Crowdfunding love

Benj Gallander and Ben Stadelmann
Wednesday, November 20, 2013

Once upon a time, during the Internet bubble circa 1998, fortunes were made by some people, often those who started the companies or who invested prior to the enterprises going public. However, many investors got sucked into the craze and blew their financial brains out. Whoopsie.

Since then, there have been many scams perpetrated by dastardly people using the Internet. We regularly receive emails that tell us how wonderful we are from complete strangers who want to do business with us, sometimes offering us millions of dollars to help them smuggle their fortune out of their countries.

The compliments are flattering, and we soak them in and the money sounds like a wonderful payback for a minute amount of work.

One way of advancing businesses and projects that is becoming more popular is crowdfunding. Benj supported one artist whose work seemed quite engaging via Kickstarter. His 20 bucks bought him a petite piece of tapestry, signed by the artist and everything. Now if only he could find it! But heck, it helped her develop her work and he got some warm fuzzies from aiding an aspiring creator.

Without question, appealing to the general public for financial support will help many folks achieve their dreams of launching a business. Currently on Kickstarter, there are numerous projects listed.

One that is having uncanny success is a book called Master of Anatomy, in which over 100 artists will create their images of the ideal man and woman. The goal was to raise $20,000. Evidently, many people love the idea, as thus far over $300,000 has been raised.

Pledgers might simply get a good feeling of helping by donating a few dollars. Larger donations mean receiving books in either soft and/or hardcover. Numerous quests for contributions for other endeavours have raised over $1 million. Of course, lots of ventures are far less successful.

Currently, the US Securities and Exchange Commission is looking at rules for crowdfunding that would allow private businesses to raise cash from the general public, whether or not they are accredited or wealthy investors, in exchange for an equity position.

The idea is that this would help small businesses develop, boost the economy and create jobs. Worth noting is that allowing money to be raised this way would negate an 80-year old ban that nipped this sort of thing in the bud to avoid the bad actors taking advantage of the naive. From this perspective, it would be like letting Pandora out of the box.

At this point, the rules remain unrefined, but it appears that organizations looking to raise less than $500,000 only have to deal with nominal regulation. Those looking for more would need audited financial reports. The maximum raise for an organization would be $1 million a year.

In the first instance, criminals will be looking for some easy pickings. The latter case would be somewhat more difficult, but not much, to be sure. Individuals and organizations with limited scruples would likely find the possibility of making money via crowdfunding too enticing to resist. Many are probably salivating right now at the possibility.

Then again, perhaps we have become too cynical. Let us assume that everyone who engages in this field will be forthright and honest and goodier than Goody Two Shoes.

As Benj outlined in his best-seller, The Canadian Small Business Survival Guide, about half of new businesses fail within two years. Before five years have passed, 80 percent of the fledglings will have passed into the Business Cemetery in the Sky. So the odds of success for investors are daunting if they are seeking a financial payback, even if all of the money seekers are above board.

It seems reasonably easy to see where this is going. John and Jane Q. Public will often have their pockets picked. The dreams of huge financial returns and their investments will often evaporate into the ether. This will all have been done with the blessing of the SEC.

At the end of the day, this is likely to be a dog’s breakfast for those who put their funds on the table. Hmm, maybe we can pitch that as an idea? Dogs not only eat, but love breakfast. We can make their food out of our leftovers, mark it up handsomely, package it and sell it. Want to buy in?