Innovation, creativity, crowdfunding

By Andrew Zashin*

Ever since I can remember, I always wanted to invent something. Being that I’m a lawyer, not an engineer or artist, I have always known this was more of wish than a real possibility.

However, my itch to invent was scratched when I found “Shark Tank,” the reality-based television show in which inventors and entrepreneurs present business opportunities to investors aka “the sharks.” In other words, for approximately 43 minutes each week, I live vicariously through a bright-eyed inventor.

It was through my Shark Tank consumption that I came to learn of the websites Kickstarter and Indiegogo. “We started selling on Kickstarter,” or “I got my initial funding through an Indiegogo campaign,” were phrases uttered repeatedly by enthusiastic entrepreneurs pitching to the Sharks.

However, none of the entrepreneurs or the Sharks explained the under-pinnings of Kickstarter or Indiegogo. Therefore, I set out on my own to understand the relationship between these commonly touted websites and innovative gadgetry. In doing so, I discovered two websites unlike any others I had viewed before.

Both Kickstarter and Indiegogo are websites that allow individuals or groups to pledge money to a project or invention, a practice commonly referred to as “crowdfunding.” The individual or group that is seeking money for their project or invention is called a “creator” or “entrepreneur” and the person who pledges money to a project is called a “backer.”

Projects include the making of movies, publishing of books and musical theater productions, while inventions include electronic devices, board games and video games. Creators and entrepreneurs who have successfully used these crowdfunding sites to launch their projects include Phoebe Waller-Bridge, creator of the Emmy-winning show “Fleabag,” and Palmer Luckey, the inventor of Oculus Rift, a virtual reality headset, which was eventually purchased by Facebook for $2 billion in cash and stock.

Those who pledge to a project may receive a reward or perk for their contribution. Rewards and perks come in all different forms depending on the project or creation. For instance, if a person pledges money to the making of a movie, they may receive a T-shirt with the title of the movie printed on the front or tickets to the premiere. Or if someone pledges to the publication of a book, he or she may receive a first edition of the book in exchange for their contribution. Typically, the more you pledge to a project the more you receive.

It is important to understand, however, that neither website is a retail store. Pledges made on Kickstarter are only charged to a backer’s credit card once the project is fully funded, therefore, a backer will not receive a reward if the project does not meet the stated financial goal. Indiegogo allows entrepreneurs to choose a flexible goal which allows the entrepreneur to receive funds even if the set financial goal is not met. If the entrepreneur chooses a flexible goal, the backer’s contribution will be charged immediately, and, in turn, the backer should receive their perk regardless of whether the entrepreneur’s financial goal is met.

As with any investment, there is financial risk associated with this form of crowdfunding. While both Indiegogo and Kickstarter do their best to ferret out in advance scammers or creators who will be unable to fulfill the rewards they promise, neither website has a crystal ball. According to Entrepreneur Magazine, about 9% of Kickstarter creators fail to deliver rewards to backers.

Neither Kickstarter or Indiegogo will refund a backer’s money if a creator fails to provide a backer with a promised reward, therefore, a backer is not guaranteed a return on their investment. As a result, a backer should thoroughly research a campaign before pledging.

To date, I have not made a pledge. However, I regularly peruse both sites for inventive devices and original projects. While I won’t be inventing anything soon, it is inspiring to observe the many creators who have and are bursting to introduce their idea to the world.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:07-05:00February 19th, 2021|Crowdfunding|

Crowdfunding – new way to fund raise for charitable causes

By Andrew Zashin*

Crowdfunding, at its simplest, is the funding of some cause or venture via a large number of small contributions. That is, the concept is to raise money by calling upon a large number of people to each make a small contribution.

Clearly, this is not a new concept. After all, the humble idea of “taking up a collection” for something has been around for millennia. But the internet and social media have revolutionized the concept and given it a catchy name.

The concept is being used to fund the development of new products and ventures (think Kickstarter or Indigogo). But it is also being put to use in the area of charitable giving. Websites like GoFundMe, which is arguably the most successful and best known (to such extent that the phrase “I/he/she/they started a GoFundMe” has entered the common vernacular), allow anyone with an internet connection to set up a fundraiser for any cause of their choosing.

Most typically, such a crowdfund request will point to a specific individual or group of individuals, for example, a classroom looking for supplies, a family whose primary breadwinner has been diagnosed with a terminal illness, or the victims of an unexpected disaster. Requests run the gamut, with some seeking only a few hundred dollars and some raking in multiple millions of dollars.

For recipients, this type of fundraising is quick, easy, and often quite effective. The organizer of the fundraiser need only create a page on the crowdfunding site, and share the link with family and friends via social media. If the cause is compelling, ideally it will then be passed on to more and more potential donors, and hopefully attract a large response.

Typically, the hosting site will charge a flat fee per transaction, or take a small percentage of what is donated. The page creator can set up some rules as to who can access the funds. And, so long as the donations do not involve the sale of goods and services, they typically will not be taxable.

For the donor, though, no matter how “charitable” the cause, the contribution will probably not qualify as a tax-deductible charitable donation; donations are usually only deductible when made to qualified organizations that are intended to benefit a broader swath of the population, rather than the typical crowdfunding campaign that is intended to benefit one or a few named individuals. Further, it may be subject to gift tax rules if it exceeds the annual limit ($15,000 for the 2018 tax year).

“Philanthropy” and “charity” are not quite synonymous, and the rise of charitable crowdfunding makes some traditional philanthropic organizations uneasy. Crowdfunded campaigns are generally started in order to address an immediate concern. They neither have, nor require, a longer term vision.

For example, say a homeless person finds a bag full of cash deposits that a small business owner dropped on the way to the bank. Instead of keeping the money, he works to find the rightful owner and returns it. The business owner, grateful for the return of the cash, is compelled to repay this good deed by setting up a crowdfunding campaign for the benefit of the good Samaritan. This is great news for that individual.

But it does absolutely nothing to help the wider systemic problem of homelessness in the city. A concern is that while this one-off type of fundraising “feels good” and is very popular with the individual donor, it allocates donations in a way that accomplishes less overall good than could be accomplished with the type of longer term, sustainable plan that a philanthropic organization or other established charitable organization is likely to have.

But, ultimately, crowdfunding appears to be here to stay. The platforms for giving are changing as fast as technology advances. And, the options available to potential donors are much wider than ever before. And, ultimately, it is difficult to characterize more choice in charitable giving as anything other than a good thing.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:11-05:00May 15th, 2018|Charitable Donations, Crowdfunding, Fundraising|
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