I've Said it Before and I'll Say it Again: It's a Regular Capital Market

I’ve been saying for months now that crowdfunding represents a brand-new micro-public capital market and should/will act like the conventional capital markets that have evolved over the past couple hundred years around the world.

With this in mind, it’s been obvious to me what should happen when people who have raised funds fail to deliver: Nothing. In a capital market ‘investors’ take on some risk (i.e., they give their money to someone else) in exchange for a chance at a reward. The key is for the investor to have enough information that they can understand just how risky the risk is and decide whether the reward makes the risk worth it.

This is the essence of disclosure and it’s critical.

And, starting today, Kickstarter is going to require more and better disclosure for certain types of projects. Finally!

Projects in the Hardware and Product Design categories will now have to tell backers the “risks and challenges” associated with the project and how they will overcome them. This sounds an awful lot like the “Risk Factors” section of an SEC filing (with the addition of mitigating measures) and moves rewards-based crowdfunding one step closer to functioning like the US capital markets.

In addition, product simulations and product renderings are now prohibited, presumably because they are too often different (and better than) the product that eventually gets delivered. Again, the idea that the marketing materials need to be more or less accurate is one that we find in the conventional capital markets, albeit with a very different formulation.

The upshot to all of this is that Kickstarter helped crowdfunding enter its adolescence today today.