Crowdfunding – a few basics

written by Elizabeth Gearhart, Ph.D., Patent Agent at Gearhart Law
www.gearhartlaw.com

Crowdfunding refers to people or organizations obtaining funds for their cause by asking a large audience for money, allowing them to bypass the banks and large investors such as venture capitalists. The concept has been around for a long time, but the internet has made it significantly easier to reach people you don’t know and pitch your cause or product to them.  Start ups may use crowdfunding to obtain money for product design, product manufacture, marketing, or related activities.  

In the case of inventors trying to bring their invention to market, crowdfunding may make a lot of sense. There are crowdfunding sites all over the internet; a popular one for inventors is kickstarter at www.kickstarter.com.   If you are serious about using crowdfunding, however, you should check out a number of sites and see which one best fits your particular situation.

One thing to be aware of – you need to have your intellectual property protected before you put too much of a description of your idea on a crowdfunding site.  Otherwise, anyone can steal your idea.  Additionally, you will have made a ‘public disclosure’ which could affect your patent rights; if you haven’t filed a patent application before publicly disclosing your idea, you have one year in which to do so or lose your patent rights in the United States, but you lose all patent rights in Europe; they don’t have the one year grace period.

When using a crowdfunding site, make sure you understand the rules. You need to set a target amount at which your project is 100% funded. Some sites let you keep any money you raise, even if you don’t hit the target. Others make you return all the money raised if you don’t hit the target. Also, the crowdfunding sites don’t do this for free.   A typical fee is 4% of the money raised. Other fees and rules may apply. 

One crowdfunding project my teemaged daughter contributed to was for a computer game. The inventors didn’t use a crowdfunding site; they built their audience with an online comic adventure, then asked their fans for money to develop the game. The fans would get a copy of the game as soon as it came out and a few other things such as a t-shirt, etc. The ‘price’ was set at $105.00. This was a little steep, considering most computer games cost $30-$60, but she really liked the comic and was willing to pay $105 for the computer game. 

That’s one way to do it, but you may be able to get a bigger audience by using a site like kickstarter. If you’re willing to pay an extra fee, you may be able to get your project on the front page of some of these sites.  And be sure to come up with a good story to convince people to invest in your project!

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