Crowdfunding 101

Crowdfunding 101

David & Amanda Horowitz…

• How it works – during an online crowdfunding campaign, money is contributed by a number of individuals or investors in order to support the financing of a project or company. There are different types of crowdfunding – this will only mention reward-based and investment-based. In reward-based, supporters get a reward in exchange for their contributions. Rewards vary and can range from a thank-you tweet to a pre-ordered product. In investment-based, accredited investors who fund a business have a potential for financial return or ownership stake in the company. Since crowdfunding is new, the laws governing it are still taking shape.
• Websites – new crowdfunding websites are launching every day. Among the different platforms are Kickstarter (www.kickstarter.com) where creative projects raise reward-based funding; Indiegogo (www.indiegogo.com) where entrepreneurial, cause related and creative projects raise reward-based funds; Crowdfunder (www.crowdfunder.com), which connects entrepreneurs and investors for investment crowdfunding; and Crowdrise (www.crowdrise.com), where you can raise money for a cause. Before joining a site, make sure you know what you’re signing up for.
• Before you launch – launching a successful crowdfunding campaign takes a lot of preparation. Consult and retain legal counsel before launching  in order to know your legal duties and make sure you are complying with them. Make sure you are aware of possible federal and state tax consequences. When describing your product or business, make sure that your disclosures are accurate, clear, and truthful and that your offers are explicitly detailed. Most important, make sure you are able to deliver on your promises. Failure to put forth sufficient effort could result in liability.
• Be aware of fraud – there are concerns that fraudulent behavior will increase as crowdfunding gains mainstream momentum. Legitimate crowdfunding sites have safeguards in place to protect users from fraud.