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A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By Jim Drever, WSBDC business adviser
“Is Kickstarter a good way to finance my start-up business?” Raymond, Laramie
The answer is maybe, because it may be too early to be sure, especially with unanswered liability questions for funded failed projects.
For those unfamiliar with Kickstarter, it is a service-supporting crowd funding for business opportunities. How it works is that a business (can be sole proprietorships) owner 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 percent cut. To pledge, you must 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.
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 recently received more than $28,000 to finish its building remodeling and buy furniture and fixtures to open. In return for investments, the company offered an assortment of rewards including 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. 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 upon what your company 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.
A blog version of this article and an opportunity to post comments is available at http://www.wyomingentrepreneur.typepad.com/blog/.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email email@example.com or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.