If you invest in a company that has nothing more than a rough sketch of a product on their roadmap, and the company folds 6 months later with no actual product, do you get a refund for your worthless stock?
Usually not.
Investing is a risky business. Crowdsourced investing only distributes that risk over a much larger group of investors.
An honest founder might do his best to return the remaining funds, and Kickstarter might even decree (as the article suggests) that a refund be made, but there's no guarantee that any funds will remain by the time the project is declared a failure.
So the real question is: When you fund a project on Kickstarter, are you making an investment with a certain amount of risk associated with it, or are you simply pre-ordering a shiny new gadget? If any failed Kickstarter project actually went to court, this might be the single most important question to be raised.
Actually I think its more like donating money to a cause you agree with, with the proviso that if it works, you'll get something for it.
Put it this way. Kickstarter just hands your money over. Of course its possible for somebody whos raised money to disappear with it without providing any product or refunds. Even if you threaten legal action and they are in the USA, its going to be quite a process (a lot of time and money) to recover your tiny investment.... And if they choose to move to another country or claim to be 'late but still providing it', even more complex...
I guess the sane way of viewing a kickstarter that way.
Personally though, the way kickstarter and (many) projects describe rewards as preorders, then I think they should be liable to fulfill the or return the proceeds. If the money is invested in this bast case scenario you describe, than kickstarter and the projects should clearly state that.
If they don't than kickstarter or some of the projects facing some kind of legal action when the money just disappears would be a good thing, so that the descriptions start reflecting reality again.
Edit: I've not donated on kickstarter, so I don't know if they clearly state this somewhere later in the process. But from what I've seen kickstarters "preorders" seem irresponsible to me.
Its not in the users interest to pre-order, unless there are steep discounts. So if the pre-order is discounted, i'd say a user can weight his/her risk and then do it. However, if it was a full price preorder, then its definitely not worth it.
Kickstarter projects are different from traditional investments because the absolute best case for consumers is that they get the product they were promised.
If the project succeeds in a big way and spawns a successful company the project creators who reap 100% of the benefit. Whereas for investors failures are balanced out by the successes.
I've personally reaped the benefit of knowing I've helped launch projects for people who might not have been able to accomplish it themselves. There's a bunch of music projects, a documentary, a short film, and an Arduino Shield that wouldn't have existed without my (and a bunch of likeminded people's) help. There's a few things that clearly _would_ have existed without my help (Amanda Palmers current project, for example), things that clearly didn't need my tiny bit of help, but that I feel good about being part of anyway. The hundred or two dollars that those Kickstarter projects cost me was worth every single cent, and would have been even if a few or even all of them had failed. At least we tried…
And more power too all the project creators - I hope they all get corruption-inducingly-rich out of the things my $5 or $50 or $300 helps get started. Anybody who thinks "investing" to the tune of a couple of hundred bucks entitles them too, or even stands any chance of that resulting in a significant equity stake in something - probably hasn't thought that through very hard...
The warm fuzzies you get have very little to do with it. I'm sure the angel investors who front millions for medical research into a disease get the same rush from their cash as you do, but there is more different between your spending and theirs than magnitude. If you invest in a company you have a legal claim to own part of it, and it's pretty clear that Kickstarter backers own no part of the companies they support.
Whether the cash is given in the spirit of altruism or profit-seeking isn't the real question; the question is whether equity is expected in return or not. Of course people don't expect "significant" equity for their contributions, but a good fraction may think they are really investing.
You're right, but at least in my head there's a _big_ differences between $5 or $10, or even $300 Kickstarter pledges, and the amount of money required before "whether equity is expected in return or no".
Unless otherwise stated, my personal expectation would be that amounts under about $1000 wouldn't possibly be expected to have equity in return.
Other people may have different thresholds, but surely nobody really expects equity for sub $100 "investments"?
> Unless otherwise stated, my personal expectation would be that amounts under about $1000 wouldn't possibly be expected to have equity in return.
For me, I'd expect equity starting at the point where I'm providing something significant, rather than simply part of a mob. If I'm providing the equivalent of living expenses for a year or two, for instance, or enough money to purchase serious infrastructure, like an office. I think the floor for that amount starts at 20k as an extreme minimum.
If [a Kickstarter] project succeeds in a big way and spawns a successful company, it's the project creators who reap 100% of the benefit.
I'm completely fine with that. Could it be any different? Maybe, but changing the Kickstarter equation may also have the consequence of killing the magic that makes it currently work.
As an example I contributed to Tim Schafer. He is showing us how a real game is done, the ups and downs. This is very valuable information much more expensive to get any other way.
I'm getting tens of times more value from my KS projects that what I paid for them, and I had paid A LOT of money. Not a single of them failed(Double digit number). It is easy to spot a professional(or someone that will become a pro) from a video.
I've backed a fair few (over a dozen) KickStarter projects, and every single time I've seen it as a risky investment with the HOPE of getting an awesome product out of it.
Some of my backings have been in the few-hundred-dollar range, and as much as I'd be upset if they didn't success and send me my product, I wouldn't expect a refund.
The only point I could see myself actually BLAMING them, would be if they didn't put their best efforts into creating the product, and just bailed with everyones money.
If they truly do try their hardest to create the product, and use up all the money trying, but still fail... I'm OK with that.
I've backed a bunch of small, and a couple of large Kickstarter projects. I viewed each and every one (including the high-value ZPM Espresso Machine and Pebble Watch ones) as a gift to someone with an exciting idea, with the understanding that if things went OK I'd probably get a Watch/CoffeeMachine/AduinoShield/Album in return - but if things went badly I'd get nothing.
I'll be sad if the Pebble guys don't deliver, but sad because I want them to succeed, not because "I bought a watch and they never sent it". Even if they took off and spent all the money on hookers and blow, I'd mostly be sad that an apparently great product never made it to the market, rather than sad about my couple of hundred buck having gone.
Surely this sentence "But financial backers have no clear way of getting a refund if the young businesses fail to deliver." represents a fundamental mis-understanding of what Kickstarter is? If you want "refunds", go buy things from a store with a unambiguous refund policy. If you want to be a "financial backer", work out what that means before claiming you're owed a refund…
That is true for deals that don't get funded. This is talking about the case where the deal is funded but the service is never delivered. Like having a Groupon for a company that went out of business.
Because then where is the risk? It would be entirely with Kickstarter, since they would have to give their own money to the creators before taking any money from customers.
It is quite clear that Kickstarts are pre orders, because the SEC would shut the whole thing down if it claimed to be an investment scheme.
Really, any Kickstart that isn't "we need $X to place a bulk order with our raw materials supplier" is at best wishful thinking, and more commonly an abuse of how Kickstarter presents itself. It should not be for paying speculative salaries to the campaigners (Hi, LightTable!).
I don't think that it is clear to many people what a Kickstarter is actually. It is neither and investment, nor a pre-order. I personally view it more as a gift, which perhaps has a reward at some point. The backer "rewards" are aptly named- they aren't items for purchase, but something you might receive if the project happens to be successful.
When I back Kickstarter projects, I personally have no expectation of getting anything. I just want to see something cool happen.
While perhaps off topic, this is pretty much the model we take with the Awesome Foundation. We give money to people with a cool idea, expect nothing in return, and simply hope that they do something great with it. We take no ownership, and if it fails then that's ok. It was up to our judgement if we wanted to back them or not, and if we failed in that judgement then thats our fault and just a lesson to learn from.
Whatever it is called, you should never gift, invest, etc more than you can afford to write off and lose.
I feel too, that's it's sort of a gift or a "vote" that this project/idea should happen.
It's very much an "if, if, then" proposition. If you donate X amount and if we're able to build Y, then you'll get Z.
I think the risk is entirely on the donors, but since it is crowdsourced and the large majority of donations are so small, it seems like a fair trade most of the time.
The big problem comes when you get people donating 1k, 5k, 10k, etc and not seeing any return. I think those are the times where funds are seen more as "investments."
Boarders, perhaps. I've found that turning it the other way works best - Get a boarding party of your own, because taking a ship intact yields way more scrap.
I think I rushed forward far too quickly and ended up in a universe where I was outclassed and then had a little oxygen related mishap and it all went downhill from there!
- 900K is not much of a budget for a game with this scope - it may be a stretch for the team to deliver this.
- Team has experience with RTS.
- The pay off in terms of what I get is great.
- There have been no ground breaking RTS for the last 10 years.
Ultimately what got me over the line was the reputation of the company and the team.
I am fully aware that there may be nothing to show for it... I am sponsoring an opportunity for something great to be produced. Something not that far from music or art in my opinion.
I would say that it's quite clear that Kickstart campaigns are not preorders (unless they blatantly claim to be). I don't know the details, but the JOBS Act in the USA supposedly made sure that crowdfunding is allowed. http://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups...
While the JOBS act made crowdfunding possible, it is still regulated by the SEC, and kickstarter is not a crowdfunding platform. Kickstarter cannot be a market for equity in companies.
I'm probably biased but I disagree. I initially funded The OpenPhoto Project on Kickstarter. There was a deliverable but it wasn't a physical good.
The deliverable was completed as promised and we continued to build additional features and services above and beyond what the Kickstarter campaign allowed us to do.
Sure. It's great when it works. The worry is what happens when a hard-working project is unable to deliver, or when a con artist takes the money and runs.
"The worry is what happens when a hard-working project is unable to deliver, or when a con artist takes the money and runs."
Do you worry about that?
You should not get out of your house then. Meteorites keep bombarding the earth(they are falling right now!!). A king cobra could scape the zoo and reproduce(they store sperm) in the woods, don't go there.
It is really difficult that someone could not deliver something. If so hardworking then something is better than nothing. A con artist is not going to give their face in a video for all Internet to know, a con artist have not a proven record.
People forget what the millions of people that could see something means.
>You should not get out of your house then. Meteorites keep bombarding the earth(they are falling right now!!). A king cobra could scape the zoo and reproduce(they store sperm) in the woods, don't go there.
Don't be a dick. Online fraud is a real risk, it happens to people every day. Most people know not to send money to some random stranger who emails you, only to buy from reputable sites, or at a minimum to make sure you can claim back your money from your credit card provider if you get scammed. Which scenario is kickstarter more like?
>It is really difficult that someone could not deliver something. If so hardworking then something is better than nothing.
It's pretty easy to fail to deliver, even if they've tried; there was a story here not so long ago about a kickstarter made an iphone case that turned out to block the signal.
>A con artist is not going to give their face in a video for all Internet to know
Why not? Plenty of 419 scammers do.
>a con artist have not a proven record
Nor do many legitimate kickstarters. It's not like ebay where they post the feedback score right at the top and anyone without a high rating is suspicious.
This may well be "true" in the legal/accounting sense, but just because it's not allowed to be "an investment scheme" that doesn't automatically make it a pre-order, nor does it stop me from giving people money for investment-like-purposes but calling it something different to avoid both SEC shutting it down, and at the same time with the understanding that I'll have none of the redress that an SEC sanctioned investment might give me.
Yeah, there's a no-zero chance that the Kickstarter money might get stuffed in someones pocket without even a token effort to achieve the stated goal. One could also argue there's a lot of subprime mortgage holders and CDO investors who are fundamentally no better off than if every Goldmann Sachs employee was currently living it up in Mexico on stolen, instead of just "irresponsibly but legally paperwork compliant" SEC-approved "investments"
No, we should. Complain loudly about "fradulent investment schemes".
But at the same time, wonder what the _next_ money-losing thing that anyone who thinks Kickstarter is an "investment scheme" is going to need government protection from.
Do people _really_ think Kickstarter projects are the sort of thing that requires government/SEC oversight?
Edit: In retrospect, looking through the replies in this thread, there clearly _are_ people who consider Kickstarter backing to be "investment". I'd love somebody of that opinion to explain why they think that, and whether it's a wording/terminology issue with how Kickstarter and/or projects describe what they're doing, or whether it's something fundamental in the Kickstarter and/or crowdfunding process.
Not at all: complain about it all you want, and make your decisions in accordance with your understanding of the relevant risks.
Just recognize that a certain level of risk - in the form of possible breaches of promises - is inherent in the nature of all of these things - traditional investment, pre-orders, and Kickstarter alike - and that there's no way to pre-empt that downside without eschewing the upside.
With a traditional pre-order I have a pretty strong guarantee from my credit card company. With a traditional investment I take on the risk in return for a chance of a big gain. As a client/customer Kickstarter seems to combine the disadvantages of both with the advantages of neither.
> So I call Kickstarter founder Yancey Strickler, and ask: What if Uhrman isn't able to deliver the consoles? Would Kickstarter get involved?
> "You know, that would be new ground," he says. "I don't know. I mean, no, I don't think that we would. But certainly, the kind of thing you're talking about is not a bridge that has been crossed yet. Someday it will. And you know, I think if something did go awry, it would be — it wouldn't be my favorite day."
And yet as far as I know there are a number of projects that have failed. Can't find any names via casual googling, but I remember last time Kickstarter came up on HN a few people were citing projects they had backed that had given up. I'm a PopSockets backer, and even though he still says he'll deliver, I have some serious doubts.
That was definitely the shocking part of the story. Kickstarter seriously has no idea what it would do in the case of a project failing..? Even if it hasn't happened yet (and I don't believe that), they didn't think a little ahead?
I'm happy to give Kickstarter the benefit of the doubt here, and assume these are the growing pains of a not-yet-fully-explored business/funding model.
I'm sure that over the next few years (and quite possibly in progress right now) we'll see some spectacular failures or unexpected outcomes from Kickstarter/Indigogo/Pozible - and those failures will guide the future of the crowdfunding space.
For now, I'd be surprised (probably to the point of suspiciousness) if Kickstarter had all the answers fully thought out to all the possible failure modes of crowdfunding.
Yeah, that's more than a little disturbing that either the founder is not above making an outright lie to national media or that he is completely out of the loop. If he had told the truth of Kickstarters terms, did he think that that would somehow hurt the comapny's fortunes?
Perhaps the question was phrased in a more specific context? That is, the reporter actually asked something like: "What happens when a multi million dollar project fails and so many individuals are out hundreds of dollars?" it may be the case that no failure of that size has happened yet.
They scraped about 99% of the successfully funded but were only able to scrape 82% of the unsuccessfully funded projects.
If they could find info on >80% of unfunded projects, that is either some really incompetent cover up work or there isn't a cover up.
Though I have to agree something is off if they believe 100% of the projects that have funded have gone off successfully, and that they have no contingency plan for their largest source of liability. Even if it is just PR liability, a few high profile cases of fraud could ruin them.
Here's the worst part -- as far as the IRS is concerned, that money is considered income and anything you don't spend in the same calendar year is considered profit and is taxed as such.
So after a year, assuming you spend no money at all, you'd still be in the hole to pay back your backers.
I personally only use Kickstarter to play "patron of the arts". I fund art projects with the assumption that I will get nothing in return. If I'm lucky, I get some nice art to enjoy (so far one of the projects has come to fruition, where I backed the recording and distribution of an a cappella album, and recently got my CD).
I am pretty sure that you don't have to spend all income the year you receive it to avoid paying taxes on it. One of the foundations of accounting is the matching principle:
"Expenses are recognized when obligations are (1) incurred (usually when goods are transferred or services rendered, e.g. sold), and (2) offset against recognized revenues, which were generated from those expenses (related on the cause-and-effect basis), no matter when cash is paid out."
http://en.wikipedia.org/wiki/Matching_principle
There are multiple ways to match income and expenses that occur in different years - at least if you have some sort of business entity.
I would agree with that for the most part, however, if you're receiving a large sum of money (e.g. the $8 million dollars Ouya received as mentioned in the article received) I think you owe it to your investors to take the time to set up those business entities.
Just to use a widely known example - Pebble that raised millions of dollars on KS. In Pebble's case, each donation was tied to a pre-order. Since the watches have not been delivered, that money is not recognized as revenue on Pebble's income statement. Instead, it is "Deferred Revenue," a liability on Pebble's balance sheet. So, Pebble got an asset (cash) but incurred an offsetting liability (Deferred Revenue). There is no change in equity value, and there is no income until the revenue is recognized (watches are delivered).
Cash method taxpayers do not get to take advantage of "matching principles". They must report income when received.
Matching principles only apply to accrual method taxpayers, who may record invoices or liabilities separately from the actual payment or receipt of payment.
Agreed. Its too bad kickstarters just can't sell super-minority shares with a nominal face value. So if they are trying to raise 50K, just sell a 1% share of the company for $50K (so each share is a $1 say, and there are 5M shares).
It would make the process much more enticing from the funding side, since you could feel you were perhaps getting in on the ground floor of something significant.
There are other complexities that prevent this however, for instance SEC regs would certainly get in the way (only qualified investors, proper risk disclosure, etc etc).
The JOBS Act will let companies set up Kickstartr-style funding portals for small investors.[1] It was signed in April, but the SEC is still in the process of defining how it will be implemented.
However, still seems like a bit of a hassle: "One of the conditions of this exemption is a yearly aggregate limit on the amount each person may invest in offerings of this type, tiered by the person′s net worth or yearly income. The limit ranges from 2% of people earning (or worth) up to $40,000, up to a cap of $10,000 for people earning (or worth) $100,000 or more."
Presumably, the onus will be on the funding channel (i.e. kickstarter) to validate these accreditation rules of their investors. If there is a big hesitation for new users to simply register an email/password for a site, imagine when you are asking them to also submit tax returns and copies of ID.
Don't get me wrong though, I guess its better than nothing.
>There are other complexities that prevent this however, for instance SEC regs would certainly get in the way (only qualified investors, proper risk disclosure, etc etc).
Not to mention, as I understand it, there are some pretty strict rules about how you a company is allowed to solicit investments, and the Kickstarter format would be in violation of approximately all of them.
Yep, its a minefield (of course like most things, these regs exist to protect special interest).
I'm sure there is some bright attorney who could figure a way around it (ie. its an unsecured loan, that contains a very permissible default clause, which is potentially convertible to an equity share upon event a, b, c happening). Or more simply, just host the site in Hong Kong or somewhere and escape US jurisdiction.
I know that none of this will never happen, just talking out loud....honestly, the first time I heard about Kickstarter, I thought this was the idea and I was excited. Then I discovered it was "act like a angel investor, fund my idea, and if 1000 things go right you will get a free tshirt". Meh.
I've said this before, and I'll say it again. Funds collected by Kickstarter aren't "investments." They aren't "pre-orders." They are DONATIONS. In many cases, they are donations to for-profit companies, which I still can't really wrap my head around.
Like all donations, Kickstarter pledges are freely given, with no promise of anything in return. Yes, many projects pledge to provide you with a sample of their finished product, or a DVD of their documentary, or your name tattooed onto the creator's tush, or something like that, but there's zero legal obligation for anyone to deliver on those promises.
I'm not sure this is accurate. The Kickstarter terms of service say:
"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."
The problem is that if that provision were actually enforced, kickstarter would be of much less use to those people it was originally conceived of to help. If you are a small independent games company, film maker, or musician, the threat of failing to complete your project (e.g. it was too ambitious, you set your funding goal too low, you run into legal issues you hadn't anticipated, etc.) and being required to pay back tens of thousands of dollars you have already spent is enough disincentive to not use kickstarter in the first place.
In other words, if kickstarter campaigns have to repay backers if they fail, kickstarter becomes radically less useful and interesting as a proposition.
They have to fulfill the rewards it says. Which really means that you shouldn't promise a version of your product if you can't deliver it. Rather it might be better to make the rewards things that are easy to deliver such as shirts, stickers, etc... Definitely some projects like Ouya that have promised a console will technically have to refund people potentially millions of dollars if they can't ship the device.
>will technically have to refund people potentially millions of dollars //
Presumably OUYA is a company with some limitation of liability for the owners, I don't know much about USA company formation but it seems that the company would fold and there would no longer be a legal entity to hold to account. IFF this is the case then "technically" they won't have to refund anyone beyond what liquidation of the company requires.
This is where someone with knowledge of company law steps in and corrects me ...
If you use Kickstarter to advertise "if you contribute $foo, I will give you bar" without an explicit disclaimer that there's some chance that bar might not come to be, and someone contributes that $foo in the expectation that they'll ultimately receive bar, haven't you entered into a legally-binding contract with the contributor, irrespective of anything Kickstarter might or might not do?
>Kickstarter reserves the right to reject, cancel, interrupt, remove, or suspend a campaign at any time and for any reason. Kickstarter is not liable for any damages as a result of any of those actions. Kickstarter’s policy is not to comment on the reasons for any of those actions. //
This is the get-out-of-jail-free card [that's a Monopoly board game reference]. They can cut off pledgers or project creators for any reason and don't have to tell you what it is; of course the law [which?] still applies.
There is an interesting glitch in the T&C. Kickstarter make a distinction between refunding a pledge and cancelling a pledge. The meaning of "cancel" is thus unclear, it doesn't appear to mean refunding money as that's what "refund" means. This is shown in the phrase "Project Creators may cancel or refund a Backer’s pledge at any time and for any reason". If a project creator receives the money then 'cancels' the pledge it appears they're in the clear WRT the terms and conditions ...?
But the T&C sets up the relationship between the people running the campaign and Kickstarter themselves. The project creators and the contributors still have a direct relationship with each other, irrespective of Kickstarter as an organization - the fact that Kickstarter's website is their medium of interaction doesn't necessarily make the Kickstarter organization a party to their agreement.
If the project creators promise to deliver a particular product to a contributor when certain conditions are met, and those conditions are subsequently met, wouldn't that constitute a contract? Sure, if the Kickstarter admins terminate the project before it's funded, then the conditions of the contract can never be met; but once they are met - i.e. once the project has reached its funding goal - then no action on the part of Kickstarter admins - who are not themselves a party to the contract - can invalidate the contract.
By way of analogy, if you and I arrive at an agreement via a conversation on HN, and PG comes along and decides for whatever reason to delete the thread containing our discussion, the agreement is still valid.
I agree with your view on what the funds collected by Kickstarter are. It's fairly easy operation when dealing with the Arts, as in "I am donating to an artist that I like". But once a product comes into the mix... that's a whole different game.
I feel that the system used by quirky.com is more conductive to a real world product.
Hmmm, I'm guessing no and no. Which is to say that if it fails to reach its funding goal then there is 'money' transferred so you don't get back what you didn't pay out. And no, since there isn't any contract involved with a Kickstarter there is not compelling reason for the person who tried and failed to return any money. Besides if they really did try they probably spent all the money in the attempt anyway.
As for Oouya, if you know anything about the tech buisiness this should tell you everything you need to know about this 'investment':
"I visit Uhrman in San Francisco, where she's meeting with a dozen designers to hash out Ouya's boomerang-shaped controller."
> no, since there isn't any contract involved with a Kickstarter there is not compelling reason for the person who tried and failed to return any money
The article says
> [Kickstarter]'s policy says creators have to give refunds on failed projects
From their Terms of Use, their entire section on refunds:
"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.
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."
Except there are two problems with that,
1) These people don't have the funds to begin with, that is why they are running a Kickstarter campaign.
2) The actual contract language is that they "Backer" funds a "Project Creator" to attempt something rather than to deliver something.
So when you go to sue the person who has your money you have to contend with the fact that they have no money (and insufficient assets probably to get a lien against, and if they do they will just do the personal bankruptcy thing) and then you have to convince a court (or a jury) that they didn't try in good faith to deliver the project.
They will argue the Backers knew there was a risk when they started and that due to problems unforseen by the creators these risks actualized and there project failed to materialize. They will argue the Project Creator is just as harmed as the Backer. The only way you might get any money back is if you managed to prove fraud.
Kickstarter has only been around for a short while, so we have time to watch this unfold.
This is not 'new' (while Kickstarter is, crowd funding is not). I recommend you look up previous cases where the product wasn't delivered. There were a whole bunch in the 60's when a bunch of 'movie producers' were raising money to make movies. I took a cinema class at USC (it was a fun elective) where the professor claimed that a lot of the contract language that exists today for production companies came out of the lawsuits of that time.
Can I suggest that if you're spending money on Kickstarter where if things didn't go according to plan you'd "go to sue the person who has your money", then "you're doing it wrong".
(It's entirely possible that _I'm_ "doing it wrong", and that everybody who's treating Kickstarter as a contractually binding pre-sale offer is somehow not as insane as they appear to me. But I'll take quite a bit of convincing on that point…)
Absolutely agree with you here. There are people who fall in love with the dream, and when they wake up they are grouchy. I've wondered if folks can put an upper limit on a Kickstarter.
Wow, I'll be the first to admit that after reading lots about Kickstarter's business, and even funding a few projects myself, I still had no idea there was language that required refunds. Even if it is fuzzy language (a creator can claim to be "willing" to fulfill a reward...just as "the spirit is willing but the flesh is weak").
> refund any Backer whose reward they do not or cannot fulfill
Finishing the project is not one of the rewards unless the creators say it is. Many rewards can be fulfilled regardless of the success of the project (thank yous on web site, T-Shirts, posters, lunch with team, etc). So what it means is that when you create a Kickstarter project and it gives you money, your #1 priority is sending the rewards out.
But let's not miss the other half of that sentence: "While the company's policy says creators have to give refunds on failed projects, the website doesn't have a mechanism to do it."
If they don't have a way of returning the money, then it doesn't really sound like a very serious policy. In fact, it sounds like they haven't given it much thought at all, and their policy is to hope that it doesn't happen:
`` So I call Kickstarter founder Yancey Strickler, and ask: What if Uhrman isn't able to deliver the consoles? Would Kickstarter get involved?
"You know, that would be new ground," he says. "I don't know. I mean, no, I don't think that we would. But certainly, the kind of thing you're talking about is not a bridge that has been crossed yet. Someday it will. And you know, I think if something did go awry, it would be — it wouldn't be my favorite day." ``
Failing Kickstarter projects reminded me of a blog post by Matt Haughey: "Lessons for Kickstarter creators from the worst project I ever funded on Kickstarter"
The article says "a year later, there are still no PopSockets." But the PopSockets Kick Starter page says it was launched Jan 8, 2012 and funded on Feb. 12, 2012. Am I crazy or was something not researched properly?
That being said, I am personally surprised that most people are willing to fund many of the things that get funded and assume that people are treating it as a purchase rather than funding.
It will be interesting to see how all the parties handle the first time something goes horribly wrong.
It was funded -- which means that the project owner received the money -- but the actual product wasn't created and delivered to the users who funded it. So, it failed. The NPR article is telling you that things are going horribly wrong sometimes, and PopSockets is an example of that.
To be honest, I'm not sure why crowdsourcing and Kickstarter are so confusing to so many. If you put money into anything on Kickstarter and it fails, you have lost that money.
From the few kickstarter projects I've seen, it seems that there's a lot of people who underestimate the costs of producing hardware and shipping it.
I'm reminded of the story of the guy contracted to write an iOS game. The game itself was trivial to code and he had it up in no time. But then he had to add the menu overlay, high score system, save system, so on and so forth. It's the same with hardware - prototyping is expensive and takes a long time, and you have to think of a ton of corner cases before you make a sample item. Sometimes your plastics or metalworks subcontractor takes weeks or even months to return samples. And if you didn't get it right first time, rinse, repeat.
I am finding the discussion rather strange. It has always been quite clear to me that Kickstarter was a modern patronage model--I give to the arts because I like the arts--nothing more, nothing less. There is no investment, no sale; it is a pure gift. The artist may show her appreciation by gifting me something in return. I concede that a games console might stretch some people's definition of art, but it is still a speculative and creative project which may or may not succeed.
Clearly, I am in the minority on this subject. Most people seem to view it as a pre-order website, or even an investment. This is quite different from my understanding of the whole thing.
I'm amazed this hasn't been exploited by an out-and-out scam yet, I guess kickstarter must have some serious vetting process.
What's to stop somebody setting up a kickstarter for something highly desirable but somewhat impractical (but not totally out there) raising a few million $ and just riding off into the sunset?
Admittedly, the Kickstarter project which got him $8k in Jan 2011 claimed: "These next few months of production are crucial to get the film to the next stage of presenting to grantmakers and broadcasters", and the current Indigogo one is also saying "I am trying to raise 50,000 which will get me through 30 days of shooting and 8 weeks of editing with a full crew and basic expenses covered. I will have to raise more money to get this film finished but if I can raise 50,000 in the next 8 weeks I can at least be secure in the knowlege that we can all work as hard as we need to to finish shooting the film before the store closes and not have to constantly worry about the next credit card bill or not being able to book people because they already have paid work."
> During a break from the meetings, I ask her, "Would you have to give money back to your backers if you weren't able to deliver?"
She takes a deep breath and pauses before answering.
"Technically, from the Kickstarter perspective, I actually don't know the answer to that," she says. "But from a doing-the-right-thing perspective, we will treat our backers the best possible way."
Um, what? She doesn't know how the Kickstarter system would or could transfer money back to the funders? Or she doesn't know if there's "technically" an obligation to make a refund? The answer to the second question should have been well known to her and her lawyers. It's a little troubling that she can't give a straight answer so early in the infancy of a project that is ostensibly rooted in openness.
Personally I think that there's a big risk of Kickstarter acquiring a bad reputation here. Whilst a lot of the comments on this thread show that some people look at Kickstarter contributions as donations or investments, I don't think that that's the case for the large number of people putting money into some of the kickstarters that get funded via the site, in particular kickstarters focused on making a physical product, where the product features heavily in the reward tiers
I'd also say that the site itself doesn't make it that clear, that the money is an investment or gify. From the Kickstarter proposals I've read I don't see them heavily mentioning the idea that the backer won't received the reward at the tier that they donate to if the project doesn't succeed in creating the product.
If you look at some kickstarters that have big delays on their delivery (e.g. Zioneyes http://www.kickstarter.com/projects/zioneyez/eyeztm-by-zione... ) there seems to be a large percentage of backers who were expecting a product and aren't very happy not to be getting one after over 12 months)...
Definitely from a personal perspective I'm more careful now about what I back and specifically the track record of the project creators (i.e. have they done this before).
Kickstarter does not provide a way for projects to give refunds. (Or if they do, they've hidden it well.)
My kick-started Test-Driven Javascript screencast [1] was very successful and I'm actually delivering on my promises [2]. But I have had a few people complain about the videos, and one person took me up on my offer of a refund.
I offered to write him a check, but he's in England (I'm in the US) and the check-cashing and currency-conversion fees would be higher than the value of the check. So I went looking for a refund option. I couldn't find a way to do it in Kickstarter or Amazon Payments. I offered to send the backer the money through Amazon Payments (he'd have to sign up for it, though) or to transfer his account to someone else, but ultimately he decided he'd rather just keep his subscription.
Kickstarter rules say you're supposed to provide a refund if you don't deliver. But they don't provide a way to do so.
It's my only disappointment with them. If one of my customers is unhappy, I want to provide a refund.
I think it's pretty clear through Kickstarter's use of the term "perks" for the different reward levels project founders can create that you are donating money to the cause.
The fact that a lot of project creators have changed some backer's perception of the transaction doesn't change that Kickstarter is clearly a tool for raising funds through donations, not as a product pre-order transaction or investment into the company.
I think any sane person should be able to see the risks involved and consider them carefully before donating.
Maybe there are clueless folks out there who think Kickstarter is basically Amazon. But I think it's clear from the website that it's akin to demanding money back from your local school's fundraiser because you didn't like the gift basket they sent you.
Out of curiosity, has anyone here invested in a Kickstarter project that entailed physical goods that actually made its proposed deadline? Between the three I've paid for so far, all of them have been at least two months late of the deadlines they made after funding was successful.
This includes the Elevation Dock, Kickstarter's first $1M+ project, which is shamefully late. I doubt mine will get to me before the iPhone 5 comes out, which is somewhat extra bitter to me since I just had my iPhone 4 stolen and am waiting for the 5 to come out...so I probably won't be using the Elevation Dock at all, if it ever actually comes.
A board game called "Zombicide" published by a company called CoolMiniOrNot.com - They've run three successful KS campaigns so far and seem on track to deliver all of them on time. It also helps they've been in business for a decade or more giving them a comfort level with design, sourcing, shipping, etc.
I supported a local bakery here in Seattle with the promise of some (literally) delicious rewards and they delivered several days before the begining of the estimated delivery month.
I think this titanium pen: http://www.kickstarter.com/projects/mikebond/ti2-pen was delivered on time. I'm actually annoyed because I'd like one, but Kickstarter is already done, but a conventional online store hasn't been set up!
Well, d'uh, you don't get your money back, period. That's the first thing I learned when reading their FAQs and other pages.
It's like a donation towards something that you find great/interesting/useful, with the added benefit of some kind of return. Or you could consider it an investment, small loan, without security or guarantees of any kind.
I don't know, the article makes it seem like a negative thing for those who first hear about Kickstarter...
Fund raisers should not do "the right thing" and return any money, either - it sets a bad precedent, especially if you return the money only to some and not everyone.
Many of these comments treat "kickstarter" as a homogenous group of companies. Each project on Kickstarter is different, and the resulting liabilities would be different. In many of the most successful cases, the funding is tied to a pre-order of a product. In that case, the company has an obligation to the funder to deliver the product (or possibly refund the cash). Whether the funder acts on that obligation is a separate question, but s/he is a creditor to the company.
I hope people aren't put off from the Crowdfunding model thanks to kickstarter. All they have to do is bolster up their accountability tools to improve the current experience massively. Maybe show the likelihood of complication based on past projects. This what I'm working on in the charity sector, which isn't competing with Kickstarter at all apart from the fact that we both start with crowdfunding.
One of my pet peeves about Kickstarter is that they considered funded projects successful projects and it's difficult to know what percentage of projects are actually successful in the sense that they delivered the goods (or even see a list of them).
That said, I did just buy my first batch of Stack Soap, which was a Kickstarter-funded venture. nifty.
It really bothers you that they consider funded projects successfully funded? The goal of a kickstarter project is to raise money for the attempt. Once the money is raised, the kickstarter is successful. I think the site is pretty upfront about this.
And any additional judgement is out of their hands. They could allow backers to fill out a survey after the tentative delivery date has passed, and that might be interesting to see. But it's hard to deal with the delays inevitable in any project.
If you look at a project, it will say "Funded! This project successfully raised its funding goal on MMMM DD."
And again, saying just 'successful' is accurate, because a kickstarter is a fundraiser for a project that has independent life outside of that website. Some projects that take money through kickstarter will fail, but some that fail to raise money will find other funding sources and succeed.
The article ends up with a misleading statement. Kickstarter is not a crowddonation, it is not a crowdpurchasing site. Its crowdfunding, which means there are risks involved and there is mo money back guarantee. As a backer you expect a product as return on your investment, but it is not 50% guaranteed.
The number one rule for KickStarter is that it is NOT eCommerce. When a campaign operates on the mindset that it's a platform to sell goods, and when backers also operate on that same premise, both parties end up on the hook for something they weren't expecting.
Perhaps because that would be an absolutely horrific example of government overreach. When you put money into a kickstarter project, you know the risks - stop looking for big daddy to look after you.
The whole point of the status of an "accredited investor" was to separate (typically) savvy/knowledgeable people from complete amateurs. This designation was created specifically to prevent people from throwing money at poorly-researched/fly-by-night/scammy/hopeless investments. An accredited investor like PG has the knowledge and means to do due diligence before he commits money. Some local loser...not so much. That's the point.
I'm not going to argue this so much as reaffirm my mystification that regulatory bodies haven't interfered with this obvious conduit of fraud.
"There are too many stupid people in the world. I'm not saying we should kill them all or anything. Just take the warning labels off of everything and let the problem solve itself." -- Unknown
If someone took your money on kickstarter with no intention of working on the project, I'm sure the government would be happy to investigate that as fraud.
Kickstarter is meant as a fundraising website, everything is a donation.
That's why the rewards are "perks" not guarantees. Project backers have twisted this around to turn it into preorders for products, but fundamentally Kickstarter is a way to bring in donations, with the perks functioning as nice thank you gifts.
There is no way that anything on the KS website could mislead you into thinking that you are investing your money to get a share of the company running the project.
Nothing to do with securities, stocks, options or ownership. Therefore it is really nothing to do with the SEC.
"Have no idea how this site hasn't been shut down by the SEC. "
Because in America they have this stupid thing called "freedom". We know that the government should regulate everything like is done in countries like China or Russia, and nothing of value could be done unless you know someone in the party or bribe the gatekeepers.
KS has nothing to do with investors in the stock market sense.
Usually not.
Investing is a risky business. Crowdsourced investing only distributes that risk over a much larger group of investors.
An honest founder might do his best to return the remaining funds, and Kickstarter might even decree (as the article suggests) that a refund be made, but there's no guarantee that any funds will remain by the time the project is declared a failure.
So the real question is: When you fund a project on Kickstarter, are you making an investment with a certain amount of risk associated with it, or are you simply pre-ordering a shiny new gadget? If any failed Kickstarter project actually went to court, this might be the single most important question to be raised.