Is it funding all-or-nothing?

Last Updated: Dec 30, 2015 09:25PM CST
Yes. The entrepreneur must determine a minimum target amount and work diligently to accomplish that goal. If the campaign reaches 100% of the minimum target amount, the company will receive the money. If it doesn't succeed, it will receive nothing.

If the campaign is set up to accept over subscription the entrepreneur has to set the maximum amount he will accept from oversubscribed pledged. In this case the company can keep all the money raised on top of the minimum target amount.

When deciding to accept over-subscription the entrepreneur has to show reliable planning including the use of funds.

Why is this provisions?

Business owners must be clear about how much money they require. The capital needed (e.g. $500K) should always be associated with clear objectives (e.g. $100K - increasing team, 200K - materials acquisition, 200K - marketing campaigns, etc.). Failure to raise the capital needed affects the entrepreneur’s capacity of completing objectives and indirectly influences the success probability, which is risky for investors.

To keep it lean. The all-or-nothing provision encourages lean startup methodology where the entrepreneur doesn’t want to think too big (e.g. asking for the maximum of $1 million to open several new locations) and risks getting nothing. Instead, the entrepreneur is encouraged to think more realistically (e.g. ask $500K for a single new location), so the chances of fundraising and operational success are greater and less risky.

To discourage fraud. Without the all-or-nothing provision, it could be easier for a fraudster to go online, set up a bogus business pitch and pocket whatever money they could drive into the crowdfunding account before being exposed. The all-or-nothing provision essentially grants the crowd time to identify the frauds.

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