an appearance in the film for so much, you get a DVD for so much, you get to come to the cast party (at my house -how did THAT happen?) for so much of a donation.
This is a project he’s wanted to do since he was a freshman in high-school. He is now a college sophomore and much more sophisticated and realistic about the project.
It has a budget - and all of the intellectual contributors are doing it without a salary.
This is one type of typical kickstarter campaign. There are others that are trying to get businesses going. Good example are 3D printer designs, etc.
Anyway - yes it is a possible avenue for fraud, and it really isn’t a replacement for Wall Street, Venture Capital, etc because the return is usually the equivalent of buying a product or some such with the reality that it may not occur. It is a total crapshoot as to whether projects succeed or not.
Many of the projects have a lot in common with open source in that the technical contributors are doing it out of a passion for the subject. There are others who are trying to start a company, and the main payback to the donations might be a copy of the project. Depends on the project.
There are millionaires on this place, by the way, who are seeking start up funding.--One percenters. So they are getting gifts for their next enterprise from the 99%. And there is no quid pro quo, though I see celebrity style privileges are offered for a different size donations.
good for you son - this is how people learn to fulfill dreams and he is learning a lesson. More will come as he finishes the project. Maybe something he learns will lead to a career.
Well - this is already his chosen career. He has done one other project of near the same size, his Eagle Scout project. I suspect a great deal of what he is doing right now is a direct result of lessons learned from scouting ;-)