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How Kickstarter is Ripping You Off

By
Friday, July 19th, 2013

I have a very strong love-hate relationship with a company called Kickstarter and I'm going to tell you why. I'll start with the love first...seed

Kickstarter is an online funding platform for creative projects.

Since its launch in 2009, the company has brought in over $700 million in pledges from over 3 million individuals to fund over 35 thousand independent projects.

Kickstarter has worked to fund the Pebble (the world's most popular smart watch), a satellite launch by asteroid mining company Planetary Resources, a high resolution 3D printer, and a jaw-dropping virtual reality device called the Oculus Rift.

These are all products or services that are embedded in promising future industries and wouldn't have been successful without Kickstarter's take on crowdsourcing.

Free Money

For those new to this area, crowd-sourcing is the practice of procuring services from a large group of people through wide scale solicitation, usually accomplished through an online community. In the case of Kickstarter, we call this process crowdfunding.

Basically, projects are proposed on Kickstarter's website with an outlined plan and a funding goal. Site users can then choose to fund projects they like on an "all or nothing" basis, meaning if a project does not reach its goal then there is no obligation to fulfill a pledge.

This works as a powerful motivator for those running a project and also reduces the risk for funders. In the end, a pledger will never pay for a project that does not receive its entire requested fund goal.

Now this is all fine and dandy, but there is just one problem: there is absolutely no monetary value in this system for funders, even if a project ends up being incredibly lucrative.

In a very real sense, the people pledging their money on Kickstarter are investors. They are investing in an idea with the expectation that something will be returned to them.

But these returns aren't actually worth anything – they are simply invisible karma points to make investors feel good about themselves.

Of course some will argue that not everything is about money but I beg to differ. Let's just put things into perspective here...

The Pebble raised $10 million on Kickstarter, meaning the company got $10 million in free money to get their business rolling. Pebble sales have already passed 275 thousand units. At $150 a unit, that is $41.3 million in revenue.

And what did the funders get? Absolutely nothing.

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Crowdsource Exchange

The fact is, if you fund any kind of project or business that stands to make a profit, you deserve a stake in that success. Anyone not getting a stake in equity is getting swindled, plain and simple.

Luckily for us investors that actually care about making money, crowd-funding is moving in a positive direction.

Bergfurst, which roughly translates to "Mountain Prince", is a brand new online German commodity exchange for trading shares of young and privately owned companies.

Bergfurst differs from other crowd-funding platforms in the sense that it provides financial transparency similar to that of a traditional commodities exchange.

Bergfurst is accredited by the German Financial Authority and requires companies to provide a prospectus before their initial public offering (IPO). The company will officially act as a platform for the world's first crowd-funded accredited IPO this September.

Urbanara, a European upscale home-wares company will be the first to try this method of funding. The company will offer investors equity stake and additional benefits and services from Urbana at a minimum investment of €250 ($328).

Buyers and sellers will ultimately determine the price of shares and the platform will operate like a typical commodity exchange. In the most basic sense, Bergfurst can been viewed as an entry level stock market.

Now I wont be rushing to throw my money at this newly founded exchange, and neither should you. The fact is, established markets are by far the most promising platforms for growing your wealth.

However, if crowd-funded trading platforms do make their way to the United States (I believe they eventually will) and are accredited by the SEC, this would definitely warrant a second look and open doors to areas once only available to venture capitalists. 

Turning progress to profits,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Energy and Capital's tech expert, Jason Stutman has worked as an educator in mathematics, technology, and science... Before joining the Energy and Capital team, Jason served on multiple technology development committees, writing and earning grants in educational and behavioral technologies. Jason offers readers keen insights on prominent tech trends while exposing otherwise unnoticed opportunities.

 


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