Crowdfunding can be a risky proposition


In just a couple of days, Keiji Inafune, the creator of the original Mega Man series, was able to raise a cool $1.2 million on Kickstarter.

Even though his project, which he calls Mighty No. 9, won’t be available until 2015, enough people believe in Inafune’s vision that he’s already raised $300,000 more than his original goal — and he still has a month left in the campaign.

The days of going door-to-door to ask for donations are over. If you have an idea, garnering support from generous strangers has never been as easy as it is now.

Crowdfunding, the act of pooling money from a group of people to fund an idea, can be dated back to Gulliver’s Travels author Jonathan Swift, who began a fund to help low-income families in Ireland. But this way of crowdfunding has changed immensely since then. In 2000, artistShare debuted as the first documented crowdfunding site for music. Five years later, Kiva came along as a microlending site for entrepreneurs in impoverished areas, with Indiegogo and Kickstarter following in 2008 and 2009, respectively.

Anyone can crowdfund — from average folks to the likes of Zach Braff and Spike Lee. Seeing a great project come to life is exciting for both the creator and his or her backers. Because many crowdfunding sites put the responsibility of investigating the validity of the creators and their projects on the backers, however, if you find out that you’ve been scammed, it’s your problem.

The story behind the dystopian, pro-urban destruction boardgame, The Doom That Came To Atlantic City by The Forking Path, is a strange one. After raising nearly quadruple the original goal amount, the game was suddenly canceled a month later. Erik Chevelier, founder of The Forking Path, said in an update to backers that “every possible mistake was made, some due to my inexperience in board game publishing, others due to ego conflicts, legal issues and technical complications.” In other words, no one but Chevlier and his team know where the money for the project is now.

One campaign that hit on a personal level was the Kobe Beef Jerky project. As someone with a love for jerky and high-quality meats, I couldn’t resist — a small donation would get backers a sample-size pouch of this jerky as a gift. This project seemed too good to be true, and unfortunately it was.

Minutes before the campaign was scheduled to end, the makers of a Kickstarter documentary helped to pull the plug on the phony project after finding out that this jerky didn’t even exist. If it wasn’t for some sleuthing, $120,000 in backer money would have gone into the pockets of these scammers.

I was devastated, but I should have known better. Kobe beef usually goes for about $100 for 4 ounces, and it did seem strange that a paltry $7 donation would get me a hearty sample pack of this premium jerky. Not to mention, a Google search of supposedly Los Angeles-based Magnus Fun — the company behind the Kobe Beef Jerky — didn’t bring up anything — no website, profiles, photos or videos. Magnus Fun was as fake as its jerky.

Not all crowdfunding campaigns are bogus, though. Despite the fact that 84 percent of Kickstarters do not ship on time, many of these projects do eventually deliver.

With the help of nearly 70,000 backers, Pebble Technology, the company behind the now popular Pebble E-Paper Watch, raised more than $10 million for its project. A combination of lots of press attention, publicity on Kickstarter and sheer curiosity helped to make this one of the most successful projects in crowdfunding history. And even though there were some delays in the shipment at first, Pebble now even sells these watches at Best Buy for $150 each.

There are projects started by USC students that have been quite successful.

AIO Robotics, a startup founded by USC doctoral candidate Jens Windau, raised more than $100,000 in one day for its all-in-one 3-D copy device, Zeus.

Another USC Kickstarter project created to help raise funds for a student-produced web series, 101 Ways To Get Rejected, was able to surpass three of its stretch goals for the campaign.

Benjamin Chance, one of the producers, noted that most of the backers were in some way related to those involved in the project, but there were also plenty of fans that donated as well.

“In our case, crowdfunding brought life to our project. We were overwhelmed by the results of our campaign,” Chance said.

But crowdfunding is still far from perfect.

Before submitting their project to Kickstarter, project creators are told that if they do not send backer gifts after being successfully funded, this inability to carry out promises might result in damage to their reputations as well as the possibility of backers taking legal actions.

Grave consequences may follow for project creators who can’t deliver. But a lot of times, nothing happens if something goes wrong, since the penalties are not serious enough. If it wasn’t for the Kickstarter documentary team, I would have been scammed out of $7. Would I sue for $7? No. And would Magnus Fun, the fake jerky company, suffer any damage to its reputation? None at all since, as a made-up company, it had no reputation in the first place.

It’s understandable that Kickstarter, along with other crowdfunding platforms, do not want to be held accountable for these projects. But more needs to be done. For one, Kickstarter staff can help research the validity of the projects and see if the project checks out, along with its creator. If more scams surface, Kickstarter should conduct background checks on each project creator as well as ask for official blueprints or, if a project is advanced enough, copies of patents.

Even if more guidelines aren’t implemented, crowdfunding still ranks as one of the best ways to raise money if you’re not looking into seed funding.

It’s amazing to see how one idea can bring so many people together. Think back to Pebble and its massive following. Even though we probably care more about the product than the team behind it, we’re still banking on an incredible idea to come true. We’re funding bite-sized American Dreams, in a sense. Though it’s recommended to be wary when funding projects, don’t be shy. And if you’re looking to get funded, make sure you can prove the legitimacy of your project and plan out all of the logistics so the crowd that’s backing you doesn’t turn into a mob.

 

Sara Clayton is a junior majoring in public relations. Her column “Tech Today” runs on Tuesdays.

 Follow Sara on Twitter @saraclay15

2 replies
  1. Dstoke
    Dstoke says:

    Ashoka is also combining crowd funding with on the ground vetting with checks and balances, in terms of opening up their Fellowships to be crowdfunded. Generally I think marketing is winning over quality right now in the crowdfunding space.

  2. fmr trojan
    fmr trojan says:

    While the sites you mention are the biggies, there’s a subset of crowdfunding sites that generally do vet their projects thoroughly and while not quite as flavor-of-the-moment, could end up being just as important as business crowdfunding sites: civic crowdfunding sites. For sites like Neighbor.ly and Citizivestor, the idea is a civic platform for community-backed projects. Want to build a local dog park? Get your neighbors–or strangers–to donate. How about saving an old historic building–mobilize your community & preservationists nationally. Good businesses will find a way to get funds, but rarely have projects for the good of everyone been so voluntarily financed.

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