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Living Room / Re: When Kickstarters Fail
« Last post by 40hz on November 02, 2012, 05:06 PM »I guess I'm more of the "in for a penny, in for a pound" school of thought when it comes to things like this. And from some of the noise I'm hearing, so is the SEC.
Of course it also begs the question of why Kickstarter makes finding failure stats so difficult for projects hosted on their site. I think the answer is fairly easy to figure out. Which is why I took care to characterize their behavior as "disingenuous" rather than "dishonest" earlier.
But there is proposed legislation that may soon have a significant bearing on crowdsourced funding projects. Here's one legal opinion on it.
<Link to original page here.>
Kickstarter, to date, has been operating based on the general belief that contributors are not purchasing securities (i.e. a profit interest in any of the companies in which they contribute funds) under the current methods used to raise funds on Kickstarter and similar funding sites. These fund sourcing sites do not purport to be an intermediary for a company's offer and sale of its securities, but instead companies only agree to provide contributors with something of value, in consideration for their contributions - in this case a Pebble wristwatch. Based on the assumption that such transactions do not constitute investments in securities, it does not appear to be regulated under U.S. securities laws.
Now that new crowdfunding laws are scheduled to go into effect sometime within the next 245 days, crowd sourcing sites like Kickstarter will need to be more aware of the methods used to raise funds on their sites to assure that they are not subject to regulation under the crowdfunding laws, or, if necessary, that the sites are properly registered and all transactions are conducted in compliance with applicable crowdfunding laws.
Interestingly, even though the article was written after the JOBS Act was signed into law by the President, there is no mention, in the article, of these new crowdfunding provisions. It is possible that the author of the article, as well as Kickstarter and similar crowd sourcing sites, are not yet convinced that crowdfunding, as provided under the provisions of the JOBS Act, will become a viable means of raising capital. For starters, it limits the total amount a company can raise during any 12-month period to $1 million, which is $6 million less than the amount of funds raised by the watch company through Kickstarter.
Also, if the digital watch company - Pebble - had been able to raise $1 million pursuant to the equity crowdfunding laws included in the JOBS Act, at the time these funds were raised, it would have been required to have audited financial statements and also be required to make certain disclosures to the SEC. Finally, Kickstarter, or any other funding portal through which the funds were raised, would be required to register with the SEC. It appears that those with an interest in providing services as funding portals under the new crowdfunding laws, including existing crowd sourcing sites like Kickstarter, are going to wait for a final determination of the registration requirements, before making any decisions on whether to register with the SEC as a funding portal.
I'm not crazy about regulations. And I think the government is more than a little behind the times when it comes to much in the modern global economy. But in this particular case, I can see why they are concerned. And there are governing laws for this sort of thing. You can't just put something together to do an end run around them and expect nothing to happen. You're bound by the law whether you agree with it or not. Much like Copyleft and Creative Commons. Those who originally put those together intended for them to be alternatives to a standard copyright. "Not so!" said Uncle Sam. You have a legal copyright whether you want one or not. If it amuses you to also do a CC on some creative work you've done, that's all well and good. But it supplements a standard copyright. It does not act as an "alternative" or "replacement" for one. You always have copyright protection. There is no provision in the law that allows you to waive it.
Of course it also begs the question of why Kickstarter makes finding failure stats so difficult for projects hosted on their site. I think the answer is fairly easy to figure out. Which is why I took care to characterize their behavior as "disingenuous" rather than "dishonest" earlier.
But there is proposed legislation that may soon have a significant bearing on crowdsourced funding projects. Here's one legal opinion on it.
It's long
<Link to original page here.>
Kickstarter, to date, has been operating based on the general belief that contributors are not purchasing securities (i.e. a profit interest in any of the companies in which they contribute funds) under the current methods used to raise funds on Kickstarter and similar funding sites. These fund sourcing sites do not purport to be an intermediary for a company's offer and sale of its securities, but instead companies only agree to provide contributors with something of value, in consideration for their contributions - in this case a Pebble wristwatch. Based on the assumption that such transactions do not constitute investments in securities, it does not appear to be regulated under U.S. securities laws.
Now that new crowdfunding laws are scheduled to go into effect sometime within the next 245 days, crowd sourcing sites like Kickstarter will need to be more aware of the methods used to raise funds on their sites to assure that they are not subject to regulation under the crowdfunding laws, or, if necessary, that the sites are properly registered and all transactions are conducted in compliance with applicable crowdfunding laws.
Interestingly, even though the article was written after the JOBS Act was signed into law by the President, there is no mention, in the article, of these new crowdfunding provisions. It is possible that the author of the article, as well as Kickstarter and similar crowd sourcing sites, are not yet convinced that crowdfunding, as provided under the provisions of the JOBS Act, will become a viable means of raising capital. For starters, it limits the total amount a company can raise during any 12-month period to $1 million, which is $6 million less than the amount of funds raised by the watch company through Kickstarter.
Also, if the digital watch company - Pebble - had been able to raise $1 million pursuant to the equity crowdfunding laws included in the JOBS Act, at the time these funds were raised, it would have been required to have audited financial statements and also be required to make certain disclosures to the SEC. Finally, Kickstarter, or any other funding portal through which the funds were raised, would be required to register with the SEC. It appears that those with an interest in providing services as funding portals under the new crowdfunding laws, including existing crowd sourcing sites like Kickstarter, are going to wait for a final determination of the registration requirements, before making any decisions on whether to register with the SEC as a funding portal.
I'm not crazy about regulations. And I think the government is more than a little behind the times when it comes to much in the modern global economy. But in this particular case, I can see why they are concerned. And there are governing laws for this sort of thing. You can't just put something together to do an end run around them and expect nothing to happen. You're bound by the law whether you agree with it or not. Much like Copyleft and Creative Commons. Those who originally put those together intended for them to be alternatives to a standard copyright. "Not so!" said Uncle Sam. You have a legal copyright whether you want one or not. If it amuses you to also do a CC on some creative work you've done, that's all well and good. But it supplements a standard copyright. It does not act as an "alternative" or "replacement" for one. You always have copyright protection. There is no provision in the law that allows you to waive it.
