Over the last few years, crowdfunding has generated a lot of buzz as an alternative fundraising method for startup companies. However, there’s a lot more to it than just creating a crowdfunding page and hoping people flock to your idea. In fact, crowdfunding is a complex endeavor that takes a lot of upfront planning and ongoing effort. It also requires a good understanding of the legal requirements to protect your business idea and your financial assets.
To practice safe crowdfunding:
- Protect Your Intellectual Content. Every company or product has intellectual property (IP), such as domain names, designs, or patent rights. Moreover, this IP often represents the company’s most valuable asset, especially with technology products. Discussing your IP in a public forum can put it at risk, so make sure it is well protected before embarking on any type of crowdfunding campaign.
- Choose the Right Platform. There are many different types of crowdfunding platforms, ranging from charitable donations to rewards, equity and more. Each has their own unique requirements and regulations, as well as advantages and disadvantages. For example, platforms like Kickstarter are all or nothing, meaning that if you fail to hit your target, you don’t receive any funds. Take the time to learn about the different crowdfunding platforms and choose the one that fits your fundraising needs.
- Respect Others’ IP. If your pitch includes music, photos, or a video clip that you didn’t create, find out how to use it without infringing on the creator’s rights. Some items may be free for public use, but you won’t know without reading the permission or licensing agreement. Misusing other’s IP can expose you to fines and cease and desist orders, and can disrupt your crowdfunding campaign.
- Manage the Rewards. If you opt for a crowdfunding platform where you offer rewards to backers, be careful not to promise more than you can deliver. In particular, make sure to direct the full amount of the money you’ve raised toward fulfilling the rewards you offered before applying it to other expenses. Otherwise, you may end up with a horde of angry backers.
Plan, Read, Work
Don’t underestimate the amount of time and work it takes to launch a successful crowdfunding campaign. Plan on months, not weeks, to achieve your goals.
To prevent legal entanglements, carefully read and understand every licensing, employee, or contractor agreement you sign, especially as they apply to using others’ IP. If necessary, enlist professional help. Once you launch the campaign, keep the momentum going by staying on top of all communications with interested backers.
Regardless of which platform you choose, crowdfunding is all about finding your crowd. Don’t waste time pitching to people who have no interest in your product or company. Pick the right platform for your needs, and focus your efforts on selling that audience on your idea.
To learn more about protecting your IP and other intangible assets during the fundraising phase, visit the Ideator Resources page. If you’re not already a member, it only takes a few minutes to sign up, and it doesn’t cost anything to join.