Legal Challenges Related To Crowdfunding, Volume 1. Editor's note: This is a guest post by Antti Hemmilä from Attorneys at law Borenius. While crowdfunding is not a new concept, it is getting a lot of media attention nowadays. Crowdfunding is evolving and new crowdfunding platforms provide an excellent tool for financing different projects, whether these are art projects, game or hardware/device development or even equity financing. Yet the use of these new platforms and practices needs to comply with the existing regulation, which sometimes causes conflict. This first guest blog looks into the legal issues related to using donation/rewards-based crowdfunding platforms mainly from Finnish perspective, and the second blog addresses the use of equity-based crowdfunding platforms. The magic word when considering legality of crowdfunding campaign is consideration.
The above-mentioned pre-order crowdfunding structure is obviously not suitable for all projects. Antti Hemmilä Top image CC licensed by IvanWalsh.com on Flickr. inShare. Le financement participatif peut-il bâtir des villes. Le financement participatif (crowfunding ou « financement par la foule ») est un marché en pleine expansion, expliquait le rapport de Crowdsourcing.org. Les 452 plateformes de financement participatif dénombrées dans le monde en avril 2012 ont récolté 1,1 milliard de dollars de fonds en 2011 pour les projets qu’elles accueillaient – dont plus de la moitié pour des projets hébergés par des plateformes européennes. Comme quoi, le modèle du financement participatif n’est pas un phénomène uniquement lié aux modes de financement anglo-saxons, que l’on dit traditionnellement plus sensibles au mécénat et à la prise de risque que l’Europe.
Peut-être parce qu’en fait ce financement participatif fonctionne plutôt de plus en plus comme un système de prévente que comme un système de prise de risque ? Image : Répartition des 450 plateformes de crowfunding dans le monde selon le rapport de Crowdsourcing. Kickstarter en ses limites Image : page d’accueil du site Kickstarter. L’urbanisme Kickstarter. Crowdfunding video games: Money to play with. Kickstarter n’est pas un magasin – et c’est tant mieux ! À l’origine censé permettre de financer des “projets créatifs”, le crowdfunding est de plus en plus utilisé pour financer le prototypage d’objets. Ce qui n’est pas sans poser des questions sur le véritable business de Kickstarter, qui subit depuis quelques semaines des critiques et a finalement annoncé des modifications de ses règles. Kickstarter, leader du marché aux États-Unis avec près de 100 millions de dollars levés via la plateforme en 2011, regorge de projets ingénieux et créatifs qui n’attendent que les sous des internautes pour aboutir.
Prenez par exemple cette collecte pour ce design de savon ingénieux qui permet de recycler vos vieux savons au bord de la casse en les fusionnant avec un nouveau savon dont la forme est spécialement étudiée. Plus impressionnant encore, le projet LIFX. Ingénieux et créatif n’est-ce pas ? C’est en tout cas l’opinion de plus de 8700 ‘backers‘ [financeurs] qui ont donné en tout 1,3 millions de dollars à LIFX, à l’heure où j’écris ces lignes.
Les jeux vidéo, superstars du "crowdfunding" S'il est un secteur qui bénéficie de l'essor du "crowdfunding" (financement participatif), c'est bien celui des jeux vidéo. Depuis le début de l'année, cette industrie a récolté 50 millions de dollars via la plate-forme américaine Kickstarter, laquelle met en relation des porteurs de projets en quête de financement et des investisseurs, moyennant une commission de 5% sur les fonds levés. Non seulement les jeux vidéo coiffent au poteau le cinéma (42 millions de dollars), les produits de design (40 millions), ou bien encore la musique (25 millions), mais ce secteur n'avait engrangé que 3,6 millions de dollars en 2011!
1 million de dollars levés en 24 heures A l'origine de cet engouement soudain pour le financement des jeux vidéo se trouve un titre: "Double Fine Adventure. " Des émules en France Nombre d'autres éditeurs de jeux vidéo, qui doutaient de l'intérêt de la finance participative, se sont alors engouffrés dans la brèche, sollicitant à leur tour les investisseurs sur Kickstarter. A Cloudy Forecast: Equity Crowdfunding in Europe (Part 1) Equity crowdfunding in Europe has been touted by many organizations, ours included, as evidence that crowdfunding can work in the U.S. Indeed, platforms like Seedrs and Crowdcube have operated there for several years now. The regulatory picture, however, is not quite so rosy, explain Chris Bates and Peter Chapman of London-based Clifford Chance LLP. While some platforms have managed to comply with relevant regulations, European laws remain quite hostile to equity crowdfunding.
Complicating matters is the two-tier system of laws – companies must comply with not only E.U. regulations, but also with their countries’ interpretations of these rules. Anton Root, Crowdsourcing.org: Thank you for joining me. Chris Bates: I’m Chris Bates, partner at Clifford Chance LLP, in our financial regulation practice here [in London]. Let’s start on the ground floor and work our way up. Financial regulation consists of a mixture of E.U. law and national law.
Why do you think that is? Pourquoi la finance participative peine à émerger en France. Entre vide juridique, conservatisme, protectionnisme des autorités monétaires et lobbyisme des acteurs traditionnels… la finance de demain peine à se développer en France… A tel point que les entrepreneurs du secteur unissent leurs forces pour tenter de sensibiliser les décideurs.
Alors que la crise financière continue son bonhomme de chemin et que les perspectives pour l’économie mondiale s’assombrissent, la finance collaborative se développe en France et propose des alternatives aux méthodes financières traditionnelles. Du crédit entre particuliers à l’investissement collectif dans des startups, en passant par le micro-crédit solidaire ou le financement participatif, voici autant d’initiatives qui semblent montrer la voie pour la finance traditionnelle : plus de pouvoir aux citoyens, moins d’intermédiaires, et des pratiques plus responsables. Défier le monopole bancaire Les co-fondateurs de Prêt d’Union en savent quelque chose : cette autorisation n’est pas facile à obtenir. European Crowdfunding Leaders Call for EU Support. 29 October '12, 02:23pm Follow A new paper, published today and supported by names from across Europe’s crowdfunding scene, calls on the European Union to provide more support to this burgeoning movement.
A Framework for European Crowdfunding lays out a plan for how new regulation, education programs and research could strengthen crowdfunding’s place in the EU economy, helping SMEs to raise capital and create jobs. Although European crowdfunding sites like Seedrs, BloomVC and Eppela – not to mention US sites like Kickstarter – are an increasingly popular way for new and existing companies to raise money for new projects, the authors of today’s paper argue that the EU could be taking action to aid this process. It recommends pan-European laws covering consumer protection via operational and financial transparency practice, financial control, security of information and payments, platform functionality, and operational procedures.
Image credit: Sean Gallup / Getty Images. Success of Crowdfunding Puts Pressure on Entrepreneurs. When A Kickstarter Campaign Fails, Does Anyone Get The Money Back? : All Tech Considered. Hide captionIn seeking financial backers for her Ouya game console, Julie Uhrman was looking for about $1 million. The business received far more than that amount.
Kickstarter Crowd funding began as a way to support the arts on the Internet. Artists could go online to pitch a new album, for example, in the hope that thousands would give small amounts. But now it's expanded to entrepreneurs, and the rules aren't quite as clear. On Kickstarter, the largest crowd-funding site, a handful of entrepreneurs have raised millions of dollars more than they'd expected, by selling the concept of products they have yet to make. Making A Successful Pitch On Kickstarter Julie Uhrman loves playing video games the old-fashioned way — in front of the TV. "And then to see my daughter pick up the controller and say, 'Show me how to do this,' " she says, "it just meant that this is something that's going to be around for a really long time.
" Kickstarter liked it, a lot. The 'Doing-The-Right-Thing' Perspective. Kickstarter Co-founders: “We Take Accountability Very Seriously” Yesterday, NPR’s All Things Considered produced a piece on accountability in crowdfunding. That is to say, if a business fails to produce or follow through with its goals, how do financial backers get their money back? The piece focuses its attention on Kickstarter, saying, “while the company’s policy says creators have to give refunds on failed projects, the website doesn’t have a mechanism to do it.” Today, Kickstarter’s co-founders Perry Chen, Yancey Strickler, and Charles Adler responded in a blog post on the site, saying, “we take accountability very seriously at Kickstarter.” The post addresses NPR’s questions in a Q&A (which has been added to the site’s FAQ page as well), essentially re-stating Kickstarter’s approach to accountability, reviews and their legal involvement.
By agreeing to launch a campaign, creators are agreeing to follow through with the terms they lay out in their project page and Kickstarter takes no responsibility for the completion of the project. With JOBS Act Becoming Law, Crowdfunding Platforms Look To Create Self-Regulatory Body. Today, President Obama signs the JOBS Act into law, legalizing crowdfunding in startups by non-accredited investors, so that anyone and their mother can invest. The new law stipulates that entrepreneurs can now raise money from any and all, however, startups are limited to $1 million per year, and must stick to portals approved by the Securities and Exchange Commission.
What’s more, the legislation dispenses with the 500-shareholder rule, which put a limit on the number of shareholders a company was allowed before registering with the SEC (and going public). The new law gives high-growth companies a longer grace period, or on-ramp, leading up to IPOs, and lifts some of the one-size-fits all regulation that likely has been hampering the IPO market.
While this is a big win for startups, it puts significant pressure on the crowdfunding market to self-regulate — which is risky. The group aims to create principles to: What do you think? More on CAPS here. Kickstarter’s mission creep. I had a fascinating conversation last night with a chap from Kickstarter, a site designed to help creative professionals realize projects. And it’s still doing that, pretty well. But there’s clearly a degree of mission creep at Kickstarter, too — especially with regard to some of the most successful and highest-profile projects on the site. “A project is not open-ended,” says Kickstarter: “Starting a business, for example, does not qualify as a project.” Yet that’s exactly what Matter is doing with Kickstarter. What’s more, Kickstarter can only be used to fund projects “from the creative fields of Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater”. The bar of soap and the iPhone dock are glossy and sophisticated sales pitches: one of the questions yesterday was whether they were closer to SkyMall or to QVC.
Getting a product to market is hard. In either situation, your funders have very little recourse. Kickstarter vaporware of the day, Lifx edition. Back in March, I worried that Kickstarter was morphing into SkyMall for Vaporware. While Kickstarter is great for creative projects which can be realized by small teams, so far there’s zero evidence that it’s a good way of providing startup capital for would-be businesses. I gave an admittedly extreme example, of the kind of ultra-high-tech industry which needs much more than a Kickstarter campaign in order to succeed.
Getting a product to market is hard. Even companies with business plans and executives and millions of dollars in funding — and a fully-functioning product — can fall down on that front. Look for instance at the Switch lightbulb: in July 2011, Farhad Manjoo of Slate said it would go on sale in October 2011 for $20. Six months later, the Switch lightbulb still hasn’t arrived.
Koeppel’s story was of a small startup company, Switch, which was competing against the three giants in the space — Philips, Osram Sylvania, and GE. Lifx itself has three reactions to this post. Kickstarter matures. In the wake of my post on Tuesday about the Kickstarter campaign for Lifx lightbulbs, there were two very welcome developments yesterday. First, Lifx announced that, having passed the $1 million mark, they were going to cap the amount of money they are raising via Kickstarter. They’re over $1,200,000 as I write; they’ll cap out at just about $1,300,000. “We want to put all our energy into developing the product, rather than building a large company (at this stage)”, they write. “We’ve raised more than enough to execute on what we’ve proposed to do so now we are going to get down to the business of creating a full production run of LIFX smartbulbs fit for homes across the world.” On top of that, if you look at the Lifx product page, you’ll see that the $5,000 option for ordering 25 packs of 4 bulbs has disappeared: that’s partly because such wholesale offers weren’t allowed even when the Lifx project was announced.
Finally, you can’t offer multiple quantities of a product at all. Is Not a Store » The Kickstarter Blog. It's hard to know how many people feel like they're shopping at a store when they're backing projects on Kickstarter, but we want to make sure that it's no one. Today we're introducing a number of changes to reinforce that Kickstarter isn’t a store — it’s a new way for creators and audiences to work together to make things. We’d like to walk you through these changes now. Today we added a new section to the project page called "Risks and Challenges. " All project creators are now required to answer the following question when creating their project: “What are the risks and challenges this project faces, and what qualifies you to overcome them?”
We added the "Risks and Challenges" section to reinforce that creators' projects are in development. Before backing a project, people can judge both the creator's ability to complete their project as promised and whether they feel the creator is being open and honest about the risks and challenges they face. They are: Not at all. No. We may not know. If crowdfunding is too successful, the economy may suffer in surprising ways. By Matthew Yglesias - 10 Rules for Starting a Small Business. By Matthew Yglesias|Posted Sunday, June 17, 2012, at 09:59:04 AM ET Screenshot of a Kickstarter project Kickstarter, the impressive Web service that lets would-be artists or entrepreneurs raise funds from the broad public, has captured the imagination of the world.
In many ways, it’s the ideal company for our time. Entrepreneurial, capitalistic, dynamic—and yet not a bank. In fact, it’s in opposition to the traditional bank funding structure. Just this past Wednesday, legendary Harvard Business School professor Clayton Christensen officially proclaimed crowdfunding “disruptive,” with an excellent chance of “taking root in these underserved areas” outside of high-tech and health care “that traditional financiers have traditionally found unattractive.” When I first heard about Kickstarter, I was skeptical that it could possibly work.
Life is full of tradeoffs. One path is probably more lucrative, the other more pleasant. And the government can’t tax psychic returns. Why Kickstarter’s great for tax revenues.