Kickstarter terminated a scam project after it had collected $21,000 in pledges, but before it funded.
The scam said it was raising funds for a groovy new game controller (think Ouya), but the scam was really just a sloppy knock-off of an earlier, unsuccessful crowdfunding pitch by a group that was legitimately trying to make a game controller.
Fortunately, someone detected the scam and alerted Kickstarter.
Proof of Project Legitimacy
But the experience dredges up an unhappy topic. When a potential backer sees an attractive crowdfunding campaign, how does the backer know if it is legit?
What’s more, even if the project leader is sincere, how does the backer get answers to questions like these:
1. Competence. Does the project leader have the talent and experience to bring the project to fruition after funding?
2. Risks. What are the risks that the project will not reach its goal (e.g., delivery of a game console), even after it is well-funded? Any enterprise that seeks to raise money in pursuit of a goal faces risks . . . from hurricanes . . . to competition . . . to supplier bottlenecks . . . to changes in market conditions.
3. Refund. What happens if the project funds, but the leader realizes – some time before it spends all the money – that it will not reach the stated goal? Will money be refunded to the backers? (If so, what will be the logistics of that refund?) Does the leader get to pocket the money? Will the money be given to a charity or to a related project?
Think Like an Investor
Erik Kain at Forbes cautions that crowdfund backers should think like "investors" before they put money in a project . . . even though the legal terms of the project explicitly say that they money is just a donation. As they pledge money, the backers should ask whether the project and its leader have demonstrated enough understanding of the risks be worthy stewards of the money.
–Benjamin Wright
Attorney Wright is an informal advisor to Yellow Brick, the social marketplace for crowdfunding.
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Fortunately, someone detected the scam and alerted Kickstarter.
Proof of Project Legitimacy
But the experience dredges up an unhappy topic. When a potential backer sees an attractive crowdfunding campaign, how does the backer know if it is legit?
What’s more, even if the project leader is sincere, how does the backer get answers to questions like these:
1. Competence. Does the project leader have the talent and experience to bring the project to fruition after funding?
2. Risks. What are the risks that the project will not reach its goal (e.g., delivery of a game console), even after it is well-funded? Any enterprise that seeks to raise money in pursuit of a goal faces risks . . . from hurricanes . . . to competition . . . to supplier bottlenecks . . . to changes in market conditions.
3. Refund. What happens if the project funds, but the leader realizes – some time before it spends all the money – that it will not reach the stated goal? Will money be refunded to the backers? (If so, what will be the logistics of that refund?) Does the leader get to pocket the money? Will the money be given to a charity or to a related project?
Think Like an Investor
Erik Kain at Forbes cautions that crowdfund backers should think like "investors" before they put money in a project . . . even though the legal terms of the project explicitly say that they money is just a donation. As they pledge money, the backers should ask whether the project and its leader have demonstrated enough understanding of the risks be worthy stewards of the money.
–Benjamin Wright
Attorney Wright is an informal advisor to Yellow Brick, the social marketplace for crowdfunding.
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