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by Agathos
3940 days ago
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If you fund a company by buying debt, you can certainly sue them if they don't pay what was promised. If they're already bankrupt I wouldn't expect more than pennies on the dollar, but the option is there. If you fund a company by buying equity, you have no recourse except possibly a share of whatever remains when the company is liquidated, after debtholders are paid. In exchange, you have an unlimited upside if the company does well. Kickstarter commitments are much closer to debt than to equity. |
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This case is interesting because it's the first one holding that Kickstarter is anything but simply a gift. Preferred equity holders have certain rights that go along with their place in the capital structure; they can usually prevent the corporation from paying dividends to common shareholders unless they're also being paid, and sometimes they have debt-like rights as well if the company is not paying dividends as agreed. The analogue here would be that the preferred dividends are the goods plus rewards.
Unfortunately, this case is much narrower than that, and the holding is very weak. You're still not entitled to anything as a Kickstarter backer. All this means is that the founders can't commit fraud: they must actually intend to deliver something and make some effort to do so. So really, you're still nothing like any kind of creditor or equity owner, and you're still entitled to nothing. Contributions are still gifts, but they have very small strings attached. They're nothing like an investment.