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Denver: Kickstarter, other sites increase crowdfunding scrutiny

Over the past two years, a Denver investor has backed nine different projects on the crowdfunding website Kickstarter. Three of the projects he funded have resulted in success, six have not. Not really a huge success, but also not a total failure either. Crowdfunding, for those new to the term, is where investors or donors agree to pledge anywhere from $1 to whatever a particular project is requesting to help an entrepreneur, artist or inventor get their brilliant idea or concept off the ground. In return for their pledge they may receive online recognition, a return on their investment or some gadget or product the inventor hopes to create.

As crowdfunding has grown in popularity the stakes are coming under increasingly more scrutiny, as are the expectations of investors. Kickstarter began as a way for indie-rock groups to collect a few thousand dollars in funds to help the band record a new album. It has now expanded to include a wide range of projects, including 11 of them which have surpassed the million-dollar mark. One of those projects includes $8.6 million raised to develop a video gaming console for the next generation of video games. That project included more than 60,000 different investors on the website.

It is important to note that Kickstarter, so far the biggest of the crowdfunding websites, does not have an official refunding policy, and it along with dozens more online crowdfunding websites, are receiving a growing number of complaints from investors over failed or delayed projects, or what some perceive as outright scams on the sites. A former accountant for the U.S. Securities and Exchange Commission said the question is not about whether millions of dollars in funds can be raised quickly, but rather what will investors receive in return for their investment, and when.

Sometimes an investment may turn out to be too good to be true and your money could have seen better returns elsewhere. Or, if you are looking for investors, utilizing the services of a business law professional with hands-on knowledge of venture capitalism and business funding might be a better resource for launching your brilliant business idea, rather than some new-fangled website making promises it may not deliver.

Source: The Denver Post, "As Kickstarter and other crowdfunding sites grow, so does scrutiny," Andy Vuong, Aug, 26, 2012

Our law firm handles a variety of business law issues, including business formation and locating venture capital to help get a business off the ground. Visit our Colorado venture capital page to learn more.

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