Getting crowdfunding wrong

Here’s a link to a brief article about crowdsourcing as applied to startups. Grade for this article? Nominally 80% for 4 out of 5 right, but the wrong answer on financing can kill a company.

This one gets a #FAIL from me.

Hearkening back (or forward, since I don’t know if I’ve posted it yet) to my thoughts on why I write, one of them is definitely to signal to founders and directors of small and startup companies when they need to call a lawyer. I guess I’ll have to follow up soon with my hot-button post.

I think that it’s really useful for me to tell people when they absolutely need my advice (taking investment money of any kind), when I can almost certainly help (non-standard commercial contracts), when I can add value (helping negotiate a deal), and when I’m not helpful (picking colors for the website design). Honesty from me makes my clients more efficient, and I hope that it s’s more evidence to them and the not-yet clients that I fit their definition of “trusted.”


  1. Damien Ryan on June 21, 2010 at 11:23 am

    Hi Rick,

    Thanks for your wonderful site, it was one of only a handful that was able to give me a more sobering view of the crowd funding project that I am currently embarking on.

    I was wondering if you might be able to give me some further advice. Would it be ok if I sent you a description of my project with a view to have you answer a few quick questions regarding what legal obligations I may or may not have?

    • admin on June 21, 2010 at 11:26 am

      Damien, thanks for your comment. The key thing to know is that this sort of activity, the sale of securities, is highly regulated in almost every jurisdiction in the world, even when there are carveouts for sales to foreigners (as in the US) that allow for a “simpler” process.

      If you’re not in the US, I’m not going to be able to give you any good advice at all. But otherwise, sure, post the question and I’ll almost certainly comment back.


  2. Rick Colosimo on July 11, 2010 at 5:50 pm

    Here’s an interesting follow-up article:

    The author wants to submit a proposed SEC regulation to allow small offerings that would allow for a crowdfunding approach.

    Interesting idea for working around the existing rules. Small purchases by individuals with tight total offering limits are possible ways of mitigating the risks on which the SEC rules are focused.

  3. Will crowdfunding be easy? on November 9, 2012 at 11:42 am

    […] written previously about the dangers of using crowdfunding sites to sell equity in your startup. I’m sure to many it seemed like […]

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