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Kickstarter is a great way to crowdsource investment money for you small business. That is, until your Kickstarter fails.
Here is a legal look at your funding options, obligations to investors, and your promise to deliver when your Kickstarter project fails to live up to your dreams:
Didn't Reach Kickstarter Goal? Don't Lose Hope
Since Kickstarter began in 2009, it has successfully funded a wide variety of business ventures, from a man's dream to have a desktop jellyfish tank to Zach Braff's latest movie. But it has seen its fair share of failures as well.
When a Kickstarter venture fails to meet its target goal, none of the pledged money is released to the business that worked so hard to advertise its project.
Kickstarter's official blog offers some hope for failed ventures, noting that the publicity alone from a well thought-out project with some online momentum can draw the eyes (and wallets) of private investors.
Remember What You Owe Your Investors
Kickstarter investors are still investors, and if you've collected enough pledges to fund your project goal, your investors will have some rights concerning your future business.
Keeping you from taking that sweet crowdfunding and blowing it on non-business expenses, a Kickstarter investor has the right to a full and accurate accounting of your business' financial records.
Failure aside, you'll also owe your investors any products or goodies that you explicitly promised them, even if they are woefully late.
Be Aware of Crowdfunding Regulation
Kickstarters that fail should also be aware of the slight holdup in regulation by the Securities and Exchange Commission (SEC) of crowdfunding sites like Kickstarter, which could affect rules for non-paying investors and non-delivering projects.
The Jumpstart Our Business Startups Act (JOBS Act) was passed in 2012, but the SEC has still been dragging its heels on creating rules for taking money from non-accredited investors, reports The Washington Post.
Kickstarter, IndieGoGo, and many more crowdfunding portals will be affected by future SEC regulation, and it may turn many failed Kickstarter ventures around.
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