Here’s the scenario: You’ve got a great idea and it’s one you think is going to change the world in a positive way. Yet, you’ve got no money to bring this idea to life and you can’t be bothered with the effort that comes with seeking investment funding from investors or applying to be part of an accelerator or incubator program.
So what do you do?
You hear about crowdfunding and you think, “Great! This is how I’m going to get the money I need to make my idea a reality.”
However, before you dive headfirst into launching a crowdfunding campaign, there are a few legal considerations you need to be aware of first. Because if you’re not aware of these legal matters, then it’s likely that you’re going to end up experiencing issues during or after your crowdfunding campaign.
Here is what you need to consider when launching a crowdfunding campaign.
1. Know The Rules Of Each Platform
Every crowdfunding platform has different rules and regulations. You may think it’s boring but these things have a big impact on your campaign. For example, Kickstarter will only release pledged donations to you for your campaign if you reach your pledge goal by your deadline. On the other hand, take IndieGoGo.hand. They’ll release your pledged donations regardless of the deadline being met or not.
This is just one example of how rules and regulations vary between each crowdfunding platform so familiarise yourself with them before launching a crowdfunding campaign.
2. Protect Your Intellectual Property
This is a big one and a big concern for many people that want to use crowdfunding platforms. In fact, it often scares many people from using crowdfunding completely. If you want to avoid your idea being stolen by someone on a crowdfunding platform then you need to file intellectual property rights on it first.
Make sure that your idea is fully fleshed out in advance and then speak with a lawyer who specialises in IP law. Make sure you either trademark, patent, or get copyright protection on your idea before launching a crowdfunding campaign.
3. Set A Correct Fundraising Goal
You won’t get to keep all of the money you raise because the crowdfunding platform takes a percentage of what you raise as part of the fee to use their platform. Furthermore, there is also the issue of taxes to consider. So before you launch your campaign, make sure you work out in advance how much you’ll need to raise and then how much will go towards taxes and the fee the crowdfunding platform charges for usage. Then increase your initial fundraising goal to account for the extra money you need to pay in fees.
4. You Need To Market Your Campaign
Yep, who guessed it, your campaign won’t sell itself! You actually need to get out there and promote your campaign with good marketing. You’ll need to make sure you’re engaging with prospective funders, creating content, press releases, using social media and even paid advertising.
It’s a lot of work but the most successful campaigns are the one’s with good marketing.
5. Be Aware Of Contractual Obligations
If you offer to give a prototype of your idea to funders in exchange for their donations then you actually need to follow through with that promise. Problems arise when people are not aware of what is required to deliver on a product. This was well-evident in the article written by Eric Markowitz about a company that couldn’t deliver on its promise.
What happened was that many of the backers then started trying to get their money back due to issues delivering the promised product. Eventually, some people even filed lawsuits against the company that launched the crowdfunding campaign.
So make sure that you understand what is required to produce your product before launching a crowdfunding campaign because you must deliver on your promise or else you could be in for some legal headaches.
6. Crowdfunding Is Not The Only Way To Get Capital
While crowdfunding is arguably the biggest ‘thing’ in terms of methods for raising capital for a business idea, it’s not the only way to do it. There are certain government grants that are available if your business can meet certain criteria. Then of course, there are investors and VC funds, and various other funds that can provide you with capital.
We recommend you examine the pros and cons of each and make your decision based on this. The fact is that each business is different and their funding requirements are going to be different.
Final Words: Legal Considerations When Launching A Crowdfunding Campaign
So there you have it! These are the legal considerations when launching a crowdfunding campaign. Make sure you’ve considered each of these points and if you’re still excited about crowdfunding then go for it and good luck!
Got any legal questions about launching a crowdfunding campaign? Then book a free Startup Legal Session and speak to a legal expert by clicking the image below.