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Is Kickstarter a good way to finance my start-up business?

Sep 10, 2012

The answer is “maybe”, as it is too early to be sure especially with unanswered liability questions for funded failed projects.


For those unfamiliar with Kickstarter, Kickstarter is a service supporting crowd funding for business opportunities.  How it works is a business (can be sole proprietorships) creates a project with a funding goal and deadline.  If it fits Kickstarter’s requirements they then post it where the general public can view the project and if they so choose, invest in it.  With a project, there must be some incentive for people to invest.  For the service, Kickstarter takes a 5% cut.  To pledge, one has to use Amazon Payments, which also takes a small percentage.  If the pledged amount does not reach your goal by the deadline, no money is taken (it is all or nothing).


The majority of projects are music, video and print productions with several classic video game remakes.  In Wyoming, several books, albums and films have recently received funding through Kickstarter. Clear Creek Brewing Company in Buffalo, WY recently received over $28,000 to finish their building remodel and buy furniture and fixtures to open up.  In return for investments, they offered an assortment of rewards ranging from stickers, your own chair/barstool in the taphouse (with nameplate) and other miscellaneous prizes.


The reasons to be cautious with Kickstarter are mostly because it is new.  For example, although Kickstarter is not liable for funded projects that fail, and generally prizes have to be given, if a business fails it likely cannot follow through with business-related prizes.  The question being asked is whether the project creators are then personally liable to the funders, which could be a problem if the money was spent in trying to succeed.  The answer will probably come from courts or from legislation.  NPR recently reported on Ouya, a new video game console kickstarter project, and the possible failure fallout. Ouya, an open source game console, asked for $950,000 in pledges and the kickstarter campaign closed with pledges worth $8.6 million with 57,000 backers expecting an Ouya console by next March. It is unclear who would be liable if Ouya is unable to keep its end of the deal.


Whether Kickstarter is the right thing for your business will depend on what your business is, how well it can market its projects on Kickstarter and ultimately for you when comparing it to other sources of capital.  Keep an eye out for what happens as this financing medium receives new scrutiny from courts and lawmakers, especially if liability is a major concern for your business.

Jim Drever, MBA - Business Advisor (307) 766-3505

Category: Entrepreneur

Jim Drever

Jim Drever is a counselor with the Wyoming SBDC.

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