The Dark Side of Crowdfunding

Last July I wrote about My Crowdfunding Addiction. At the time I was living in a gadget geek’s wonderland, backing high profile projects ranging from the Spark Wifi Core to the Romo Smartphone Robot. I also closely followed (but did not back) projects including the Oculus VR Headset (which still hasn’t shipped a consumer version nearly a year and a half after being funded) and the Omni Omnidirectional Treadmill (also hasn’t shipped). The project I am most eagerly waiting on now is the Goji Smartlock (which, you guessed it, hasn’t shipped. And has been delayed again, and again).

Since funding these projects last year and admitting to the borderline addiction I had to crowdfunding services like Kickstarter and Indiegogo, my tune has changed quite a bit. Out of more than 20 projects I funded on both services, I believe a total of three (3!) have actually shipped, often way behind schedule. So word to the wise: Be wary of crowdfunding projects that give even an inkling of a firm ship date, because they are almost, always, wrong. Delays range from weeks to months to years, and in some cases project creators disappear entirely, laughing all the way to the bank.

The dark truth of crowdfunding (which neither of the big funding sites advertise) is that project creators are under zero financial or legal obligation to deliver goods or services. Kickstarter’s terms of use state that: “Kickstarter does not offer refunds. A Project Creator is not required to grant a Backer’s request for a refund unless the Project Creator is unable or unwilling to fulfill the reward.” But the policy further states that “Project Creators are required to fulfill all rewards of their successful fundraising campaigns or refund any Backer whose reward they do not or cannot fulfill.”.  So while creators are “required” to fulfill the rewards promised, the following language takes any teeth out of that requirement: “Kickstarter is not liable for any damages or loss incurred related to rewards or any other use of the Service. Kickstarter is under no obligation to become involved in disputes between any Users, or between Users and any third party arising in connection with the use of the Service.” While you can normally cancel your donation to a project that is still being funded, once the project closes, you’re entirely on your own if your reward does not deliver.

Indiegogo is similarly under no obligation to assist when campaigns go awry or fail to deliver, per their Terms of Use: “Indiegogo is not responsible for resolving disputes between Campaign Owners and Contributors. In the event of any dispute, such as a Campaign Owner’s alleged failure to comply with the Terms of Use or alleged failure in fulfillment of a Perk, we may provide the Campaign Owner’s contact information to the Contributor so that the two parties may resolve their dispute.”

What this means for those of us who pony up hard earned dollars for wondrous gadgets ranging from medical tricorders (Scanadu Scout, which hasn’t shipped) to futuristic smart watches (the Pebble, which for the record DID actually ship): not much. Essentially you are gambling with your dollars on projects which may, or may not deliver.

Some more personal examples i’ve experienced: Last year I backed a campaign for the Sonte Wifi Shades. The last update from this project was November 25, 2013. I’ve contacted the project creator multiple times, and only received one poorly written, cryptic response, which stated “Your rewards is to ship with other backers’ rewards by sea to US from Asia. We have to apologize for the delay.” . After contacting Kickstarter customer service, they responded with: “I’d suggest reaching out via other means if you’re not hearing back via Kickstarter. Since the funds will have to come from the creator, you’d need to get in touch with them directly. You can try social networks, other websites, alternate email addresses, or any other means of contact they’ve made available. – Megan“. Thanks, Megan. Thanks a lot. Basically, it was her way of saying “you’re out of luck buddy”. Similarly, Amazon Payments, who handles payment processing for Kickstarter, was no help. The number on my bank statement connected me with Amazon’s Payments team, but the rep on the phone told me that Amazon has no obligation or liability for delivery of goods or services (or lack thereof). While they will cooperate with banks and authorities in cases of fraud (such as when goods are never delivered), they do not offer any refunds or guarantees.

In my case, I ended up lucking out. My bank immediately issued a refund for the charges once I called their merchant fraud department and told them that I never received the goods I paid for. When the project creator, Kickstarter, and Amazon left me high and dry, my bank actually came through and in about 5 minutes I had my money back. Lucky me – your bank, credit card company, or other financial institution may not be so kind.

Crowdfunding has become a huge industry, with billions of dollars being generated by lots of users. Certainly, many of the project creators have every intention of delivering on their commitments, but for those who do not, there are no real consequences. In the case of the SONTE WIFI Film, the creators raised over $237,000, with no legal or financial obligation to their backers at all.

Something very dark is going on in the crowdfunding world, indeed.

Crowdfunding certainly provides a valuable service, connecting projects and valuable social/charitable causes with a broad audience of supporters. However, the current system is lacking oversight, with the crowdfunding sites only acting as middlemen. There needs to be outside accountability (perhaps by a reputable audit firm, or an advisory board of project backers), to ensure that creators are held responsible. It definitely makes sense for the industry to foster a credible, trustworthy commerce platform before regulators step in to do it their way.

In the meantime, a word to the wise – be very cautious about which projects you sponsor on crowdfunding sites. Be conscious of which payment methods you use (credit cards with consumer-friendly fraud policies are advised), and don’t part with any funds that you can’t live without (and don’t mind losing for good). But if you are willing to take the risk, you might score something pretty cool, like helping to launch a Tardis into Orbit (which, you guessed it, hasn’t launched).