This article discusses the different issues/pitfalls that companies and investors should look out for when engaging in crowdfunding. It lists seven potential problems which are: trust; choosing the right platform; realistic targets and deadlines; building interest; fulfillment; copyright issues; and, managing compliance and accounting issues. I found this article interesting because it mixes issues that are clearly directed to the start-up like building interest, copyright issues, and accounting issues, with issues that are more relevant to investors like trust (i.e. doing your homework on the company), and making sure there are realistic targets and deadlines. This raises the question of whether you feel it more the company’s job to make sure everything is on the up and up, or whether it’s more of the investors jobs to do their research and if they lose money on a scam that’s their own fault.
Ideally, I would like to say it is on the companies to ensure that the crowdfunding is on the up and up. They are the ones asking for the money and don’t have as much to lose. However, practically speaking, I think the investors are the ones that have to stay vigilant to potential scams out there. They should be trained to look out for themselves in case no one else is.
Very interesting article, and a helpful overview of the challenges that come along with Crowdfunding. For the sake of a two-sided debate, below is the link to an article that discusses some of the benefits that come along with Crowdfunding, focusing on tax benefits that are available under certain conditions. I liked this piece since it gets into some specifics of how precisely Crowdfunding can lead to tax benefits.
http://www.crainscleveland.com/article/20180317/blogs05/155141/tax-tips-crowdfunding-provides-tax-benefits-addition-investment
Admittedly, I am a sucker for crowdfunding campaigns – even though none have worked out successfully for me (yet). To me, crowdfunding is like an infomercial and an investment pitch all wrapped up into one. They offer the excitement of a new and innovative product as well as the chance to help a new company. In 2013 I backed one campaign for loafer liners that would allow you to wear loafers without socks that ended being garbage, I backed a wireless meat thermometer in December of 2015 that I have still yet to receive, and just a few weeks ago I backed a wireless charging pad for Apple products. Only time will tell if the charging pad ends up being a dud too. At first, I was befuddled by the lack of responsiveness, missed targets, and poor quality of the finished product. However, as crowdfunding has become more mainstream, and infamous examples of failed products (I’m looking at you “coolest cooler”) have gotten widespread media attention, I think the knowledge burden has shifted. As consumers have become better educated about the potential pitfalls behind crowdfunding, I think they have impliedly adopted a share of the responsibility behind these campaigns. At its core I guess this gets to the question of who is a reasonable consumer and what can we expect from them? In Trademarks law, the standard for initial interest confusion has been labeled as “a reasonable consumer accustomed to shopping online.” Maybe this is a good definition for who the target customer is here, but perhaps it is too restrictive given the unique funding model.