In 2012, SmartThings raised 1.2mill dollars (their goal was $250k) to launch themselves. Today, it’s been announced that Samsung is buying them, probably for around $200mill. There is also mention of $15.5mill in venture capital that was raised.
So, I’m assuming the founders, the venture capitalist and a few others are going to pocket a nice bankroll from Samsung. I know there is no legal requirement to owe anything to the 5700 Kickstarter backers. But should there be? Would you feel a debt to these people that saw your vision, and gave it a start? Or is it all a case of “Thanks for the boost, I’m off to count my cash”?
For half a percent of the selling price, they could give their backers their money back and effectively make the Kickstarter rewards free gifts for their help getting SmartThings off the ground. If it was me, I’d like to think I’d do that.
The whole point to kickstarter is allow people to set up their own terms for fundraising.
I see nothing wrong with a company offering a kickstarter set up to give you shares in the company (if the rules allow it), but at the same time, if they are kickstarting their company by selling prototypes or swag or promising early access, then if they provide that to you, they’ve met their obligation and owe you nothing. That’s how it should be.
The bigger scandal was kickstarters that provided nothing but a high quality 3D rendering of their ‘product’ and had no ability to produce it, even if they intended to. But Kickstarter changed the rules to prevent that. Again, as it should be. It’s their marketplace.
Kickstarter specifically doesn’t allow you to sell shares in you company, because then the government gets involved and you need to comply with more rules and etc. etc. I guess that the SEC is looking at changing the rules and there are some crowdsourcing sites now that are trying to go the investment route. We’ll see if that’s viable.
But yeah, if you want to invest in a company, then invest in that company. If you want to pay more for a t-shirt than you normally would because you like what the company is doing, then use kickstarter. You’re essentially a customer buying a product. Maybe I bought a Mac when apple was in its infancy, and helped give them the revenue stream to grow to what they are today. Do I have a right to their profits now because I was a customer at one point? Of course not.
But any company that jumps on Kickstarter is very clearly not selling stock. They are pre-selling a product that they are using the Kickstarter money to produce. If you don’t like that, you shouldn’t back things on Kickstarter.
I think this notion would basically kill the crowdfunding initiatives. Inventors would be less likely to bring a project to Kickstarter if they thought it would put them on the hook for a payout later. Backers would be judging products on their commerciality, not on what sounds cool or unique. Products that failed to deliever a payout would inevitably get sued by backers and even successful products would have to deal with backers wanting to review their financial decisions.
Crowdfunding works because it allows a lot of people to throw a few bucks into a hat regardless of where they are locally. It works for creators because they can pass the hat on ideas without worrying about “will this be a blockbuster” and “can I still pay the rent if I focus on this for a few months?” Crowdfunding is important because it allows non-creative people to feel the satisfaction of knowing that they helped bring something neat into the world.
Crowdfunding is a success because it’s a living example of the power of working together. Turning into an investment scheme would pretty much kill it.
I have thought in the past about using kick starter for some high risk but very cool business concepts. My mentality tells me I have to give an incentive that roughly matches the risk. The reality is most investers are just looking to help with a kick start. I can’t find anything about it that is not noble. I suppose giving investers an inside look at the progress of a company would put them in a position to make a better informed quick decision about investing once the company has gotten to a point that it is making a public stock offering.
To answer the OP, no, a successful company that started off by selling stuff via Kickstarter does not owe their backers anything other than what was initially promised. But aren’t corporations or anything you invest and expect a return on also living examples of the power of working together?
There are a lot of different Kickstarters. Some of them are simply seeking funding for art projects like a play or something and in those situations people who give money are pretty much acting as patrons expecting nothing else in return. In most of the Kickstarters I’ve looked into the promise was a product in exchange for X amount of money. Essentially a pre-ordering system though a lot of people will loudly cry out “Kickstarter isn’t a pre-ordering system.” I have heard a lot of people erroneously describe themselves as Kickstarters when they back something. They’re not.
I kind of think that if more crowdfunded companies get sold for a lot of money, it will lead to people hesitating to invest in crowdfunding. Why should I give them my $100 (with or without an attached “thank you” gift/pre-order), when in two years the founders are going to walk away with $200mill.
It might be in the best interest of startups to add a clause that says something like " If, in the next 3 years, we sell the company for a bucket load of money, we will give each crowdfunding supporter x2 of their donations." or “we will send you a thank you gift of (name something of potential interest)”.
Yes, it would change the dynamics of using crowdfunding, but so what?
Which is not to say that you couldn’t do it that way: the SEC is looking at changing the rules to make it easier to invest in companies, and there are other crowdfunding sites that seem more open to that than kickstarter is.
Because they don’t deserve it. Kickstarter users bought a product and received a product. They didn’t buy a share in a company, and they shouldn’t receive a share in the company.
As has been noted upthread, there are nontrivial legal difficulties with regards to crowdsourced funding of companies. And I really doubt it’s in entrepreneurs best interests to give away their companies for free.
If you want to buy shares in a company, buy shares in the company. Do not buy the products or services of the company, and expect to be handed shares as a free gift.
If you could buy a stake in a company through kickstarter, as others have pointed out that would completely change the legal and regulatory environment. Anybody who is going to pay the regulatory costs associated with offering stock to the public is not going to offer that stock on a site like kickstarter. Why would they?
Yea, I think the virtue of Kickstarter is basically that there aren’t really any promises made to funders other then some sort of good-faith effort will be made to create the product. Even the “awards” for various funding levels are generally understood to be aspirational rather then a contract or even a moral obligation.
I think if people started funding things with the understanding that they’d get a share of the profits down the road, you’re going to end up with a lot more fraud, lawsuits, etc.
But if no one feels entitled to anything, you can’t really defraud them.
I suspect the SEC is going to get more involved in crowdfunding at some point anyway. It will only take a couple of crowdfunded projects that return nothing to their backers.
Not for altruistic or creative reasons, which is what I was talking about (although I wasn’t clear.)
It’s the difference between thinking “I want to help create something” and “I want to own something”. Crowdfunding (and I’m not just talking about Kickstarter) doesn’t confer ownership. It’s an important distinction.
It isn’t - although it can look like that. But the difference between pre-ordering an actual product that is nearing its release date and providing funds for a project that hasn’t even started yet is significant. Anyone who “pre-orders” on Kickstarter is being unrealistic about the chance of receiving anything in return. It’s the equivalent of throwing money in a wishing well.
Yeah. It’s a neologism that seems natural. I’ve done that myself sometimes before I catch myself.
Because if you don’t, there’s no reason to think that anyone will walk away with a single dime, much less the really nifty project that’s caught your imagination? Because encouraging creative people to follow their nifty ideas elevates both the individuals and society at large? Because freeing creators to create - even if a particular creation fails - is how humanity advances? Because limiting creation to the merely profitable is cultural infanticide?
Because when an inventor make an exciting new creation, we should be celebrating his good fortune and his cleverness, delighting in his creativity, enjoying the use of his new device, rather than sulking about how it’s not fair, why should he get rich?
Because who wants to be the crab in the bucket, pulling his compatriots down to their doom rather than boosting them over the edge?
I doubt it but we’ll see if the crowdfunding initiative dies out in a couple years. At the very least, it adds layers of paperwork and bookkeeping to keep track of everyone’s contact information for years. I mean it’s hard enough getting people to return a survey so they can get their stupid t-shirts. Plus you’d inevitably get the pissing and moaning from people who’d want interest, or some percentage of the pie, not just a refund. People who didn’t keep their receipts but totally gave hundreds. People who are pissed because you didn’t hold out for a bigger slice. People who are pissed because the project never took off.
I expect it’s really in everyone’s best interest that the people who think their $10 entitles them to a payday just keep their money and invest it properly. As I said elsewhere, recently, there’s nothing worse than donations (and donators) that come with strings attached.
There’s a hundred other ways for people who want to invest money to do so. Turning crowdfunding into some kind of micro-loan project would be the end of it. I expect someone will try it though. I expect it will fail for lack of interesting projects.
There has been at least one case of this. There was a kickstarter project to make a board game called The Doom That Came To Atlantic City - it was sort of a Monopoly clone with a HP Lovecraft theme.
There are lots of small gaming companies that get started on Kickstarter. They have an idea for a game and if people are interested, they fund the project. The company is able to develop and produce the game and send out copies to the backers. Everyone is happy.
But in this case, there was a problem. One of the people involved in the project was not legit. He apparently just pocketed the money and kept it (he denies this and has essentially said that they tried to produce the game and things happened). The other two guys really had planned on producing a board game so they got just as screwed as the backers did.
The good news is another company stepped in a year or so later. They worked with the other two guys and got the game produced. And then in a very generous move, they sent a copy to all of the people who had backed the original project (even though this company had not received any of the Kickstarter money).
Unregulated shares can generally only be sold to accredited investors* **, so until the company goes public (and the already rich VC people have walked off with the lion’s share of the capital growth) most people can’t (certainly not at crowd-funding prices).
Accredited investor is a legal term. Generally it means someone with a net worth (exclusive of primary residence) of more than $1M or demonstrated earnings of $200K for the prior year (and the expectation of that in the coming year), or (insert a bunch of stuff, like being a licensed broker, etc).
** There are a limited number of exceptions (colloquially known as the “friends and family exclusion”), but many companies are loathe to use these as they are: limited across the entire life of the non-public stock and require extra lots of extra paperwork and must be disclosed to accredited investors (some of whom get scared off by them since it increases the likelihood of shareholder lawsuits when the VC guys muscle everybody else out).
Can you tell that I’m not too fond of VC guys? I was trying to be subtle.