Crowdfunding – How Crowds Are Funding Ideas Reply

Crowdfunding has taken off with websites like Kickstarter which allow entrepreneurs, inventors and creators to pitch their innovative ideas to potential funders/investors to raise start-up money for their projects. Kickstarter is an example of REWARD based crowdfunding which offers a reward to investors for their financial sponsorship. While reward crowdfunding may be the most well known and popular type of crowdfunding… another type of crowdfunding is EQUITY crowdfunding. As the name suggests, equity crowdfunding gives investors equity in the business being funded instead of a reward.

Here are a few noteworthy points on crowdfunding:

  • The two types of crowdfunding are regulated differently because giving a reward verses a security or equitable interest invokes different laws and regulations.
  • Some of the popular reward crowdfunding websites are: http://www.kickstarter.com, http://www.indiegogo.com, http://artistshare.com/v4, http://www.quirky.com/
  • Each reward funding website operates differently. For example, the fees charged by the sites (generally in the range of 4%-9% of the money raised) as well as the sites policies for what happens to pledged contributions if the target goal isn’t met… vary website by website.
  • Once an idea is posted to a crowdfunding website… it CAN be copied! (You must protect your Intellectual Property!)!!
  • A few of the most funded reward crowdfunding projects earned over $1-$2 million dollars (the projects were for: a video game headset, an LED light bulb controlled with a smart phone and a 3D printer).
  • Reward crowdfunding websites do not necessarily regulate fulfillment of the promised rewards. (In Quest v. Singh, the entrepreneur who wasn’t able to deliver promised rewards was sued by a funder and ended up going bankrupt).
  • It can be argued that equity crowdfunding over regulates initial offerings by requiring a licensed intermediary, limiting the capitol raised to $1million a year, and placing significant burdens on the intermediary and issuers. (Title 3 of the JOBS ACT).
  • SEEDERS (http://www.seedrs.com/ based in the UK) is the first equity crowdfunding platform to be granted regulatory approval anywhere in the world.

This post is dedicated to my dear departed colleague and mentor, D. Caplan, who was an incredibly entrepreneurial attorney with his eye on the development of crowdfunding.

See also: JOBS ACT: http://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf; JOBS ACT Q&A http://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htm; Proposed Amendments to the Prohibition Against General Solicitation and Advertising in Rule 506 and Rule 144A Offerings: http://www.sec.gov/rules/proposed/2012/33-9354.pdf; CROWDFUND ACT: http://www.opencongress.org/bill/112-s2190/show; http://money.cnn.com/galleries/2012/technology/1204/gallery.crowdfunding-startups/index.html; Medstartr – a health and medical focused crowdfunding platform: http://wp.me/p10nNq-mN; @iplegalfreebies and www.kasterlegal.com.

BY: Vanessa Kaster, Esq., LL.M.

For personalized legal services you are welcome to contact me at vk@kasterlegal.com

 

MedStartr launches: a health and medical focused crowdfunding platform Reply

The launch of MedStartr aims to fill a gap in the crowdfunding services provided by Kickstarter.com by providing a crowdfunding platform for health and medical-focused projects, products and interventions. The MedStartr platform enables project makers to run customized, fundraising campaigns to raise money from backers for the purpose of funding healthcare related projects. (Currently, the popular Kickstarter crowdfunding service is not available to many health, fitness and medical related projects).

One of the current MedStartr campaigns is for: Avado’s “GPS for Healthcare” which pitches a novel patient-relationship-management-system. With a fundraising goal of $5,000, all levels of contributions are solicited… starting with a $1 contribution to show support for a “tidal wave of innovation.” Take a look: (http://www.medstartr.com/projects/13-avado-patient-relationship-management)

On the MedStartr website, health care forward thinkers including, “patients, entrepreneurs, physicians, researchers, non-profits, artists, filmmakers, musicians, designers, writers, performers, and others” are encouraged to submit projects that could include:

  • New medical devices
  • Killer apps for healthy living
  • Opening a clinic or practice
  • Drug development (if you have a new drug in stage IV clinical trials)
  • Fundraising for research
  • See the complete list of examples at http://beta.medstartr.com/faq

Evidently, MedStartr vets each crowdfunding application and works with applicants to shape their products and projects for optimal success. In return, MedStartr plans to keep 5% of funds raised on the platform. Currently, the amount of capital projects can raise on MedStartr is limited to $40,000.

The inspiration behind MedStartr’s launch came in part by rejection (Alex Fair who founded MedStartr had a healthtech campaign rejected by Kickstarter) and in part by the JOBS Act which legalized funding in start-ups by non-accredited investors. The SEC is still ironing out the specifics of the crowdfunding regulations. As with all medical businesses, the FDA and other regulations provide specific measures and restrictions on health businesses.

See also: http://www.medstartr.com/;http://twitter.com/medstartr; http://www.xconomy.com/new-york/2012/07/11/medstartr-offers-crowdfunding-for-health-it-firms-including-itself/; http://techcrunch.com/2012/07/11/medstartr-launch/; http://www.medstartr.com/terms; http://mobihealthnews.com/17841/medstartr-to-launch-after-kickstarter-rejects-some-health-projects/; @iplegalfreebies and www.kasterlegal.com.

BY: Vanessa Kaster, Esq., LL.M.

For personalized legal services you are welcome to contact me at vk@kasterlegal.com

 

Funding can make or break a new project – check out Kickstarter.com for creative ways to fund your ideas. 1

Money is often a critical component for launching a creative project.  Money is the real world component for making ideas happen.   All too often securing funds or backers to launch a creative project comes with strings attached, including signing over a large portion of the rights in your work for cash up front.  For example, when a musician signs with a record company, the record company puts up money to create an album, but the signing musician rarely has the bargaining power to negotiate the contract terms and consequently the musician often sign over a large bundle of rights in their music.

On the other hand, securing other sources of backing to launch a creative project can be overwhelming.  However, this is where Kickstarter.com comes to the rescue.  Kickstarter.com has developed a creative and flexible platform for soliciting funding for creative projects (via reward based crowdfunding).  On Kickstarter.com it is possible to launch a campaign to raise pledges to fund your creative project.  Eligible projects include: music, art, film, food, publishing, design, and technology projects.  Part of funding a creative project via Kickstarter.com involves setting a fund-raising goal, sharing a bit about your project, and establishing pledge amounts (starting at $1) and corresponding pledge rewards.  Establishing pledge amounts and rewards is a fun part of the Kickstarter.com process.  For example, for all $20 pledges the donor gets a signed copy of your CD.  For $10 more, you can include a digital download of a bonus track or the score of one song on the album.  For higher pledges of $200 or more… VIP show tickets or a personal music lesson can be included.

Kickstarter.com is a fun way to build momentum, launch a creative project, involve your fans and secure funding up front.

—> http://www.kickstarter.com/start