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part two: crowdfunding

Screen shot of PepperDev's Kickstarter page for its Hungry Fins video game project

When Vancouver-based PepperDev Studios decided to try to raise $8,000 for its latest video game project, the company knew exactly which crowdfunding service it wanted to use: Kickstarter.

"It's become a bit of a household name," said Kimberly Voll, PepperDev's lead developer. "People are very familiar with the clout and cachet of Kickstarter."

It's certainly buzzy. With several recent high-profile success stories, Kickstarter is perhaps the best-known online crowdfunding site.

"We wanted to tap into that," Ms. Voll said.

But for many Canadian entrepreneurs, tapping into Kickstarter's cachet is difficult. Even setting up an account can be a challenge.

That's because Kickstarter uses Amazon Payments to process credit cards, and currently, Amazon Payments accounts are United States-only. No Amazon Payments account, no Kickstarter project.

So what's a Canadian entrepreneur to do?

Find an American friend

For PepperDev, the workaround came in the form of an American friend.

"We happen to have a team member who's lived in the U.S. for a long time, who had a lot of very close friends who were willing to work with us to turn this into a viable project," Ms. Voll says. "We asked 'Are you okay to be a silent partner on our team to make this happen?' "

Using their silent partner's Amazon Payments account, Ms. Voll and her Vancouver-based colleagues set up a Kickstarter project for their product, Hungry Fins, which is a smartphone game about a fish that hates broccoli.

Ms. Voll says this is a common technique for Canadian entrepreneurs who want to use Kickstarter.

She also stresses the importance of both trust and a written agreement between all parties. For PepperDev's U.S-.based silent partner, "we've written up something that basically says they're part of the team, and the money is distributed among us. It was one of those things where we totally trust this person, but nonetheless, just to be on the up-and-up, we're going to cover all our bases."

But what if you don't have a U.S.-based friend or family member willing to act as your Amazon Payments proxy? That's too bad, because the alternatives are few, and shrinking in number.

Burning a bridge

Up until this week, Ottawa-based Bridgestarter had offered fund collection serices that gave Canadians a workaround for Amazon Payments' eligibility requirements. But on Tuesday, founder Alex Cruder learned that Amazon Payments had permanently closed Bridgestarter's accounts, requiring him to shutter the service.

"Understandably, we are very frustrated by Amazon Payments' decision," he said in an e-mail, adding he hoped to resolve the situation.

Indiidual entrepreneurs could set up their own version of Bridgestarter's fund collection service (which essentially borrows the trust model used by law firms) but Mr. Cruder said the costs involved make that approach viable only for very large -- $500,000-plus -- projects.

That leaves smaller-scale Canadian entrepreneurs with few options side of soliciting the help of a U.S.-based friend, a tactic that Mr. Cruder warned can be problematic.

"There is a dilemma with that approach," Mr. Cruder cautioned. "For the friend in the U.S. who puts up their account number, as far as the IRS is concerned, the money that gets raised on Kickstarter is regarded as revenue for them. So there are tax implications. You do have to take that into consideration."

Kickstarter, for its part, doesn't offer much guidance for Canadians who want to use its service. The site prominently lists Canadian projects on its city-specific Discover pages, but offers no help in actually creating a Canadian project. In a 2009 blog post, the company recognized the issue, noting that "allowing international project creators is our #1 feature request, and we hear it loud and clear. We promise we're working on it."

Use another site

Of course, you could just use a different crowdfunding site. There's certainly no shortage of Kickstarter competitors that cater to markets outside of the United States.

"We looked a few of them – Indiegogo and RocketHub," said PepperDev Studios' Ms. Voll.

Ultimately, however, the team decided that Kickstarter's name recognition and size were worth jumping through extra hoops for. "We felt that Kickstarter had the greatest number of projects like ours."

"There are a lot of alternatives out there," Mr. Cruder added.

"You can go to Indiegogo for example. But no one's funding million-dollar projects on Indiegogo or any of these other sites."

So what makes Kickstarter different? For Mr. Cruder, it's simple: "Americans use it, and they're the richest people on earth."

Special to The Globe and Mail

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