Ridiculous: SEC Boss Refused To Move Forward On Required Crowdfunding Rules To Protect Her 'Legacy'

from the her-legacy-is-a-joke dept

Earlier this year, the JOBS Act passed Congress with widespread bipartisan support, and was signed into law by the President. There were a few different pieces involved, but one that got plenty of attention was the opening up of crowdfunding for equity (i.e., owning actual shares in a company). In the US, you can't do a crowdfunding campaign that results in giving ownership in the company. Until the JOBS Act passed, that was considered a form of a public offering, which is a highly regulated area, in which you have to file all sorts of documents with the SEC, get an underwriter, go on a road show, all that fun stuff. But for smaller businesses looking to raise some money, this doesn't make much sense. The JOBS Act opened up a small sliver of space in which smaller companies could raise a little bit of money in exchange for equity. The SEC actively opposed the whole thing from the beginning, but once the bill was law, it was also tasked with setting up the rules for how it would work to limit possible fraud.

Back in August, we noted that the SEC's rules were due out any day, but had been pushed back at least a week as various state regulators argued that the whole thing was just going to be used for massive scamming. Since then the whole process has been fought over and changed numerous times. Newly released emails suggest that it wasn't because the SEC was struggling with setting the best rules possible... but because SEC boss Mary Schapiro was worried about her legacy. She's leaving the position in two weeks and apparently didn't want to put in place strict rules for fear that it would tarnish her reputation as being "pro-investor."

"I don't want to be tagged with an anti-investor legacy," Schapiro wrote in an e-mail to [Corporation Finance Director Meredith] Cross with the subject line "Please don't forward."

"In light of all that's been accomplished, that wouldn't be fair, but it is what will be said ..."

Whether or not you think the rules are good or bad, we should have SEC commissioners who focus on doing what's right... now how things are going to look on their resume when they go hunting for a job in the industry after leaving public service.

Filed Under: crowdfunding, investment, legacy, mary schapiro, sec

New Kickstarter Rules Make Sense In Principle, But Raise Big Questions In Practice

from the balancing-act dept

Kickstarter is an amazing platform that faces a lot of interesting challenges. Chief among them is a combination of quality control and expectation management — both of which revolve, in many ways, around image. As in: what is Kickstarter in the eyes of users? On the one hand, the company wants to weed out the worst projects, because it knows that a few high-profile failures could cause serious damage to its image. On the other hand, it wants users to understand that there are always risks involved in backing a project, so they should be discerning and be prepared for delays or other problems. This led to their recent changes to the rules, focused on divulging risks and challenges (which basically everyone agrees is a good thing), preventing people from treating Kickstarter like a simple store or pre-order platform (a more controversial move), and minimizing promises by banning product renderings (the source of the most debate). In the latter two areas, Kickstarter is treading a fine line.

Firstly, there's the "Kickstarter is not a store" aspect (which was the name of their initial blog post about the rules). The core change here was prohibiting projects in the Product Design and Technology sections from offering multiple-item reward tiers (e.g. get three widgets, get five widgets, etc.) which had previously been a pretty popular strategy for launching new consumer products on Kickstarter. They felt that offering multiple items would lead to a lot of disappointment when some projects inevitably go wrong, since it gives the impression that the product is "shrink-wrapped and ready to ship" — and if it is, then it shouldn't be on Kickstarter, a platform geared at helping products to completion, not selling finished ones. That makes sense, but it comes with a few problems:

• Kickstarter acknowledges that in some cases it makes sense to sell products as a set — but that in such cases, you won't be allowed to sell them individually. This ignores the wide variety of versatile products that might make sense individually or in sets. For example, take the Ubi computer (a sort of stationary Siri) which finished its funding just two days before the rule change. It's a device designed to be useful as a standalone unit or a network of units throughout a large home — so it offered one, two, three, five and ten packs (and got backers at all those tiers). Now, for comparison, look at the still-funding Light by Moore'sCloud, which is similarly designed to be useful as a single unit or a house-wide solution, but is unable to offer multi-unit package tiers. It's not a perfect comparison because the Light also has an extremely ambitious funding goal and its entry-level price is a bit lower, but it's interesting to note that despite having 1,398 backers to the Ubi's 1,190, it has raised only $157k to the Ubi's $229k. Though both projects are precisely what the Kickstarter rules are supposed to favor — new devices in the advanced prototype stage that needed resources to finalize the development — the Light seems to be held back by the new restrictions.


• Of course, it's not quite that simple, because there's a weird loophole in the rules. Though projects aren't allowed to offer multiple items at specific reward tiers, they are allowed to offer them as add-ons. For those unfamiliar with the Kickstarter add-on process, well, it's not really a process at all: creators tell backers how much money to add to their pledge for various things, then it's up to them to survey the backers after the project ends to find out which add-ons they want, and square that up with the pledge amount. If anyone made a mistake like failing to cover shipping, they have to deal with it themselves using something like Paypal, absorb the loss, or piss off the backer. Thus, many products actually are available in bigger quantities, but many Kickstarter users are unaware of this process, or confused by it, and project comment pages are filled with repeated back-and-forths about how to order. Rather than preventing Kickstarter from being a store, the change has just made it a store with a worse customer experience.


• Then there's a second weird loophole. The rules only apply to the Product Design and Technology categories — projects under Publishing, Graphic Design and Tabletop Games, for example, can still offer multiple copies at various tiers in a very store-like way. In a way this makes sense, since books, posters, board games and decks of cards all have much clearer, simpler supply chains and paths to completion than a new tech gadget or a unique manufactured product. But that's not universally true: some of the best product innovations are the simplest — easy to create, and destined to become ubiquitous. If they fall under the product design category, though, they are forced to pre-sell them one at a time. And then you get some real anomalies, like the still-funding (and highly successful) Dice Rings. They are a manufactured product design in every sense, but because they were accepted to the Tabletop Games category, they can offer reward tiers with rings in several different quantities — and a huge portion of their backers have pledged for those higher tiers. And, once again, they are exactly what Kickstarter is looking for: a neat idea in a late-prototyping stage that needed a final push to enter production. But they would have faced massive restrictions were it not for some lucky category overlap.

As these loopholes and anomalies show, there are plenty of products that have a perfectly good reason to offer multiple-item tiers without going against Kickstarter principles, and such projects seem to benefit highly from doing so. When you look at this, you realize that the rule change has a built-in negative effect: it optimizes against the best-planned and most reliable projects. It's basically saying "if you don't have a significant risk of failure, you shouldn't be here." But while it's important for entrepreneurs to be aware of risks and challenges, they also pretty universally have a lot of faith in their idea — so telling them they aren't allowed to promise people five widgets, when that may have been a key part of their widget sales strategy, just drives the most confident creators elsewhere.

The other controversial rule change is the ban on product renderings and simulations. This was an attempt to avoid situations like when Felix Salmon pointed out that the prototype of the hugely popular Lifx Lightbulb was a long, long way away from the snazzy mockup plastered all over the Kickstarter page, and made a pretty compelling argument that the whole thing was vaporware. Again, this makes partial sense — but it seems like there are a lot of situations in which product renderings, responsibly used and properly labelled, would be vital to educating potential backers about a project. In a recent submission to Techdirt, Tom McWilliams, creator of the Tiger Cam 3D video microscope, provides an example from his own experience in attempting to launch the project on Kickstarter:

3D imagery is hard to demonstrate when you aren't physically immersed in the actual experience. Most of the time we see 3D advertised using pictures of objects flying out of the screen at us or funny block letters emerging from a picture. We did some (not all) of the same type of effects in our Kickstarter project video to try to emphasize that the really cool part of our product was the 3D experience it offered.

The week we were set to launch our project on Kickstarter, the press release was issued about Kickstarter's new guidelines for technology projects. After a bit of concern, and a lot of review, we presumed that we had complied with these new guidelines, including those prohibiting product simulations. After all, we weren't simulating what our project might do in the future, we were illustrating what our 3D microscope does right now, using the medium we had available to us. After submitting our project, it was declined by Kickstarter because it was deemed that simulations of any kind in our project video were prohibited. We then went back to re-think the video. After removing our 3D-like graphics in the video our project was accepted, but it seems that the message might have been lost in translation.

It's easy to understand the rationale behind the new technology guidelines from Kickstarter. Kickstarter projects are about concrete projects looking to fund their next steps, not about what someone thinks they might be able to create if given the backing. But when simulated images convey the essence of a project in a way that a thousand words cannot, even if disclaimer were to be boldly displayed, there is room, one hopes, for conversation.

McWilliams also raises an excellent question about what exactly a "simulation" is:

Some technology projects are easy to demonstrate by showing a user's interaction with them. But often isn't this simulated? Did that alarm clock really wake up the actor in the video, or was it a simulation? Other projects might be more difficult to demonstrate and ask for a stretch of the imagination in order for the viewer to understand the true user experience. Our 3D microscope product certainly garners this challenge, and we feel that in the end maybe we weren't able to convey this experience to potential project backers.

It seems like Kickstarter realized that managing backer expectations, and controlling the quality and the honesty of projects, was a complicated challenge, so they decided to make a bold move that they hoped would initiate wide-scale change for the better, even if it did a little collateral damage. Unfortunately, such strict broad strokes seem to be creating more problems than they are solving, and unfairly disadvantaging projects with perfectly legitimate interests that run counter to the rules.

Luckily, Kickstarter is still an evolving platform, and none of this is set in stone. It's only been a couple of months since the change, and the company can likely be convinced to revisit the rules once it has a little bit more data to see what effect they had. But, ultimately, they have to listen to their users, both creators and backers. They may not want to be a mere store, but they can't be a haven for creators who hedge every bet while scaring away those with ambitious goals. In striving to manage expectations, Kickstarter can't forget that the best entrepreneurs have high expectations of themselves.

Filed Under: crowdfunding, rules
Companies: kickstarter

Crowdfunded Project Attempts To Unveil Intellectual Ventures' Hidden Web Of Patents

from the might-not-be-so-easy dept

We've written about patent trolling giant Intellectual Ventures many times, including how it is notoriously secretive about almost everything. Its deals with companies (often involving them forking over hundreds of millions of dollars to not get sued) are hidden away behind strict non-disclosure agreements. It also hides the various patents in over 1,000 shell companies. At other times it "sells" patents to independent trolls, but most people believe that it still gets a cut of any revenue that comes out of those trolling operations.

An operation called IP Checkups -- a "patent analytics firm" -- is trying to shine some more light on IV's secret patent portfolio and has launched a crowdfunding campaign to raise money to investigate the company's patents.

We want to create a publicly-accessible database of patents owned by Intellectual Ventures and its shell companies. We also want to share our investigation with curious observers, using our online IV Thicket case files to show how we unearth Intellectual Ventures’ patent portfolio.

They plan to identify all of the patents, then try to "unravel the complex web of Intellectual Ventures' shell companies and financial interests to see where Intellectual Ventures is holding its IP assets." Finally, they plan to reveal all of the information publicly. The company claims that it believes in the patent system, but that it believes that the market for patents needs to be more open and transparent.

I have no idea how effective this project might be, or how well they'll be able to track down the patents or untangle the shell companies. Attempts by others to do this (on more of an ad hoc basis) haven't worked out too well. They're seeking $80,000 for the project, which strikes me as both ambitious for a crowdfunded project and (at the same time) probably way too little money to accomplish the goal. If I were them, I would have started by already revealing a few key IV patents or questionable shell company relationships to first generate interest in going further -- but that, alone, could be difficult. Still, it will be interesting to see if they have any success in shining some light on the dark corners of IV's trolling operations.

Filed Under: crowdfunding, patents, shell companies
Companies: intellectual ventures, ip checkups

Why Hardware Patent Trolls May Be The Next Big Problem

from the they're-coming... dept

There's been plenty of talk about software patents, and tons of discussions from people suggesting that perhaps the "solution" to problems with the patent system are to simply carve out software (and business method) patents, and make those unpatentable. There are plenty of reasonable arguments for why "software" should not be patentable (I tend to find the arguments that you can't patent math, and that software is really math, the most compelling). However, I'd like to argue that while software patents are a large part of the problem, focusing solely on carving out software patents does not address the real problems of the patent system -- and, in fact, could serve to paper over the real problem by solving for a "symptom" (i.e., an awful lot of "software" patent trolling cases).

I do think that the problems with patents may appear to be more pronounced with software, in part because today's software patents really are broadly claiming functions, when they're supposed to be claiming specific methods. Also, given the fact that most people in the software world didn't even believe you could really patent software (until the State Street case), it meant you had very few "software" patents on the books for common things. This allowed people to get patents on things and claim, incorrectly, that there was no prior art, even if these things had been done for years. Add all of this together and you have the perfect recipe for a lot of trolling.

However, there are reasons to be worried that patent trolling is likely to increase on the hardware side as well. And, if we're serious about fixing the patent system, focusing solely on software patents is a dangerous path. It's a way to fight the symptoms, not the disease -- and, in doing so, it would allow policymakers to claim that they had fixed the problem, leaving significant problems in the underlying system in place.

We recently noted that economics Nobel Prize winner, Eric Maskin, told the NY Times that in industries that have "highly sequential innovation," that it "may be better for society to scrap patents altogether." And that applies increasingly to hardware inventions as well. While, traditionally, hardware inventions involved significantly more R&D and capital expenditure to make them possible, that's less and less the case today. Hardware production is becoming increasingly lean as well. There are a growing number of fabrication facilities that will help you make pretty much whatever you want, and prices are getting more reasonable while speed and quality are improving. Combine that with the rise of 3D printing and many (though certainly not all) types of hardware projects can become "lean" like a typical software company's projects.

Add to that one other key component: the rise of crowdfunding. One thing that we've noticed about patent trolling in the software field is that the lawsuits seems to come right after your company gets a lot of attention. And... there's been an influx of high profile "hardware startups" that have made their debut via things like Kickstarter. Many of the most successful crowdfunding projects have come from design/hardware firms -- opening them up to accusations by trolls. And, just like software startups who ignore trying to patent their own work, these design/hardware firms often do the same.

In a recent interview on Jerry Brito's Surprisingly Free podcast, Dan Provost, the guy behind two very successful design/hardware Kickstarter campaigns, talks about why his "accidental" startup didn't bother to file for patents, noting that it was just too expensive and the benefit of a patent on their products was minimal. At the same time, however, he did admit that they had already seen copycats of their two key products (the Glif iPhone mounting system and the Cosmonaut tablet stylus -- which I have and use all the time), but that it hadn't really impacted their business. I'd actually argue that Provost downplays some of the reasoning here. People who bought into Studio Neat's successful Kickstarter projects didn't just do so because they wanted to get the products in question (though that is a part of it), but also because they wanted to support Dan and his partner, Tom Gerhardt, in coming up with more awesome design products. When you see a copycat to a product you support via crowdfunding, people seem to rally around the original, rather than rush to the copycat.

It seems like basic social mores support the originator, rather than the pure copycat.

But that won't stop patent trolls from entering the space, and looking for "weapons" that they can use to effectively set up a patent tax on hardware innovations as well. Especially as we see more of these kinds of lean hardware startups, it seems inevitable that patent trolls will increasingly enter the space with broad patents designed to let lawyers cash in on the success of true innovators. So instead of just papering over the problems by carving out "software patents," how about we look closely at the real problems with the patent system and look to come up with real solutions that apply across the board. That means things like an independent invention defense, a better system for determining obviousness, actually getting input from those skilled in the art and (finally) stop all patent appeals cases from going through a single court that is subject to judicial capture by the patent bar.

Otherwise, we're just going to have to go back in a few years and deal with another bunch of patent trolling problems in hardware as well.

Filed Under: 3d printing, crowdfunding, hardware patents, patent trolls, patents, software patents

Songkick Lets Fans Build Andrew Bird's South American Tour For Him

from the the-world-is-changing dept

Over the last few weeks, we've been talking about Songkick's new "Detour" feature, which artists are using to set up shows in "off the beaten track" places, where they'd be unlikely to tour normally, but via Songkick, they discover there are enough fans to make it worthwhile. Considering how often we hear from musicians that touring is such a crap shoot on whether or not you'll make money, it's great to see more tools spring up to help take away that risk. There are a few interesting side effects of all of this. First, beyond just taking some of the risk out of touring, it's also helping artists find different fans they can reach via touring. That doesn't mean they drop existing places, but that they can expand their opportunities. But the second, and perhaps more interesting aspect, is the social one -- in which fans have been using Detour to bring in more fans. That's because one of the ways that Detour can be used is to effectively have a competition, in which cities compete to see which one has more fans willing to crowdfund an appearance by an act they love.

The latest to jump into the Detour pool is a pretty big name artist: Andrew Bird was unsure if it would make sense for him to do a South American tour, but is now using Detour to make sure it's financially viable -- and to figure out what cities he should visit on the tour.

"I've been wanting to go to these countries for years because I'm a fan of their rich musical traditions. Songkick Detour seems like a brilliant idea as it gives me a sense of connection to the people before I go there."

There's a competitive element to this. There are twelve cities (in nine countries) competing (the twelve were picked by going through Songkick's data, to see where Bird had lots of fans -- sometimes in surprising places) for six open slots for shows in February of next year. The setup is basically that the first six shows that have fans crowdfund 250 tickets get the open slots for the gigs. It will be interesting to see if fans in the different cities rally to encourage fans to buy in to get the concert.

These efforts remain very experimental, so who knows how well they'll succeed long term, but I love the fact that we're still seeing unique innovations in different aspects of the music business. Obviously, for many artists, touring has become a bigger part of their revenue stream lately -- but it's also one part of the business that many artists complain has extremely high costs and risks. The system has been inefficient for years, allowing the business to bleed musicians. So it's encouraging to see more attempts to improve the efficiency of the concert business -- and doing so in a way that gets more fans connected to bands, and allows acts to find "out of the way" places to play live, while minimizing the risk of doing so.

Filed Under: andrew bird, crowdfunding, detour, tours
Companies: songkick

Worth Noting: Amanda Palmer's 'Free' Album Debuted At Number 10 On The Billboard Charts

from the oh,-look-at-that dept

We've written plenty about Amanda Palmer and the various cool things she's done to connect with fans and give them a reason to buy. She's stopped by on occasion to do some guest posting as well. Obviously, a lot of the recent attention has been about her Kickstarter campaign, but there was one tidbit that seemed worth calling attention to. A week and a half ago, when the album was officially released... it debuted in the number 10 spot on the Billboard charts. This is much more impressive than it might sound. You may recall when Dan Bull tried to reach the charts with his free single. It worked in the UK, but in the US, they calculate the charts in a convoluted way that includes radio airplay as well as sales. Getting airplay is very, very difficult if you're not on a major label who pays crazy money to "promoters" in the latest attempt to do payola that doesn't run afoul of the law. So to get on the charts with a totally independent album, with no label at all, is really quite amazing.

And, to do it with an album that is available for free for those who want it is just as amazing. Yes, that's right, free. While there's been plenty of talk about the Kickstarter aspect, there's also the fact that she's offering it as a pure pay what you want model off of her site, where there's even a button to click to get the album for free... and this part where she explains why it's okay to get the album for free (though she wouldn't mind if you paid too...) in which she also encourages people to share it: If you can't see that, it says:

DEAR DOWNLOADER of MUSIC

i firmly believe in music being as free as possible. unlocked. shared and spread.

i believe that in order for artists to survive and create, their audiences need to step up and directly support them. honor system.
no judgment.
if you’re broke – take it. if you love it, come back and kick in later when you have the money.
if you’re rich, think about who you might be karmically covering if you really love this record.

the store below has two versions of the record. one is totally free, and one has a minimum price of $1.00 so that i can cover the cost of covering other artists’ songs.

once you have it, SHARE SHARE SHARE! COPY COPY COPY! SPREAD THE EVIL!!!
we are the media.

LOVE, afp

But, you know, it's impossible to make money when people share your stuff, right? Maybe if you actually spend time connecting with fans, you'll discover that they're more than happy to support you, as they're supporting Amanda.

Filed Under: amanda palmer, billboard charts, crowdfunding, free, music, sharing