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On Kickstarter, backers are able to give $1 to $10,000 USD per project.

Why is $10,000 the maximum amount a single backer is able to give per project?

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1 Answer

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Securities law. See the JOBS Act. Anyone who invests more than $10k towards a company counts as a shareholder towards the 500-shareholder limit for a private company. If the company exceeds that limit, they are treated as a public company when it comes to SEC filings. From this, you can infer that SEC filings are a pain, especially for small companies.

*Clarification: Kickstarter's original donation model was not subject to SEC requirements, but the JOBS Act makes the $10k-in-exchange-for-equity business model viable.

*Further update: Kickstarter's official position on offering equity: "We’re not gearing up for the equity wave if it comes. The real disruption is doing it without equity. The real disruption is when you break down the funding of a project into all these little bits." - gigaom.com/2012/05/22/kickstarter-founder-perry-chen-intervie.

One of the principle drivers behind the IPO filings of Facebook and Zynga was the 500-shareholder rule, a vestige of the Securities and Exchange Act of 1934, which said that any company with more than 500 shareholders has to open its financials to the SEC like a public company. But under the JOBS Act, anyone who gives $10,000 or less will not count toward this limit. The act also raises the shareholder limit from 500 to 1,000.

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Interesting, thought that might be the reason, but figured Kickstarter "advances" were immune to SEC oversight given no security, equity, etc was exchanged. Guess not... :-) – blunders May 23 '12 at 16:15
They are exempt from SEC oversight if no equity is advertised or exchanged for the amount. But it's very possible they are looking to shift to an equity-based model soon in order to grow, given the JOBS Act. – Henry the Hengineer May 23 '12 at 17:54
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Is that just speculation, or based on a source? I've heard a lot of speculative insights into Kickstarter, but most appear to be just guesses. For example, I've heard that Kickstarter is offering to fund some projects for equity instead of listing; again, rumor based on no facts. – blunders May 23 '12 at 19:08
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It appears Kickstarter's formal PR position is not to offer equity "We’re not gearing up for the equity wave if it comes. The real disruption is doing it without equity. The real disruption is when you break down the funding of a project into all these little bits." - gigaom.com/2012/05/22/kickstarter-founder-perry-chen-intervie. But competitors incorporating equity are already on the rise: mashable.com/2012/05/22/fundable Perhaps $10k was just a nice round number at the the end of the day for Kickstarter. – Henry the Hengineer May 23 '12 at 19:18
kickstarter has the $10,000 limit wayyyy before the JOBS Act even came out, and even now as of August 19th 2012, the SEC still has not implemented final rules regarding the $10,000 limit. So does anyone here have a better answer? This answer implies that kickstarter was lobbying congress to implement the $10,000 limit that kickstarter independently chose themselves. – CQM Aug 19 '12 at 19:25
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