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Comment by dmfdmf | Hacker News Reader

I hope the FTC doesn't try to enforce consumer laws on an investment site. In the article they even refer to the contributors to the game as "consumers" which I think is a mistake. Anyone contributing to a Kickstarter project is investing and as such has to expect the possibility of a complete loss of funds. Of course, a site like this will attract scammers and the FTC should investigate fishy cases when the principals just take the money and run but that scam is older than capitalism.

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It's not an investment site. Kickstarter is very clear that you're not investing. You don't share in profits. You're nothing like an investor. "Kickstarter is not a store" does not make Kickstarter into an investment platform either.

The regulations protecting investors are far stronger than those protecting consumers. Crowdfunding could not exist if the customers were legally considered investors.

Yes. There's reasons Kickstarter goes to great pains to make it clear backers are not investors. SEC regulations and compliance requirements are much more burdensome.

I think the word you're looking for is 'patronage', not investment.

Patronage probably comes closer to capturing the dynamic than any other word in common use. You're giving money, often with the hope/expectation of receiving some combination of tangible and intangible returns. However, patronage excludes both the idea that you're investing in something with the hope of making a profit and the concept that you're simply initiating a transaction to purchase Y in exchange for $X.

An investment whose performance is capped at the value of your investment. A bit ridiculous.

Nope, not investment.

Crowdcube and others like it, they're investment platforms. Kickstarter is ... something else. It's not a shop, because there are no guarantees. It's not investment because there's no profit sharing or part ownership, or even interest.

So it's... what exactly?

I don't know, but I am wary about it.

I hope they do. I see absolutely no reason to not.

Thanks for the clarification but I'd guess in due time the FTC will rule this is investment. Its inherent even in the name "crowdfunding".

https://www.kickstarter.com/hello

"4. Creators keep 100% ownership of their work.

Backers are supporting projects to help them come to life, not to profit financially. Instead, project creators offer rewards to thank backers for their support. Backers of an effort to make a book or film, for example, often get a copy of the finished work. A bigger pledge to a film project might get you into the premiere — or land you a private screening for you and your friends. One artist raised funds to create a wall installation, then gave pieces of it to her backers when the exhibit end."

https://www.kickstarter.com/help/faq/kickstarter+basics?ref=...

"What do backers get in return?

Backers that support a project on Kickstarter get an inside look at the creative process, and help that project come to life. They also get to choose from a variety of unique rewards offered by the project creator. Rewards vary from project to project, but often include a copy of what is being produced (CD, DVD, book, etc.) or an experience unique to the project.

Project creators keep 100% ownership of their work, and Kickstarter cannot be used to offer equity, financial returns, or to solicit loans."

https://www.kickstarter.com/rules?ref=footer

"Projects can’t fundraise for charity, offer financial incentives, or involve prohibited items.

We’re all in favor of charity and investment, but they’re not permitted on Kickstarter. Projects can’t promise to donate funds raised to a charity or cause, and they can’t offer financial incentives like equity or repayment. We also can’t allow any of these prohibited things."

They are incredibly clear about this. Backing a project on Kickstarter is not an investment.

KS also claims to not be a store. It is disingenuous to try to have it both ways. If KS weren't fraudulent, they would remove the ability to promise rewards that don't exist.

> KS also claims to not be a store. It is disingenuous to try to have it both ways.

Well, maybe they're both not a store and not an investment platform?

It's the SEC's job to determine that, and writing the rules is taking a long time, which is why title III of the JOBS act, which relates to small-scale equity crowdfunding, has been delayed.

Look, you really don't know what you're talking about here. I'm not saying that to make you feel bad, but to point out that some of your beliefs about how these things work have no basis in fact and you could end up making expensive mistakes if you act on those beliefs.

Try this simple overview of the issue and follow some of the links within to learn about the legal realities of crowdfunding-as-an-investment: http://www.forbes.com/sites/mraneri/2015/04/16/who-needs-equ...

I understand that it may seem like a distinction without a difference to you, but if you were ever to set up a crowdfunding campaign of your own based on this viewpoint you could run into all sorts of problems.

Kickstarter is a shop and should be regulated like a shop. What would happen to Amazon if a pre-order failed and I didn't get a refund?

If it were an investment site, you'd be getting shares for your money.

It's neither. What Kickstarter really is is a donations platform. It's like when PBS holds a fundraiser and you get a bag for donating $X to support your local PBS station. (This isn't quite right either, as PBS just buys the bags, if Masterpiece Theater doesn't finish shooting an episode on time it doesn't imperil bag delivery, but it's a lot closer than either of Kickstarter The Store or Kickstarter The Investment Platform.)

Right, and the difference between PBS and KS is that PBS is actually capable of delivering the promised reward, not perpetuating a fraud.

KS used to be a preorder system to fund bulk orders of pre-production invented hardware. Then it became a scam platform.

I agree, after reading all these comments and links it has to be viewed as charity donations. They need to sever ANY expectation of outcome and can't offer any inducements or incentives or promises to buy, etc. In essence a Kickstarter project says "Here is my project, please give me money" as long as that is clear then the govt may leave it alone but perhaps there are different regs on charities. Also, the IRS might have something to say about the tax status of gifts over $10K, so recipient will have to pay income tax upfront.

Fwiw if they're legally gifts (which is not always obvious, consult your tax professional etc.), gift tax in the U.S. is payable by the gifter, not the recipient: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employ... I believe this is because it's mainly aimed at wealthy estates who're trying to end-run the estate tax by conveying large amounts of money to would-be heirs via gifts instead.

I agree these are questions for a tax pro. Also, I think the gift tax and rules are different for related vs non-related parties. If you pulled $100K in "gifts" from a Kickstarter project I'd bet the IRS would rule that as income, if they haven't already.

When you back a Kickstarter project, you accept the (diclosed) risk that you will not get anything for your money if the project fails. This is the nature of Kickstarter. Otherwise people would just do Amazon preorders like everyone else.

If you don't like this, don't back Kickstarter projects. It doesn't matter that you believe Kickstarter is a shop - you are wrong and the expectations you invent and project onto an organization do not and should not give it legal obligations.

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