FYI.

This story is over 5 years old.

Tech

You'll Never Own Part of the Kickstarter Companies You Invest In

"I backed Oculus Rift on Kickstarter and all I got was this lousy t-shirt."
Image: Kickstarter

"I backed Oculus Rift on Kickstarter and all I got was this lousy t-shirt."

You may have seen some iteration of that line circulating the internet a couple months ago after Facebook dished out $2 billion to acquire the Oculus headset, which got its start thanks to the kind donations of thousands of excited future users. While the early backers helped Oculus get off the ground—and may have received some gifts in return, depending on the size of their donation—they didn't see a dime of that $2 billion, because crowdfunders aren’t offered equity in exchange for funds.

Advertisement

The Oculus/Facebook backlash raised the question of whether that ought to change, reigniting the buzz over equity crowdfunding—offering the crowd stock options in the project they're helping get off the ground. But Kickstarter said this weekend (as it has before) that it won’t be getting into the crowd equity space.

"We're planning on sitting that one out," CEO Yancey Strickler said at the TechCrunch Disrupt conference in New York. He used the question as a jumping off point to pontificate about Kickstarter’s fundamental ideology: to help support fun projects that people love but that don't hold a lot of promise for a return on investment. "Things that we knew are hard to get funded, because it wasn't going to make anybody money," he said.

Kickstarter started out focused on indie art projects and films, but has since become a major resource for budding entrepreneurs. In the tech world, it serves as a way to gauge consumer demand—if people rush to contribute to a new campaign, you can assume there's interest in the product, which then attracts the VCs. In return, the backers get to see that gadget or whatnot come into existence. Plus maybe a t-shirt.

That model's been working just fine for Kickstarter, which refuses to sell out, go public, or market its site as a place for people to buy things or make investments. But there are a handful of other crowdfunding startups that are interested in offering equity in exchange for funds: Wefunder, SeedInvest, Crowdfunder, and Fundable to name a few.

The equity crowdfunding concept was first floated two years ago as a provision in President Obama's JOBS Act, or Jumpstart Our Business Startups act. That legislation relaxed the current law to allow new businesses to accept small investments from a large number of people, upping the limit from 500 to 2,000 investors.

Surprise, surprise, the new law still hasn't been implemented; Congress is waiting on the Securities and Exchange Commission to establish regulations to assure the crowd-investors aren't ripped off by failed startups or fraudulent campaigns. The SEC is expected to finally come out with those rules soon, sparking speculation that 2014 will be the year equity crowdfunding takes off, which, if Silicon Valley optimism and the president’s stump speeches are to be believed, would open up a new avenue for entrepreneurship and innovation.

But Kickstarter itself, the OG crowdfunding platform, won't be joining in the great democratization of Wall Street, a decision that’s bound to disappoint some people. It's worth noting though that the Oculus Rift early adopters weren’t pissed about not getting rich off the lucrative acquisition, so much as feeling like the developers were reneging on their promise for the vision of the product—assuming that Facebook would mainstream all the cool out of the VR gadget.

In other words, it's about the idea more than the money. By refusing to offer ownership, Kickstarter's doubling down on its ethos: not to be the future of small business, but a way to encourage creativity.