Crowdfunding is the financing of a project or a venture by a group of individuals instead of professional parties (like, for instance, banks, venture capitalists or business angels), without any intermediary (e.g. banks): entrepreneurs “tap the crowd” by raising money directly from individuals. The typical mode of communication in the context of a crowdfunding campaign is through the Internet .
Crowdfundfing is a social phenomenon which is now becoming more and more important for future entrepreneurs and potential investors. According to Forbes (2014), some of the most successful crowdfunding platforms are AngelList, fitfunder, Indiegogo, Kickstarter or Razoo. It is essential for participants in such platforms to be aware of all risks and opportunities related to crowdfunding.
As to the risks, it is important to keep in mind, among others, those related to the Intellectual Property rights.
In particular, if the new entrepreneur launches a crowdfunding campaign without first securing its IP rights (e.g. trademark, patents, copyright, trade secrets, etc.), it may conduct to the failure of the whole project. Thus, entrepreneurs should be always aware of the necessity to protect the IP rights at the basis of their idea before publishing the project on the CF platform to collect the funds.
Generally, when the new entrepreneur is preparing the business plan, the strategies and the other documents, and prior to the launching of the campaign, she/he should carefully consider to:
– sign Confidentiality/NDA agreements with persons involved in the project
– examine whether the project is affecting IP rights already owned by someone else
– protect the relevant IP rights (e.g. filing the trademark, design, patent, etc.)
It is of course essential to make the project interesting and attractive for potential investors; however, one should carefully decide what information and materials will be available on the crowdfunding platform.
Patents: Crowdfunding projects are very often innovative and based on ideas that may be protected by patents or similar rights, such as utility models. . A key issue in patenting the invention is that it must be new, which means, not yet made available to the general public before the filing.
The disclosure of such invention in the public platform without first proceedings with the patent filing might cause loosing the opportunity to get a strong patent protection on the idea.
Industrial designs: The new entrepreneur may add great value to its new product by registering it as an industrial design, which is the external appearance (excluding the technical aspects) of the product. Designs, as patents, in order to deserve protection, must be new at the time of the filing. Thus, it is important to apply for design protection before displaying the product on the crowdfunding platform.
Trademarks: Obviously, the registration of a distinctive name for the new product is necessary in order to acquire a market share and for the entrepreneur to be recognized as the original commercial source of that specific product in the market. It is wise to apply for registration of the name as soon as possible, in order to avoid that a competitor applies for an identical or similar name before you and then request an amount of money to authorize the use of the name in commerce (icluding the CF platform itself!)
In sum, future entrepreneurs considering to use crowdfunding platforms to collect money for their innovative projects, should not think only about raising funds but, first of all, strong preliminary IP protection. Without taking the correct steps, when the time comes, it may be too late.
Proper preparation of an IP strategy, with prediction of future risks is one of the most important elements of success. The knowledge about available legal tools to protect and then enforce IP rights is substantial.
If you are considering to set up your own business using a crowdfunding platform to collect money and then commercialize your new product or service, you better off contact an IP specialist first, to help you in taking the correct legal steps before letting the public know about your innovative idea.
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1. Definition created by A. Schwienbacher, B. Larralde, Crowdfunding of small enterpreneurial ventures, Handbook of entrepreneurial finance, Oxford University Press, 2010.