Understanding crowdfunding’s caveats

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BY ROSS RUBIN , Crowdfunding has been a boon to companies that are bringing some of the most exciting and innovative devices to market. But sometimes things go wrong. Last March, the first of a two-part Switched On discussed some of the foibles about crowdfunding in the wake of Kickstarter proclaiming that it was not a store. The column highlighted three products, two of which (the Syre Bluetooth iPod nano watchband and the Jorno folding keyboard) had seen long delays, but still seemed to have hope of shipping.

Nearly a year later, neither has. And there is no telling when or if either will. To the credit of Scott Starrett, the creator of the Jorno, he has kept posting updates about his product, although perhaps not as frequently as backers would like. The last one came earlier this month and contained auspicious news about several critical problems with the prototype being fixed. The Syre update page, on the other hand, has gone dark; the last update was in August 2013. A genuine Apple watch is likely to appear before the Syre.

When a company files its S-1 form to go public, it must include a section called Risk Factors…
The second part of that two-part column discussed two new sites that were trying to build in more protection for consumers. Unfortunately, though, the flow of steady projects at Christie Street failed to materialize. And so we are back to Kickstarter. It’s attempted to more accurately represent the chance that contributions might not result in expected outcomes by requiring a Risks and Challenges section on each campaign page. That section acts as a bit of a reality check to the ebullience of the rest of the campaign page.

But in this case, the inmates are running the asylum.

The level of responsibility that a reward-based crowdfunding campaign has to its backers may not be as high as that of a company seeking to raise equity. Nonetheless, it helps to look at examples from the latter world. When a company files its S-1 form to go public, it must include a section called Risk Factors that gives potential investors an idea of what might go wrong.

Source and more

http://www.engadget.com/2014/03/01/understanding-crowdfunding-caveats-part-1/

 

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