Crowdfunding? Yes, Maybe, No. Not Yet. 0

Great news: a Kickstarter-funded film won an Academy Award last Sunday. I like Kickstarter myself, I’ve participated in three deals there now. It’s a great place to raise funds for a film, book, game, software app, food product, and some other things that can be pre-sold to buyers willing to pay now for stuff they’re going to receive later.

But still, we need a reality check:

  1. Startups on Kickstarter don’t sell shares to investors. Entrepreneurs on Kickstarter sell stuff they’re going to deliver later. That’s great, because it’s the best kind of financing, sales, not equity. And Kickstarter companies collect some donations too. But they don’t sell shares to investors.
  2. Although the 2012 Jobs Act unlocked the door to larger-scale angel investment, that door hasn’t opened yet. Restrictions that started with the great depression are still in place. The SEC is supposed to issue new regulations, but it hasn’t yet.
  3. Startups can’t legally troll for investors on the web. They can’t advertise in the media or announce themselves in large gatherings. Wikipedia says “soliciting investments from the general public is most often illegal unless the opportunity has been filed with an appropriate securities regulatory authority.”

The good news is that KickStarter is working for lots of Startups. No, it doesn’t let you get equity investment in your startup. But the best financing is sales. And Kickstarter, when it works, is an opportunity to test an idea by selling it to people who promise to buy it when you can deliver.

And the bad news is that it’s still illegal to offer investment over the web to anybody who accesses your page. Or make offers in Twitter, or Facebook.  The SEC rules about accredited investors and broadcasting investment offerings still apply.

About the Author Tim Berry is the founder of Palo Alto Software and Follow him on Twitter @Timberry. Follow Tim on Google+ Read more »

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