Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Fintech Opinions
How to Minimize Risk When Crowdfunding on Kickstarter
Mashable by Nellie Akalp | July 30, 2013
To date, more than $680 million has been raised on Kickstarter, as crowdfunding becomes an increasingly viable option for startups to raise much-needed funds without the help of VCs, angels or banks.
For a young, bootstrapping startup, crowdfunding is often seen as fast money that will help you build out the product or app you and your team have always dreamed about. Whether or not a project ultimately reaches its funding goals, it’s still relatively quick and easy to post your pitch and see what happens.
However, amid all of the hype and excitement surrounding crowdfunding, some of the less glamorous (but extremely important) aspects of running a business often go overlooked — particularly taxes and liability.
Liability Issues With Crowdfunding
When crowdfunding turns into a platform for taking pre-orders for a yet-to-be-finished product, there are inevitable risks. We’ve all heard stories about high-profile delivery delays like the Pebble smart watch, but they’re hardly an anomaly. A report by CNN Money found that 84% of the top 50 funded projects on Kickstarter in 2012 shipped late. When excited backers expect the same smooth fulfillment process as ordering a product from a retailer like Amazon, disappointment, frustration and worse will inevitably ensue.
It's doubtful that anyone actually creates a Kickstarter campaign with the sole intention of weaseling money out of people. However, with any technology or creative project, things don’t always go as planned — and some well-intended projects fold before they’re ever brought to fruition.
For this reason, it makes sense to launch a Kickstarter campaign through a legal business structure, such as a Limited Liability Company (LLC), as opposed to posting it as an individual. An LLC or other structure offers a layer of protection that can essentially shield your own personal assets from that of the business. So, if something should happen to your project or business, the business is liable for it, and not you personally. Make sure your LLC or corporation is officially established and then conduct all business and enter contracts through the LLC or corporation.
Crowdfunding and Taxes
The tax consequences of crowdfunding campaigns can catch project creators off guard. When you raise funds for your business through other sources, it’s considered a contribution to capital and is usually not taxed. However, funds raised on Kickstarter are considered income, and creators are issued a 1099-K (at least when they raise more than $20,000 and have more than 200 transactions).
Project creators can often offset this income with deductible expenses related to their project. However, some people run into trouble when their Kickstarter funds fall in a different tax year than their major expenses. For example, you might need to raise money first, then you can start spending it to build the product. To counter this scenario, some project creators opt to form a C Corporation so they have more flexibility in defining their fiscal year for tax reporting purposes (and therefore, make sure their Kickstarter income and expenses occur within the same reporting year).
Continue to the full article --> here
Canadian Regulators Heading Different Directions on Equity Crowdfunding
NCFA Canada | John Wires | July 25, 2013
In an effort to get out in front of the curve, the securities regulator in Saskatchewan (The Financial & Consumer Affairs Authority or "FCAA") released a proposed equity crowdfunding framework.
Much to the author's surprise, the proposal seems to be calling for very little regulation and red tape.
The FCAA proposal comes months after the Ontario Securities Commission (“OSC”) published their own proposed (and significantly different) crowdfunding framework. Interestingly, the key difference between the two is the amount that issuers (startups, entrepreneurs or small businesses) can raise. Other key features of the two proposals are outlined in the table below.
| Ontario | Saskatchewan | |
| Offering Size | $1.5 million per year | $100,000 up to twice per year |
| Limits on the types of securities | Common shares;Non-convertible preferred shares;Non-convertible debt securities;Securities convertible into common or preferred shares | Not specified |
| Advertising | Only though a funding portal or on the issuer’s website | Not specified |
| Police Background Check on Issuers | Not specified | Yes |
| Disclosure | Disclosure document at point of sale | Minimal disclosure |
| Ongoing disclosure obligations | Annual financial statements along with proper securities registers and documentation on how funds were spent. | Not specified, but presumably as required under corporate legislation. |
| Audits | Required if more than $500,000 is raised | Not specified. |
| Investor Risk Acknowledgement | Yes, signed by each investor | Yes, signed by each investor |
| Cap per investor | $2,500 per investor and up to $10,000 per year | $1,000 per investor but unlimited number of investments with different issuers |
| Report on trades sent to regulator | Not specified | Yes |
| Funding portals must be registered with the regulator | Yes | No |
With Ontario and Saskatchewan proposing different regimes, the country’s provincial securities regulators are heading down different paths.
The risk, of course, is reducing the success of crowdfunding by restricting investors to only be able to invest in companies in their province. On that point, the Saskatchewan proposal notes that:
If these [crowdfunding] exemptions are not adopted by other jurisdictions, these exemptions will likely be limited by law to Saskatchewan issuers and Saskatchewan investors.
The Risk of Having Different Provincial Crowdfunding Regimes
The power of crowdfunding comes from leveraging online technology and social media to spread the word about a worthwhile project, business, or idea.
Crowdfunding will not be successful without access to large numbers of people. The smaller the crowd, the smaller amount any prospective issuer will be able to raise.
If Saskatchewan moves forward with its proposal in cutting out access to investors in other provinces, or indeed, investors overseas, they limit themselves to a small population of just over 1 million people.
What’s the Solution?
Canada needs a harmonized approach to equity crowdfunding. Without issuers in Saskatchewan being able to raise funds from investors in Ontario, and vis-versa, the power of crowfunding is compromised.
Other provincial regulators, including P.E.I., have said they are going to wait and see what other provinces do, and whether a more harmonized approached under the Canadian Securities Administrators (“CSA”) can be achieved. With two proposed equity crowdfunding models on the table, now more than ever, we need policy makers, the CSA and politicians to step up and focus on creating the right solution for Canadian companies and Canadian investors.
About the Author
John Wires is a lawyer and founder of Wires Law a firm providing fixed price legal services to Canadian businesses. He is also an Advisor at the National Crowdfunding Association of Canada (NCFA Canada). John comes from a background of courtroom experience practicing complex corporate commercial litigation. Having litigated shareholder and employee disputes, he understands the value of companies protecting their businesses with the proper upfront legal work so many Canadian businesses lack. You can follow John @johnwires and contact him at jwires@wireslaw.ca.
Interview with Douglas Cumming on Latest Crowdfunding Research Paper
NCFA Canada | July 24, 2013
NCFA Advisor Sunny Shao talks to Douglas Cumming, professor of finance and entrepreneurship at York University about his latest crowdfunding research paper Demand Driven Securities Regulation: Evidence from Crowdfunding, which examines survey data collected in the National Crowdfunding Survey in Canada in Q1 2013.
Topics covered include whether a race-to-the-top or race-to-the-bottom debate in a unique context of equity crowdfunding (investment crowdfunding, or crowdfund investing), in which agency problems are extreme, as well as other questions such as:
- What drives the demand or pull for equity crowdfunding from the "crowd"?
- What are some regulatory frameworks for existing sources of financing for entrepreneurs and startups?
- Who are the different stakeholders in the equity crowdfunding landscape, and what are their sentiments towards equity crowdfunding?
- What are some of the major benefits and risks of equity crowdfunding?
- What are some regional differences across Canada in terms of sentiments towards legalizing equity crowdfunding?
- What areas should further research be conducted?
Download the paper here –> Demand Driven Securities Regulation: Evidence from Crowdfunding
[youtube]http://youtu.be/smuu1aZTK1k[/youtube]
Poll: Saskatchewan Financial and Consumer Affairs Authority (FCCA) Proposal
Posted on July 17, 2013
The Saskatchewan Financial and Consumer Affairs Authority (FCCA) recently released a concept proposal to legalize equity crowdfunding for start-ups with a two year sunset clause. While the sentiment has generally been positive, there are certain concerns that regulators must take into account, such as investor protection, regulation of users, and regulation of portals.
Please take a moment to share your thoughts about the proposal by voting in our poll or leaving a comment below. More information about the FCAA proposal can be found here.
Social Causes and Crowdfunding: live updates from the International Startup Festival in Montreal
Posted on July 12, 2013
Watch the recorded Google hangout as Craig Asano, Marty Gunderson, and Sunny Shao of NCFA Canada speak with Heri Rakotomalala of Seeding Factory, who joined live from the Crowdfunding tent at the International Startup Festival in Montreal. NCFA and Seeding Factory discuss social cause crowdfunding projects, such as La Pleb's flash mob style crowdfunding campaign to raise $1,000 in one day for the community of La Megantic from the train explosion disaster. Over 13% has been raised at the time of posting from in-person donations alone at the Crowdfunding tent, but you still have time to contribute before the end of the day July 12 by clicking here.
[youtube]http://www.youtube.com/watch?v=0PNQcF2nwUY[/youtube]
Crowd Funding – Time for Canada to Get Involved
Pivot Magazine by John Wires | Posted on July 11, 2013
Crowdfunding is becoming all the rage and so it should, its a game changer.
It started with micro-financing for charitable purposes on sites like Kiva.org, moved to aiding artistic, gaming and technology projects like those on Kickstarter.com but last year the US JOBS Act, (specifically Title III, the Crowdfund Act) was signed by President Obama allowing start-ups to crowd fund their ventures online in exchange for equity positions.
The power of online crowdfunding is nothing short of amazing. On Kickstarter for example, some projects are raising over $1.0 million (without giving up equity) from thousands of “funders” in less than 30 days. Funding initiatives are all based on a profile video and project descriptions.
This project by Double Fine raised $3.3 million from over 87,000 people to develop a new computer game and again, gave up %0 equity. Crowdfunding poses as a massive disruption to the traditional models of funding business and its only going to grow as a means of raising capital now that “funders” can take an equity share.
To me it’s exciting, and for entrepreneurs, it should be liberating.
How The Act Plays Out & the Implications for Canadian Start-ups
The big question is how will crowdfunding play out under the new legislation? In particular, what does it mean for Canadian start-ups?
The mainstream media highlights that the new legislation allows “emerging growth companies” to raise up to $1.0 million from up to 2000 investors online with limits on the amount each individual can invest.
What isn’t mentioned is that the new ventures looking to crowdfund must do so through what the Act defines as “funding portals” or funding websites. Funding portals will be heavily regulated and must be registered with the US Securities Exchange Commission (“SEC”).
It’s not simply a matter of popping online and asking people to fund you.
While crowdfunding will be closely watched and regulated by the SEC, there may be very few measures to stop Canadians from incorporating in the United States to be listed on the coming wave of funding portals.
For that reason, David Geertz, the Vancouver based founder of a Canadian crowdfunding site called SoKap, sees a brain drain full of Canadian start-ups heading south.
Now that the Act is signed, the SEC has 270 days to put together the rules and regulations for funding portals, aside from those already specified in the Act.
For example, the Act requires funding portals to provide certain disclosure information to investors and investors will be forced to acknowledge the risk of investing in growth companies. Portals will be responsible for collecting information about the businesses they list on their website, including:
- business plans;
- income tax statements;
- financial statements;
- target offering amount;
- deadline to reach the funding goal;
- how the shares are valued;
- how much equity is being offered;
- the names of shareholders with over 20% of shares;
- the risk of the company issuing more shares;
- the risks of being a minority shareholder
- the physical address;
- names of directors; and ,
- how much money has been invested in the company to date.
Perhaps the most interesting issue moving forward will be who jumps on the opportunity to establish funding portals. Under the Act, funding portals, which in essence are intermediaries, cannot offer investment advice, pay anyone to promote the investments or handle the investor funds. That takes the appeal away from Wall Street and the big banks, although traditional “brokers” may still have a place in establishing funding portals.
While the fear of an increase in fraud is likely legitimate, it will be interesting to see if the SEC can find the right balance in drafting the rules and regulations between promoting growth and discouraging fraud.
It will also be interesting to see whether the online power of what Rachel Botsman coined “reputation capital” and “trust mechanics” can keep company directors in line.
Continue to full article -->here
Why crowdfunding hasn’t caught on in Asia
CNNMoney by Kurt Wagner | Posted on July 9, 2013
The popular fundraising method hasn't stuck yet. It's only a matter of time.
FORTUNE -- The crowdfunding industry made it clear it isn't going anywhere last year. Popular crowdfunding platforms like Kickstarter and Indiegogo made it simple for entrepreneurs to fund their creative projects by soliciting donations from the general public. With more than 600 platforms worldwide, crowdfunding has grown from a $530 million industry in 2009 to nearly $2.7 billion last year, according to a recent study by Massolution, a research firm specializing in crowdsourcing businesses.
The relatively new funding strategy -- in which entrepreneurs receive donations often in exchange for small perks or gifts -- is predicted to eclipse $5 billion in total funding in 2013, according to the study.
But not everyone has fully adopted crowdfunding. Platforms in Asia, home to more than half of the world's population, were responsible for only $33 million in funding last year -- just over 1% of the total raised, according to the study. With so many entrepreneurs relying on the masses to jumpstart their projects, it's noticeable that the largest concentration of people on the globe appears to be uninterested.
There are a number of reasons crowdfunding hasn't gained traction in Asia like it has in North America ($1.6 billion in 2012) or Europe ($945 million), says Leo Shimada, founder of Singapore-based platform Crowdonomic. The most obvious is that Asia doesn't have the high-profile, reliable platforms that have helped push the industry forward elsewhere, he argues. Tom Russell, CEO of equity-based platform SeedAsia in China, agrees. "I don't know if you've had a platform quite like Kickstarter anywhere else in the world yet," he says.
Too many crowdfunding providers in Asia are taking a "cookie-cutter approach," explains Shimada, simply throwing up a website without providing the services or reliability donors have come to expect in other parts of the world. "They look at Indiegogo or Kickstarter and replicate the website and expect money to come in," he says.
Local culture is another thing. For example, the public perception of failure is different in Asia than it is in the United States, says Shimada, and funding an idea online is risky in that it opens the entrepreneur to criticism and the potential to fail publicly. "Wherever you are in the world, no one wants to be a loser," says Shimada, "but especially in a region like Asia where there's this thing about saving face and a pronounced fear of failure." In China, Russell pointed to the importance of guanxi, the process of maintaining relationships and influential networks, as a possible crowdfunding deterrent. "[In China] people like to invest in their local community," he says. "They're often very willing to get behind projects where they know the founders, or they have an understanding of what the person is doing. But the idea of investing on the Internet, I feel that's just very unfamiliar to them." It is because of this that SeedAsia works to connect investors with entrepreneurs offline.
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