Understanding your pledge

The price you pay for the reward is called your pledge. In rewards-based crowdfunding, the reward is the product that is manufactured and shipped to the backer, for example a board-game or designer pen. Key takeaways Backers pay the 5% Kickstarter service fees. Backers pay the 3-5% Amazon Payments fees. The rest of the pledge…

Crowdfunding terminology: a potential legal minefield

The terminology used to describe the crowdfunding process can be a legal minefield. At first glance, it seems that words with limited legal bearing are used to describe crowdfunding transactions. The terminology is also emotive, meant to elicit a response from the backers. By developing its own terminology, the crowdfunding sector tries to distinguish itself…

Understanding a project creator’s obligations to backers

A project creator has obligations towards all backers who have pledged on his project. These obligations are evident during the funding campaign and post campaign. Key takeaways During the campaign, a project creator should make a good faith attempt when interacting with backers, and accurately describe the quality and quantity of the product offered. Post…

How much money can I lose in backing a project?

Every backer should prepare themselves potentially losing money when backing a project. I refer to this as the maximum monetary loss from any crowdfunded project backed. This monetary loss is in addition to any non-monetary risks, including opportunity costs. Let’s take a closer look at how much a backer could lose in a crowdfunded transaction.…

The opportunity cost of crowdfunding

The opportunity cost for backers in the crowdfunding process has a real monetary value as well as a non-monetary value. Key takeaways The monetary value of the opportunity cost is the amount pledged plus any additional income that could have been earned on this amount. The non-monetary value of the opportunity cost is time and…

Does risk only have a monetary value in crowdfunding? No.

In another post, I analyse the maximum loss that a backer could incur in a crowdfunding transaction. The maximum loss has a monetary value, but I think that there is more at stake than just losing $40, for example. The “more at stake” is because crowdfunding is an emotional investment for the backer. By participating…

Understanding failed delivery and likely recourse options

As a backer, you need to be aware of what your options are in the event that the project creator fails to deliver your reward. These options are part of your legal recourse that you can pursue if you don’t receive your reward. If the crowdfunding transaction has tangible, commensurate rewards offered for pledges, it…

Template – Rating project creators

I use a template to rate all the project creators I consider backing, in lieu of any rating or review system available on Kickstarter. This forces me to think rationally about why I am backing these project creators, especially as my money is at risk. The template considers six categories: Type of project creator Business…

Fund raising options for a project creator

There are three main reasons why a project creator would opt to crowdfund instead of going to a bank or Wall Street for money for their business, namely that the project creator: is too small in size to access main-stream funding sources; doesn’t have to complete a credit assessment as required by banks or sophisticated…