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Did Your Crowdfunding Project Go Up in Smoke? Bet You Wish You Had a Lawyer.

We’ve all heard the success stories of businesses hitting it big with crowdfunding. Every now and then, you catch a story on the evening news about this company making millions of dollars on crowdfunding platforms for an idea that they haven’t even developed yet. The stories you may not hear as often are the failures. What happens to them? And what happens if they don’t deliver on their promises?

First, let’s take a look at what crowdfunding really is — a project or venture is funding through contributions from a large group of people. Also known as crowdsourcing, it pretty much follows this model:

The company or individual purposes the idea to be funded. Usually, there’s an incentive involved to get people to support the idea. For example, a producer wants to get his movie off the ground. So he asks friends to invest in his movie in exchange for a free copy of the movie when it’s done and their names to be added to the credits. The individuals or groups agree to the terms and monetarily support the idea. Usually, there’s a platform used to bring these two parties together so the idea can be funded and launched.

How Popular is Crowdfunding?

Crowdfunding has exploded in the last few years thanks to internet websites such as Kickstarter and Indiegogo. In 2010, crowdfunding online amounted to $880 million. By 2014, $16 billion was crowdfunded, a number that continues to grow each year.

There have some pretty impressive success stories. For example, a card game called “Exploding Kittens” was launched on Kickstarter in January 2015. The makers of the game hoped to raise about $10,000. Within a month, the campaign had raised approximately $9 million with 290,000 backers. It’s considered the most-funded Kickstarter game and an expansion was created earlier this year.

But what we don’t hear about is the failures. What happens when a project fails to deliver on its promises?

When a Crowdfunding Project Fails

According to Kickstarter, failure is more common than you can imagine. Approximately nine percent of the projects fail to deliver rewards and eight percent of dollars pledged went to failed projects.

So as a company, what can happen if your crowdfunding project doesn’t work out? You may be facing lawsuits and a lot of angry investors. It’s best to have an experienced crowdfunding lawyer by your side to help with your legal woes.

Manfred Sternberg & Associates is here to help. We offer clients a practical view of the law. Don’t wait another moment to get the personalized legal advice you need. Your initial consultation is free. Contact a crowdfunding lawyer today to make an appointment and discuss your collections, commercial law, business law or consumer law matter.

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