Crowdfunding Now!

Thank you for your interest in crowdfunding. Please take a minute to answer three brief questions. We promise, this is a SHORT survey.  https://www.surveymonkey.com/s/BNDGP3Y

DC announced they are considering a crowdfunding exemption. See:  http://youtu.be/ImVLxX2z0rQ

The chart below results from an analysis of the Top 50 crowdfunding campaigns on Indiegogo, 'Top' measured by total dollars raised. The X axis shows the dollar amount of the reward or  perk ($1 to $10, $11 to $20, etc.) The Y axis shows the cumulative number of rewards/perks collected across all 50 campaigns, so the chart shows that, for the top 50 crowdfunding campaigns on Indiegogo, 100,000 rewards/perks with a  value ranging from $1 dollar to $10 dollars were selected by supporters.  Normally, we might expect this chart to be convex, declining steadily from $1 to $5000. This is not what we see, however. It seems that people are willing to donate small dollar amounts, up to about $50, and then contributors look to donate at least $100. What's going on here? To explain this phenomenon, classify backers into two categories: 1. The first category are people who simply want to help. They donate less than $50 dollars and do not donate for the reward (normally a T-shi...

Although the primary purpose of crowdfunding is to help project starters raise money from the crowd, it often provides its own funding procedures. For example, Kickstarter uses an “All or Nothing” method which allows project starters to receive the funds raised only if the crowdfunding campaign reaches it's goal. On the other hand, GoFundMe allows crowdfunding project sponsors to choose between receiving money only once they reach the goal amount or receiving every single contribution from every single backer.  Choosing the right platform depends on the characteristic of the project, but people should aware of the tax issues that come with each method. An "All or Nothing" (AON) strategy is the most frequently used in crowdfunding. This requires project starters set a funding goal prior to launching. They will be able to receive money only if they can confirm the success of the project. After this confirmation, the raised money is transferred to the project creator...

The items below are from an article on what causes small business failures. I have repurposed it to show how crowdfunding addresses these issues and how we use these factors in evaluating potential crowdfunding campaigns. "Inadequate Financing" Clearly, crowdfunding addresses this issue. "Amount of Effort Exerted:  The single most important factor in determining who succeeds and who doesn't is simply the amount of effort exerted. If you aren't ready and willing to work - and work hard - being an entrepreneur is probably not for you." While we don't believe that effort expended is the single most important factor, crowdfunding is hard. If you will not work hard on it, and work smart, then you will not do well. "Lack of Planning:  Another fact rarely considered is that the majority of new businesses fail within a few years mostly due simply to poor planning or no planning at all." You have to plan your crowdfunding ca...

If you are raising money via crowdfunding, do you need to pay taxes? The tricky question is how do you define income from a crowdfunding campaign? You might try to define income as a donation in order to avoid paying taxes. Unfortunately, I don't think this works. Any money derived from an investment effort leading to the delivery of a commercial product is typically taxable, since Federal and State entities see this revenue as ‘income.’ As a result, any ‘project’ in this category is going to be levied at prevailing tax rates, whether it is offered as art, technology, or manufactured goods. No matter you want to manufacture a bike, make a movie, or create a video game, you need to pay taxes. The only exception is Non-Profit (NP) or Non-Government Organization (NGO), and you need to get recognition from the IRS for these. Of course, taxes are based on income. The cost of reward fulfillment can be considered an expense. My suggestion is to recognize the cost of reward fulf...

A start-up using crowd funding to create a product is different from a normal company. The start-up has cash inflows from donations but does not have a product, yet. In this situation, we recommend using completed-contract method to recognize revenue. Under this way of thinking, we assume the start-up is akin to a project or a long-term contract. The crowdfunding company will find it difficult to estimate the revenue from crowdfunders and, hence, the cost of rewards or perks. Under International Financial Reporting Standards (IFRS) and GAAP guidelines, if the firm cannot reliably measure the outcome of the project, revenue should be recognized based on contract costs. These costs should be expensed when incurred. Profit is recognized only at the completion of the project. In summary, for crowdfunding companies, revenue, expense, and profit are recognized only when the crowdfunded product is actually manufactured. 1 For example, assume that AAA Corp. wants to manufacture bicyc...