Kickstarter’s Terms of Use states that it is a platform “where Project Creators run campaigns to fund creative projects by offering rewards to raise money from Backers.” In many ways this has similarities to investing in the stock market, where one puts up money with the hope of getting a reward - more money. When you do get more money in the market, you pay taxes on it. When you get a reward on Kickstarter, the Terms of Use makes no reference of any such tax liability. In the Kickstarter case, how much an individual might pay in the unlikely event that doing so would make them a good citizen is incredibly unclear, as the “value” of the product often cannot be easily determined.
Kickstarter is also like the stock market in that you could wake up one morning and realize you’ve lost all of your investment. In the stock market, at least you would be able to deduct a capital loss on your taxes, while with a Kickstarter project you are left to kick yourself for backing the project, and to fight for something from the project creator(s). I believe it is fair not to tax the rewards on Kickstarter if you don’t get to also deduct the losses.
That being said, there was a quote that made the rounds recently on Twitter stating the Kickstarter was the QVC for hipsters. I’d link to it to give out proper credit but I’m sure I’d be breaking some sort of Twitter usage policy. The Kickstarter platform is certainly becoming a more popular and more efficient way to launch innovative products. Success on Kickstarter provides a company great momentum from which they can grow their business. Project creators can explore and refine several product strategies at a low cost through Kickstarter projects. In many ways, the 5% fee that Kickstarter charges is a huge bargain for project creators who run their projects the right way.
If you are someone like me who craves the latest, cool technology - a hipster if you will - then Kickstarter can become a alluring ‘shopping’ destination. The Kickstarter terms state that it exists for funding ‘creative projects’, but it is becoming more and more of a place to buy products. Every product is “creative” I guess, right? If it becomes a place ‘shoppers’ shop for products, you can be sure ‘producers’ will find ways to put more products on it. In life everything chases money. Kickstarter reviews projects before allowing them online, but it doesn’t seem to be doing alot to limit products from being sold under what often seems like the guise of “investment”. I say this because I can assure you that many people don’t look at this like an investment - they are looking at what they are “pledging” as a purchase of a product. Kickstarter can word it however they want, but that’s how many “pledgers” look at it.
As more and more ‘business’ gets conducted on Kickstarter, I believe it will come under regulatory scrutiny. There has not been a public marketplace to date that I’m aware of that hasn’t in time fallen under regulatory scrutiny. You could say that selling new products on Amazon and eBay is a pretty wide open marketplace, but I would retort that those marketplaces are indeed under scrutiny. As I said, money chases money, and when money and products change hands in a very public fashion and aren’t taxed or regulated, that doesn’t last forever.
I’ve backed two Kickstarter projects personally SmartThings and SlimWallet - both great looking projects - and if those projects go well I’m certainly likely to press my luck and invest in more projects that I find appealing. Like any market, blow ups and the regulators will come a calling. I’m going to enjoy the marketplace before outside forces try and ruin it. And I’m going to try and “invest” carefully - and so should you. Often Wall Street is considered a “legal casino” and be assured that Kickstarter is also a casino - an online, hipster casino. As in all casinos, the house has the advantage, so in time you will lose. Place your bets carefully.