‘CROWDFUNDING’ BUSINESSES HAVE OBLIGATIONS TO INVESTORS
Start-up businesses are increasingly seeking funding on websites such as Kickstarter or Indiegogo, and promising small rewards to individual investors in return for micro-contributions. Examples of these businesses include the Veronica Mars movie, which raised millions of crowdfunding dollars by promising small contributors posters, DVDs and movie scripts, and a space telescope project that offered “space selfies.”
Note to start-ups: pay attention to your legal obligations. Recently, the State of Washington accused a Kickstarter company of reneging on its promise to send small contributors decks of horror-themed playing cards. The state is seeking restitution plus additional damages of $2,000 per contributor and the costs of bringing the suit.
Keep in mind that the promises made through crowdfunding sites establish legal obligations. If a start-up ends up getting hundreds or even thousands of contributors by offering small rewards, the promises have to be honored.