When A Kickstarter Campaign Fails, Does Anyone Get Their Money Back?

http://www.npr.org/blogs/alltechconsidered/2012/09/03/160505449/when-a-kickstarter-campaign-fails-does-anyone-get-their-money-back

by jseliger • 14 years ago

161 122 14 years ago

npr.org

JulianK• 14 years ago

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.

cjbprime• 14 years ago

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.

RandallBrown• 14 years ago

they were saying that it's only been 7 months since it was funded. It's not a year later with no PopSockets.

tene• 14 years ago

The point of pointing out the dates is to demonstrate that it has been less than a year, which contradicts the text of the article.

ChuckMcM3• 14 years ago

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."

azakai2• 14 years ago

> 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

ChuckMcM3• 14 years ago

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.

greenyoda• 14 years ago

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." ``

jedberg2• 14 years ago

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).

_red3• 14 years ago

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).

mistercow• 14 years ago

>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.

gamble• 14 years ago

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.

[1] http://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups...

mediascreen2• 14 years ago

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.

rprasad• 14 years ago

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.

jedberg2• 14 years ago

Most of the folks on Kickstarter don't have the necessary business entities set up to take advantage of that.

pge3• 14 years ago

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).

bigiain9• 14 years ago

I like that. From now on I'll tell people I'm both "Patron of the Arts" and "Patron of the Startups" on Kickstarter.

kijin• 14 years ago

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.

underwater• 14 years ago

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.

sillysaurus• 14 years ago

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.

bigiain9• 14 years ago

That's not totally true.

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...

big

forgottenpaswrd3• 14 years ago

I contributed to a lot of projects.

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.

Andrenid• 14 years ago

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.

bigiain9• 14 years ago

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…

Evbn• 14 years ago

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!).

jmathai• 14 years ago

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.

http://theopenphotoproject.org

tibbon• 14 years ago

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.

baddox2• 14 years ago

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...

bigiain9• 14 years ago

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"

masklinn3• 14 years ago

> It is quite clear that Kickstarts are pre orders

No, it is not.

> Really, any Kickstart that isn't "we need $X to place a bulk order with our raw materials supplier" is at best wishful thinking

That's funny, because just yesterday I got my early keys for Faster Than Light[0] which should be released in about 2 weeks.

> It should not be for paying speculative salaries to the campaigners (Hi, LightTable!).

Why not? I see KS the following way: somebody has an idea, somebody doesn't have the resources, I have resources and want the idea. Let's deal.

[0] http://www.kickstarter.com/projects/64409699/ftl-faster-than...

ar741• 14 years ago

As far as I can see the original intent was to back artists and musicians - not necessarily to produce a product, but to create something.

I am a first time backer for Planetary annihilation - http://www.kickstarter.com/projects/659943965/planetary-anni...

Decision process for me was.

- Very cool - loved Total Annihilation.

- 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.

firefoxman12• 14 years ago

Why doesn't Kickstarter follow the original Groupon (thepoint.com) model, where if it doesn't meet its goal, nobody is charged?

spullara• 14 years ago

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.

NeutronBoy• 14 years ago

That's exactly what happens. You commit to backing a project, but your card is only charged once the project meets it's finding goal.

veyron• 14 years ago

Because Kickstarter wouldn't make as much money ...

AlexDanger• 14 years ago

Nobody is charged if the KS project does not meet its funding goal.

This article is about what happens when a project is funded, but fails to deliver. At that point the funders have lost their money.

baddox2• 14 years ago

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.

twelvechairs• 14 years ago

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...

EternalLight• 14 years ago

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.

kennywinker2• 14 years ago

Don't like how Kickstarter basically lies:

> 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.

Coupled with this: http://techcrunch.com/2012/07/16/allegation-kickstarter-is-s... I'm really starting to think Kickstarter, the company, is acting shady. Still believe in the idea of crowdfunding, but my trust in Kickstarter is waining hard.

edit: here is the thread I was thinking of http://news.ycombinator.com/item?id=3473360

azakai2• 14 years ago

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?

kennywinker2• 14 years ago

I feel like they are counting on projects to fail in protracted collapses, rather than a shocking sudden failure.

I would rather they get much much more proactive about explaining to people what they are signing up for.

danso4• 14 years ago

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.

bigiain9• 14 years ago

"Don't like how Kickstarter basically lies"

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.

stonemetal• 14 years ago

From the linked article:

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.

nickm122• 14 years ago

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.

shardling3• 14 years ago

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.

nickm122• 14 years ago

If they said "successfully funded" that would be accurate. My pet peeve is that everywhere on the site they say "successful" they mean "funded".

vacri• 14 years ago

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.

michaelhoffman• 14 years ago

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"

http://a.wholelottanothing.org/2012/01/lessons-for-kickstart...

jiggy2011• 14 years ago

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?

ohthanks• 14 years ago

http://www.kickstarter.com/projects/zioneyez/eyeztm-by-zione... seems like a pretty clear example of this. Backers are actually starting a separate forum to discuss legal action. Doesn't seem to be any sort of recourse via kickstarter.

bigiain9• 14 years ago

I saw this via @textfiles on Twitter earlier today:

Jason Scott ‏@textfiles Probably a little weird to run a kickstarter http://www.kickstarter.com/projects/1386333480/manhattan-lul... and then a 18 months later run an Indiegogo. http://www.indiegogo.com/manhattanlullaby

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."

rocky1138• 14 years ago

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.

It is a gamble. End of story.

cdixon• 14 years ago

It turns out startups are risky.

danso4• 14 years ago

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.

doug11235• 14 years ago

I can't remember schedule exactly, but I feel like the Adonis Jot was on time.

http://www.kickstarter.com/projects/531383637/jot-capacitive...

I've backed one other project. It is severely late.

RyJones• 14 years ago

OpenBeam was delivered on time. http://www.kickstarter.com/projects/ttstam/openbeam-an-open-...

jseliger• 14 years ago

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!

replicatorblog• 14 years ago

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.

jcfiala• 14 years ago

I think my One Page Dungeon Codex came out fairly quickly, although this was before they made you estimate delivery: http://kck.st/9oJ3jq

And the Miskatonic School for Girls was actually a bit early, shipping in March when it was estimated for April: http://kck.st/rlbUrH

I'll admit I usually assume that the estimated delivery date is an early bound on the time range when it will actually be delivered.

ojiikun• 14 years ago

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.

http://www.kickstarter.com/projects/1185564491/hot-cakes-an-...

danso4• 14 years ago

> 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.

mynameishere2• 14 years ago

Have no idea how this site hasn't been shut down by the SEC. Absolute violation of regulations wrt accredited investors.

jordanthoms2• 14 years ago

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.

mynameishere2• 14 years ago

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.

shardling3• 14 years ago

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.

xfernandox2• 14 years ago

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.

adaml_623• 14 years ago

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.

forgottenpaswrd3• 14 years ago

"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.

Frencil• 14 years ago

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.

xfernandox2• 14 years ago

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.

goodcanadian• 14 years ago

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.

URSpider94• 14 years ago

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.

gfodor• 14 years ago

Yeah, when people refer to kickstarter donations as "investments", it's an instant flip of the bozo bit for me.

scanr• 14 years ago

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."

http://www.kickstarter.com/terms-of-use

d0de• 14 years ago

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.

Gormo3• 14 years ago

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?

Deestan• 14 years ago

That's my immediate understanding of KS also. I am honestly baffled that people expect hard promises from creative projects.

I give projects my money because I have money to spare and want to give them a chance to succeed. Nothing more.

firichapo• 14 years ago

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.

ommunist• 14 years ago

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.

markmm• 14 years ago

My question is, why isn't Kickstarter International in terms of startups? I am based in the UK and we could do with a successful service like KS here!

jakeonthemove• 14 years ago

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.

raesene2• 14 years ago

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).

pge3• 14 years ago

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.

brackin• 14 years ago

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.

jdlshore• 14 years ago

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.

[1] http://www.kickstarter.com/projects/188988365/lets-code-test...

[2] http://www.kickstarter.com/projects/188988365/lets-code-test...

When A Kickstarter Campaign Fails, Does Anyone Get Their Money Back?

Related Stories