Wednesday, October 10, 2012

Are You Waffling About Crowd Funding Internet Sites?

Last weekend, at the wedding of a law school classmate, I received a box of pre-packaged, gluten-free, vegan waffle mix as the wedding favor.  A little odd, I thought…until I learned that the product was developed and produced by the groom!  Quite intrigued, I set about learning from the other wedding guests how the groom funded and developed the product.  As it turns out, he obtained funding using Kickstarter.

I had already heard of Kickstarter through the Internet and media, but did not know much about how it actually worked.  Kickstarter is one of several Internet sites that allows for “crowd funding.”  On Kickstarter, there are “Project Creators” who seek to raise money to fund their projects, and “Project Backers” who pledge money to the Creators in support of their projects. 

The concept of crowd funding is still relatively new, and the legal implications and regulations related to this activity are evolving.  The lawyer in me could not help but ask questions – questions that anyone interested in using Kickstarter or any similar crowd funding site should consider:

  • What are the tax consequences for a Creator that receives funding through this platform? 
  • Is a Backer protected from Creator fraud or misrepresentations?
  • Is there any recourse for a Backer when a Creator does not follow-through with its project, despite reaching its funding goal?
  • What kind of copyright and trademark considerations should a Creator investigate before launching a project?

Although crowd funding Internet sites like Kickstarter open the door for average people to support or obtain funding for interesting projects, users should still investigate the terms of use, limits of liability, or other fine print from the sites themselves.  Further, users may wish to consult with attorneys and tax professionals about the potential risks and benefits of utilizing these sites to determine if it is the best choice for them.

As for me, until I come up with a creative project idea, I am just going to sit back and enjoy the waffles.