It is no surprise that with the rise of crowdfunding, there has been an increase in litigation pertaining to crowdfunding. A typical crowdfunding scenario involves small financial contributions or investments from a large number of people, usually made via the Internet. In exchange for these payments, the company that is raising the funds usually promises to provide some sort of benefit to its supporters, typically a free or heavily discounted product. Also, this commitment only comes into play if a certain amount of money is raised. If the fundraising goal is not reached, then the deal is off.
Recently, the attorney general for the state of Washington sued a Nashville-based company for failure to provide the benefits in its crowdfunding campaign. The company, Altius Management, sought to raise $15,000 through Kickstarter. It raised more than $25,000. Altius had promised to reward its financial backers with items such as decks of cards and artwork. Unfortunately, Altius did not follow through, resulting in litigation.
This should be a lesson for all companies that might engage in crowdfunding. Companies need to know the risks associated with providing financial backing. Similarly, if they receive financial backing, they must live up to their end of the deal. If they do not, problems will ensue.