FWIW you lost our given inflation. Technically, he could have invested all the funds, grown it by 20% per year in the SPY and returned you still a $100 watch for your $100, pocketing the difference
How is this legal?
How is this legal?
It is hard to distinguish it from frauds (e.g. what Holmes and Theranos committed) nevertheless it should be legal.
I believe there is a difference between promising something that you know can't be done, and promising something that can be done, but failing to do it within time/budget.
Even promising something that can’t be done need not be fraud because the developer can have reasonable arguments that it can’t be done yet.
Even if the developer has doubts as to whether they will be able to do it, or even whether it actually is possible, it’s not fraud if they clearly outline the risks.
True, but that wasn't the case with Theranos. Every domain expert knew that you couldn't possibly analyse everything using a drop of blood, because blood is not homogeneous, so one drop from your left arm is not necessarily the same as another drop from your right arm. This is a fundamental limitation of human anatomy, not something to do with the current state of technology.
SPY grew 12.197% annually (including dividend reinvestment) from October 2013 to August 2023.
https://dqydj.com/sp-500-return-calculator/
>and returned you still a $100 watch for your $100
$100 in 2013 is not the same as $100 in 2023 due to inflation. Adjusting for inflation, the SPY annual return from the same time period (with dividend reinvestment) is 9.216%.
https://www.kickstarter.com/blog/kickstarter-is-not-a-store
https://www.kickstarter.com/rules?ref=global-footer
So, within the rules: it is 'an obligation-free playground for tinkerers' more than it is a place where you can buy cool stuff that doesn't exist yet.
And in this particular case it worked exactly as it should. Obviously there are some Kickstarters that are fraudulent, where the initiator has no intention up front to ever release what they say they intend to build. But those are indistinguishable from your typical other failed Kickstarter, the one where the ability or funds did not reach far enough to stretch to the point where something tangible got delivered.
If you want to be 100% sure you get what you back: don't use Kickstarter, you will almost certainly be disappointed. If you want to back people that have the intention of doing interesting things with low expectations of actually receiving that which you back Kickstarter is fine.
A very strict reading of the rules means that Kickstarter can be exactly that: an obligation-free playground for tinkerers, who may at some point deliver something back to you in return for the money you give them. Your 'backing' is essentially a donation, there is a pinky promise that the recipient will try to do what they can to deliver on their intentions.
Some projects are more up-front about this than others, but in general it helps to understand the kind of arrangement you are entering into before deciding to back any kind of project.
This is the project page for this watch:
https://www.kickstarter.com/projects/920064946/oscilloscope-...
The timetable seems - to the hardware oriented part of my brain - wildly optimistic. Otoh 10 years is probably much longer than the original project was intended to run, likely there were serious troubles sourcing parts and/or with the final design. But the person behind the project felt that in spite of that headwind they still were obliged to deliver, even if that happened much, much later than intended. I wished all Kickstarters would end as happy as this one.
https://help.kickstarter.com/hc/en-us/articles/115005048113-...
So: other than a 'gentle-mans agreement' you do not have much to go on in terms of rights. Finally: the amount of money raised for this project is so low that I'm surprised it managed to run to completion at all.
Now of course anyone with any smarts runs a Kickstarter through an LLC to avoid being liable but it isn't a completely free space.
Think of it like preordering from a local store. If they go bankrupt you are SOL.
Kickstarter just isn't the one taking on the risk in contrast to, say, buying from a random merchant on Amazon works. Where Amazon guarantees completion (as well as it is willing to).
Now if a nationwide Kickstarter runs and fails is the original developer's LLC impossible to sue if they don't deliver as long as they take reasonable steps towards delivery? 100%.
But again there is a difference between a contract with a random and a playground.
Where does it say that?
> Think of it like preordering from a local store.
No, again: Kickstarter is not a store. How is it even possible to have this level of misunderstanding when it says exactly that on the linked page.
https://help.kickstarter.com/hc/en-us/articles/115005028834-...
"At the same time, backers must understand that Kickstarter is not a store. When you back a project on Kickstarter, you’re helping create something new — not pre-ordering something that already exists. As Kickstarter does not offer refunds, we encourage backers to investigate the project idea first, to vet the creator thoroughly, and to assess the inherent risk of the project for themselves before making a pledge.
There’s always a chance something could happen that prevents the creator from being able to finish the project as promised. "
And that's from the current terms of service, the previous ones (which were in effect when this project launched) were even more lenient. And that's also why it is called a 'pledge' and not a 'sale'.
Has anyone successfully sued a project? Is there case law?
The filing fee for small claims court is usually $20 and that assumes you live near each other.
They are usually judgement proof but that isn't uncommon in other fields too.
If the backers 'back out' because they see that risk as too high retrospectively they should not have engaged in the first place. Because you are out only $50 or less. But collectively you've enabled someone to take on a risk that they could not have carried by themselves, as a backer you underwrite that risk. This is such a fundamental component of crowdsourcing that I find it bizarre that it needs to be spelled out like this. Legal recourse should be reserved for outright fraud, no less.
Examples:
https://arstechnica.com/tech-policy/2015/06/feds-take-first-... (most likely fraud)
https://icv2.com/articles/news/view/32334/court-orders-fines... (seems to have been either bad timing or someone that needed the court to get off their ass)
https://massivelyop.com/2022/10/12/chronicles-of-elyria-dev-... (many millions of $, case dismissed)
So it's a bit of a toss-up. Especially the second is weird because the state is awarded $54K versus a pittance to the backers and apparently the backers did in fact receive their stuff.
All in all, other than outright fraud I don't see much in terms of real world recourse here, and even then you have to wonder if you shouldn't just write it off. The last one is interesting: by handing a lot of $ to a project initiator you are also effectively funding them from defending from you suing them...
Well, the Terms of Use[1] in force at the time make it pretty clear:
> By creating a fundraising campaign on Kickstarter, you as the Project Creator are offering the public the opportunity to enter into a contract with you.
And later on, it suggests backers should expect rewards promised or their money back:
> 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.
Obviously you and I know better than to expect these to happen, but lets not pretend like everyone participating should have known they were bearing equity-like risk.
> The Estimated Delivery Date listed on each reward is not a promise to fulfill by that date, but is merely an estimate of when the Project Creator hopes to fulfill by. Project Creators agree to make a good faith attempt to fulfill each reward by its Estimated Delivery Date
The point of this site is to gather enough money to make a good faith attempt at something. That's pretty obvious. Even an LLM can figure that out.
Normally you have a right to a full refund if a date is specified and missed (specifically you can liquidate the contract for failure to fulfill which allows you to retrieve your consideration). But pretty much everybody ensures the contract avoids that by either specifying damages for a missed date (which avoids full liquidation) or specifies that no real date is for open ended projects.
Note that with no end date you can still sue for failure to uphold if say updates stop.
People do Kickstarters without vetting as to their business acumen, skills, planning capabilities, ability to source components, product safety knowledge and so on. This dramatically changes the situation from ordering a good from a store or company and you should adjust your expectation as to delivery, quality of workmanship, product safety and guarantees accordingly.
It is precisely why I've never done a Kickstarter even if there have been multiple occasions where people indicated they would love it if I did that. But I could see the potential trouble down the line with some clarity: I could easily put in a ton of effort, ultimately fail through some unknown factor and still be morally (and in some jurisdictions even legally) on the hook for either the delivery or a refund. This has such a chilling effect that it never even was a consideration to try. And that's precisely what Kickstarter is: to give people a chance to try to achieve their goal. Best effort, at best, and success as a lucky nice-to-have.
And that's why I'm more than happy to back some projects that have low chance of success but where I hope that the initiator will either learn something or in an odd case that it will result in something tangible. I'm pleasantly surprised when it works and I don't sweat it when it doesn't. And I think that's the best match attitude wise for what Kickstarter offers, higher expectations than that and you will be disappointed.
So they push the responsibility back for to the project creators rather than that they, as middle-men properly inform the counterparty. In that sense they are clearly and unambiguously on the side of the creators and not on the side of the backers. This is smart from their perspective in a monetary sense, but ethically it leaves something to be desired: they could easily do a better job here and they have more than enough data to support the thesis that Kickstarter projects can and do fail. Note that Kickstarter defines 'success' as 'got funded', not as 'delivered on the pledges'. As far as Kickstarter is concerned, when you're funded they're done.
https://www.researchgate.net/figure/Delivery-rate-for-Kickst...
A good 40% of all Kickstarters does not deliver anything, ever. And the remaining 60% is split 50/50 between those that delivered on time and those that delivered at all. And that split can differ substantially between one kind of Kickstarter and another, hardware in particular is difficult and has a high failure rate, even for projects with massive backing.
So, I'm not blaming the project initiators as much as I do Kickstarter, they clearly can do much better at informing potential backers of what they are getting into and the failure rate of projects (do deliver) within that particular segment, independent of the particular initiator (though their reputation could change that) should be prominently displayed on the pledge page. I won't hold my breath for that to happen though. Never trust a man etc...
Again this is why you run the Kickstarter through a bespoke LLC as that shields you from liability if you can't deliver.
Having a bankrupt LLC makes you judgement proof and thus un-sueable unless they can pierce through the corporate veil because you committed fraud or something similarly terrible.
Again it can both be true that they legally must deliver but there is nothing you can do if they don't.
There is fairly high correlation between Kickstarters that are run through a bespoke LLC and Kickstarters that fail to deliver, for me that would be a reason not to back a certain Kickstarter.
I see Kickstarters mostly as a way to spend a tiny bit of money to enable particular artists and hackers to pursue their dreams, a subsidy of sorts. And if it ever does result in a thing delivered to my door I'll be pleasantly surprised but my expectations are low and the stats to date mirror the larger stats available about campaigns fairly closely. Approaching Kickstarter in any other way will surely lead to disappointment. Suing someone because they failed on a project would radically change the nature of Kickstarter and even though it has happened I would like to see these reserved for those cases where the initiator clearly never planned to deliver anything in the first place. These happen often enough that it is a real problem.
> I'm not blaming the project initiators as much as I do Kickstarter
You entered this thread blaming _backers_, caveat emptor style. All the stuff you mentioned upthread was added / changed post 'day #1'. You can even read the discussion on HN from the time https://news.ycombinator.com/item?id=4551245. In 2023 "don't kickstart with money you can't afford to lose" is reasonable but in 2012 the terrain was much foggier.
The reality is: 40% of Kickstarters never deliver. And only a very small fraction of those results in refunds. An even smaller fraction results in legal action and only a small fraction of those results in payouts to the original backers in excess of their legal costs. So even if you are right in the narrowest possible sense the fact remains that if a Kickstarter does not deliver you are likely going to lose your money.
Backers should be aware of this, should never back a project with money they can't afford to lose and should assume that there is a 40% or so chance that their money will be gone.
In 2012 there were enough people saying the same thing. This all started with arguments that Kickstarter is pre-ordering and that it functions as a store. Neither of these are true.
The simple reality is that you are giving a bunch of money to a bunch of strangers who will possibly try to deliver on that which they have pinky promised to do. And that there is a very good chance that they will not. And that there is a very good chance that you will not be able - legally or otherwise - to recover your funds.
The 40% can be divided into a couple of fractions: projects that failed but where the initiator tried their hardest, projects that failed where the initiator did not try their hardest but they did make some token effort and they delivered something (broken, useless, incomplete, swag only but not the main product that was the goal of the Kickstarter in the first place) and Kickstarters where the initiators never had a chance to deliver because they underestimated the complexity or were underfunded from day 1 and finally those that are simply fraudulent where the Kickstarter itself was the goal, and not the thing the Kickstarter was about.
In all of these you probably will not see your money again and this has been the case since the earliest days of Kickstarter.
Kickstarter could - and should - do more to inform users of these stats. Kickstarter could - and should - do more to keep the backers safe from fly by night operators, but this would require Kickstarter to do more in terms of due diligence on the initiators, and that in turn could increase their liability. They have always tried to make it seem like they don't have anything to do with the actual interaction even though they are to all intents and purposes the advertisers, middle men, and merchant of record.
There are a few cases - that made the news, anyway - where backers have managed to retrieve some of the funds of the Kickstarter project initiators, usually using consumer protection laws. But this is not a structural thing and is more the exception that proves the rule: if the Kickstarter doesn't deliver your money is gone.
So: Kickstarter is 'an obligation-free playground for tinkerers' far more than it is a store, and far more than a place where you should have high expectations of seeing your money or a product in return for your money. Backing a project is not the same as buying a product. Fraud and failure happen, you likely will have little or no recourse.
To the extent that is the case, rewards shouldn't be dependent on success (or the project should be an independent business such that bankruptcy contains liability in the case of failure.)
Also, some Kickstarters are fully developed products from established firms for which the project goal and stretch goals are set around well-researched production costs.
The second I think is mostly abuse of the Kickstarter mechanism to push it more towards pre-ordering and marketing. It would be better if Kickstarter would not engage in these even if they improve the stats because it raises expectations for the kind of projects that Kickstarter was created for to begin with to unrealistic levels.
Is that how it works for angel investors too?
Investments usually result in an ownership transfer though which doesn't have the same kind of hard stops necessarily.
And investments do not necessarily result in an ownership transfer, at the seed and angel level convertible loans effectively postpone that transfer, possibly in perpetuity unless the business manages to raise a later round. Because everybody involved recognizes that if that doesn't happen there is no point in engaging in the song-and-dance of ownership transfer at a non-realistic valuation.
Your typical start-up team is far more capable in terms of business savvy than your typical Bickstarter initiator (artists, tinkerers, hobbyists, wannabe entrepreneurs) and they tend to be much less sure of their ability to bring the project to term. They will most likely underestimate their costs and runtime, overestimate their ability and availability of parts. This should factor heavily into the decision of whether or not you want to back a Kickstarter at all, no matter what the desirable features of the gadget are.
I'm glad something like this exists in the world so that other people like me can do this together with me.
I really wish people like you wouldn't use this sort of site. If you wouldn't be okay with the effort failing, then please just go elsewhere.
At the same time I've seen things come by on Kickstarter that I think they should have never accepted in the first place. They were 100% sure to fail.
However, it is simply not true that it is "obligation-free". This is inaccurate.
Kickstarter say:
> When a project is successfully funded, the creator must complete the project and fulfill each reward. Once a creator has done so, they’ve satisfied their obligation to their backers.
> The creator is solely responsible for fulfilling the promises made in their project. If they’re unable to satisfy the terms of this agreement, they may be subject to legal action by backers.
https://www.kickstarter.com/section4?ref=faq-basics_creatoro...
And anybody can be subject to legal action for any reason at any time. Whether it sticks or not is another thing and since there is no agreement between backer and initiator (no matter how much Kickstarter would like that to be, they are 'the merchant of record' and so are effectively on the hook). If Kickstarter pays out and the backers charge back (which is an operational risk for any party such as Kickstarter and one way in which they can be defrauded) they would have a very hard time recovering the funds from the initiator for that exact reason.
So this whole thing assumes a lot of trust and goodwill on all sides and is legally more than just a little bit gray. And that's why they are very, very careful not to label anybody a 'buyer'. Because buyers have rights, backers do not.
Morally the backers also have obligations: they should research the initiators, but almost nobody ever does. They should reflect on the feasibility of the proposal, but instead the 'it would be great to have this' feeling combined with 'wow, that's cheap, they can't possibly make it for that kind of money so let's back this' is a near certain path to disappointment.
Kickstarter is the main party that has obligations but they disavow all of these and obviously they have the legal backing to ensure they are not on the hook for any of this. On top of that they keep backers structurally in the dark about the risks.
Edit: a short afterword: I've had many, many requests to do a Kickstarter for the Lego sorting machine. I could have raised millions of $ with ease for this project. And I didn't do it. The reasons why are because I know the difference between making a prototype and making something aimed at the general public, I realized that people's expectations of delivery are unrealistically high because there are a lot of unknowns in a project like that and finally that I would not want to risk my reputation and existing business on a project like that. But not all Kickstarter initiators have that much experience in industry and even if they self evaluate to 'I can do this' it may simply not be true in practice. This is the bulk of the Kickstarters that fail on the delivery. To then demand the money back would put these people in a hole that they won't recover from for the rest of their lives. So the default should be: project fails, backers lose their $ because the same thing that allows Kickstarters to succeed is what would put the initiators of failed projects in the poorhouse: it's $50 for you but $50,000 for the initiator (or more) and once that money is sunk it is not recoverable.
It's also a niche, specialist hardware project made in extremely small quantities. They probably should have charged more, not less.
You are probably right it was a raw deal for them, but likely there just isn't enough demand for a price point that would make this sort of project a good investment.
Also it wasn't from scratch but evolution of
https://www.gabotronics.com/products/57/xmega-xprotolab-deta...
author already made 2 kickstarters before