In theory, crowdfunding seems like one of the beautiful perks of the Internet: any entrepreneur with an idea and the will to bring it to fruition can receive the financial support of interested patrons from all around the world, and in return, those patrons get early and/or discounted access to an exciting new product. The reality is rarely so rosy, and as a consumer, you need to be aware of that.
It's not easy getting your idea off the ground as an entrepreneur, and if you need funds to complete it, getting it in front of the right people is a difficult task by itself. And so, the idea of a platform on which you can broadcast it to the world, where anyone can happen upon your idea and support it, is certainly enticing. And on the purest level, I think it's great: give the little person a chance to step on the same stage as everyone else. Isn't that one of the Internet's greatest attributes? But, like all things in life, when you mix in money, things get complicated really quickly.
Entrepreneurial pursuits are incredibly difficult, even more so when it's a one-person show (or close to it). There's budgeting, reporting to investors, public relations, product development, manufacturing, research, advertising, logistics — a veritable multitude of aspects, the failure of any one of which can doom a project. It's a lot for any person or small company to handle. What makes it even more difficult is that the leveled playing field of the Internet has a negative consequence: it lets unqualified people sit at the same table. And even if they have the best of intentions, that's a real problem.
The Scam (or the Miscalculation)
Do you remember the Coolest Cooler? It was supposed to be the the cooler of the future, with features like a built-in blender, Bluetooth speaker, and more. It broke the Kickstarter record, raising a whopping $13 million. Then, the story took a turn we've all likely heard before: first, the company issued a message saying "nothing ever goes exactly as planned," but promising backers that they would receive their units. Next, the delivery date was delayed. Then delayed again. And again. Then, a strike at the blender motor factory delayed it again. Somehow though, the cooler appeared on Amazon, with those who bought it there receiving units before the original backers. When backers were understandably incensed by this, the company justified by saying the hiked price on Amazon was being used to fund production for the original backers. Then, there was an additional delay.
Then, in March 2016, there was the seemingly inevitable announcement, followed by a proposition insulting in its ludicrousness: the company was out of money and needed an additional $15 million. If backers paid an extra $97, they could ensure the delivery of their device by July 4, 2016. Over 10,000 backers paid the amount. The company claimed to have shipped to the 10,000 backers who paid extra, but there were still tens of thousands who were with nothing to show.
That's when something rare in the crowdfunding world happened: the Oregon Department of Justice got involved, setting a deadline for the 873 Oregonian backers to receive their units, and requiring profits from future sales to be set aside for the other 19,000 customers. As if a proverbial middle finger to those who had the alleged audacity to complain about the company's handling of the situation, a recent comment from Ryan Grepper, the creator of the campaign, reads: "...we’re not happy that some folks pushed to the front of the line," referring to those who went to the DOJ. Strange sentiment from a company that failed to deliver what they committed to. In a since-removed video for an investment platform, Grepper referred to crowdfunding as a "pledge drive" of "money that never has to be paid back." Does the whole thing seem shady yet?
Now, in fairness, I'm not saying every failed crowdfunding campaign is a scam. In 2014, I backed a photography Kickstarter for a photography accessory I thought would be interesting. I saw email and email of the typical nature: delays, setbacks, and finally, silence. I shrugged it off, knowing I had assumed the risk and I hadn't spent a huge amount, so I wasn't horribly upset. Imagine my surprise when I saw a review of that very product right here on Fstoppers three years later, with a link to it being sold on Amazon and the maker's site. Disappointment tempered by benefit of the doubt quickly turned to anger. The creator told me things were "crazy" during the Kickstarter phase. No offense, but maybe you shouldn't be taking people's money then.
Whether I was scammed or overlooked, I don't know. I've seen projects on crowdfunding sites that show a creator unknowingly way over their head, asking for way too little funding for way too complex a project. Some failures aren't out of shady intentions, merely out of biting off more than one can chew. Either way, the result is the same for the backers.
Photography equipment is really complicated stuff that takes huge teams of specialists to bring to the market. (Image by Pexels user Math, used under Creative Commons.)
And my experience (specifically when it comes to photography-related crowdfunding projects) is far from unique. A quick Google search will bring up story after story of projects that raised multiple times their monetary goals and never delivered a product or delivered it literally years late, rendering it obsolete by the time it hit the backers' doorsteps. At the end of the day, I'm not concerned about my $55; I'm concerned about a sub-culture of high risk and low accountability becoming normalized within the photography industry.
I spoke to Fstoppers Co-Founder Patrick Hall about when he and fellow Co-Founder Lee Morris developed the Fstoppers Flash Disc. It took two years of prototypes and patents, all done with their own money, highlighting just how difficult it is to bring a product from idea to market, though they were successful. I think this is where other well-meaning entrepreneurs get in over their head. The human mind tends to oversimplify things it doesn't understand well or has little experience in, so when that amazing idea strikes the entrepreneur, the path from the mind to the product on the shelf can often seem much shorter and straighter than it actually is. The problem with crowdfunding is that it removes a lot of the chances for feedback that says: "You're biting off more than you can chew. You need to modify this plan. You need someone to assist you." And it's not just first-timers who have failed. Well-known companies with established histories have gone the crowdfunding route and failed, sometimes with the entire company going under in the process.
Recourse (If Any)
Ok, so what recourse do backers have when a project goes south? Let's use Kickstarter as an example. Navigating their site, you'll come across the following tidbits:
- "Some projects won't go as planned. Even with a creator's best efforts, a project may not work out the way everyone hopes. Kickstarter creators have a remarkable track record, but nothing's guaranteed." (Note: what exact percentage constitutes "remarkable" is unknown.)
- "Can Kickstarter refund the money if a project is unable to fulfill? No. Kickstarter doesn't issue refunds, as transactions are between backers and the creator. "
So, what does all this boil down to in plain language? To me, it basically reads like this (feel free to call me a cynic):
Yes, things don't always go well on Kickstarter. Technically, creators are legally obliged to fulfill their commitments, but we hope you won't resort to legal action unless you've legitimately been scammed, as it makes us look bad. Also, we're just here to take a cut for providing a platform; if you have issues, file a civil suit against the project's creator.
Why It's Different Online
So far, I haven't really said anything that distinguishes online crowdfunding from the more traditional route: yes, ideas sometimes fail. Sometimes, people are scam artists. Sometimes, they're just in over their heads. Why am I singling out the Internet?
Well, because as much as the Internet acts as a platform for enabling entrepreneurs, it acts as a buffer for recourse. If someone in my city comes to me and wants me to invest in the sports bar they're building, I have a chance to ask for more materials before I make a decision. I can get a feel for the person and if I think they really understand what they're undertaking. I can sign a contract specific to that project. I can visit the site and see the progress. I can (hopefully) get them on the phone or see them in person. I can see how the money is being spent more easily. There is a stronger and more immediate network of accountability. And that increased pressure of accountability not only ensures that funds are being used wisely, it enables easier and more powerful recourse if things go awry.
On the other hand, online, I'm stuck only with a video persona (if that even) and the sort of loose accountability practices I outlined above, along with a greatly increased difficulty and inconvenience in enforcing my rights. Am I going to track down the creator of that accessory I paid $55 for because I never received mine despite the company now making profits on it? No, that would be way more time and money than my initial investment justifies. The same goes for those who backed those $185 coolers, I suspect. And because the Internet connects us worldwide, it becomes an even greater issue if things go badly with international borders between the creators and backers — enough so to make it so the vast majority of projects can get away with not delivering, whether that be because of nefarious actions or simply failing despite the best intentions. And even if those intentions were good, it's hard to really evaluate how qualified a person is from a few paragraphs and perhaps a flashy video.
It's easy to hide behind a screen – too easy. (Image by Pixabay user 27707, used under Creative Commons.)
Simply put, the gamble is much, much bigger online, and I think that's becoming clearer as we see more and more entrepreneurs flock to crowdfunding when in all honesty, even if they mean well, they might not be qualified to undertake the projects they're putting out there. And yes, it all comes back to two simple words: Buyer beware. But even if we accept the risk as individuals, we're helping to fund a burgeoning culture of increased risk and decreased accountability, and that stagnates good business practice and proper customer relations. Because of that, I've stopped supporting crowdfunding, at least until more stringent mechanisms are put in place.
Lead image by Peter Heeling, used under Creative Commons.