PayPal is hindering Crowdfunding

By Peter McElwee at The Quantum Capital Fund VC News

In recent years Crowdfunding has emerged as an important tool for entrepreneurs looking to raise some much needed capital and it’s so effective that even Hollywood and charities are using it too. The process consists of an entrepreneur pitching his project on sites like Kickstarter and Indiegogo and offering different gifts such as samples of the finish product to exclusive meetings with the projects developers, in exchange for capital.

Crowdfunding is a win-win situation as entrepreneurs gain access to some much needed capital while investors gain access to products or services not available anywhere else. However the whole process is being greatly hindered by PayPal, who are creating extra stresses and difficulties for all involved. As the world’s biggest internet payment platform PayPal has been the favoured choice of entrepreneurs to help gather the funds they raised but PayPal has increasingly either not been releasing the funds to the entrepreneurs or stopping investors depositing money in the first place.

The problem lies not in a malicious intent on behalf of PayPal but their lack of understanding of how crowdfunding works. PayPal demands that the entrepreneur deliver the finish product/service before they will release any of the funds, failing to understand that the funds are needed to develop said product or service in the first place. This problem has been experienced by a large number of Crowdfunding participants including GlassUp, an Italian rival to Google glass, Regretsy a charity that provides “Secret Santa” gifts and Ouya a gaming console. In Ouya’s case they spent a year trying to convince PayPal to release their funds without any success and were forced to refund all the money they raised and direct investors to other platforms.

PayPal’s actions are having a significant negative effect on start-ups at a time America badly needs all the jobs it can generate to help it escape the recession. Until the site comes to its senses the only option for entrepreneurs to do is take their business elsewhere to PayPal’s rivals like Square, PayFast and Stripe.

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