Tuesday, August 21, 2012

Kicking Back

This spring, I wrote about the new crowdfunding law that will allow average people to invest in small businesses.

The fear of some experts I talked to is that it will be all-too-easy for scammers to collect money online and then vanish. The SEC, currently writing the regs governing crowdfunding, likely has this scenario in mind.

But another, more basic, caution is just how risky - and illiquid - startup business investments are, something unsophisticated investors may not fully understand.

Now, we've got some indication of what kinds of return startup companies are providing on one of the early crowdfunding platforms Kickstarter.

This new report shows that 75 percent of the funded projects are not being completed on time. And the investors are getting restless.

Here's a reality check from one of the entrepreneurs who is struggling to deliver:
“It didn’t really seem on the surface like it was going to be that challenging, but it has been extremely challenging,” he said. “A lot, lot slower than I expected. A lot, lot more money than I expected to spend.”
That scenario is typically true for all startup entrepreneurs. It's something to keep in mind for next year, when crowdfunding will actually involve equity in the company (as opposed to gifts and products, as is typical now) and will be open to a wider audience.



3 comments:

  1. I always assumed that any money given to Kickstarter was a donation, not an investment. Do people really expect an ROI?

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  2. You're right, AH, it's a donation typically in exchange for getting a finished product or other freebie.

    However, I think people are "invested" creatively and emotionally in the project they've donated monetarily to and want to see some return on their investment in terms of the project being successfully completed.

    It's just a lot harder than it looks to get something like this off the ground, I think, and almost everyone is surprised by how much harder (and more expensive) it tends to be.

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