The federal JOBS Act will make it easier for novice investors to use crowdfunding platforms to make actual equity investments in startups, rather than just donating money, as they can now through sites like Kickstarter. But with any crowdfunded project, there are some concerns to watch out for, according to David Tisch, managing director of TechStars NYC.
Speaking on a panel last Thursday at the Consumer Electronics Week (CE Week) conference in New York hosted by the Consumer Electronics Association, Tisch said inexperienced investors may not be aware of just how risky a startup investment can be. “People are going to lose a lot of money betting on early stage Internet companies because 90 percent of Internet companies fail,” he said. “People are going to lose 90 cents on the dollar on a regular basis. That risk probably applies to Kickstarter on some projects.”
Joining Tisch on the panel , which focused on the way Kickstarter has disrupted the way new ideas can get financed, were Josh Guyot, co-founder of Motrr; Sam Gordon, managing partner of Brydge; and moderator Brian Tong, editor with CNET. While the Kickstarter platform gives startups in need of funding the chance to attract backers from the public, the panelists pointed out some risks that come with the territory.
Kickstarter, based in New York, gives folks working on independent projects and products a way to raise money by letting the public pledge funds online. Projects funded through this platform include video games, software, novels, independent movies, and consumer electronics. Minimum pledges can be as low as $1 and larger pledges can top $10,000.
Most startups and project developers looking for funds through Kickstarter offer various incentives, such as early releases of the products, for different levels of pledges. Kickstarter earns money by taking nominal 5 percent cut of the pledges, but no money gets collected unless the funding goal is met within the allotted time. Total pledges raised by Kickstarter, which was founded in 2009 and is backed by Union Square Ventures, now exceed $250 million.
Even if a project meets its funding goals, though, there is no guarantee the finished
