When A Kickstarter Campaign Fails, Does Anyone Get Their Money Back?
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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.
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...
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.
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...
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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.
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"?
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.
Naturally, this is what VCs are about.
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.
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'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…
This article is about what happens when a project is funded, but fails to deliver. At that point the funders have lost their money.
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!).
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.
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."
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...
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!
I re-discovered that after unlocking the Adjudicator realizing ships with L2 shields were completely immune to my firepower
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.
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.
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.
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.
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"
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.
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.
> 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
I would rather they get much much more proactive about explaining to people what they are signing up for.
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.
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.
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.
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).
There are multiple ways to match income and expenses that occur in different years - at least if you have some sort of business entity.
Matching principles only apply to accrual method taxpayers, who may record invoices or liabilities separately from the actual payment or receipt of payment.
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).
[1] http://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups...
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.
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.
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.
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.
"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."
In other words, if kickstarter campaigns have to repay backers if they fail, kickstarter becomes radically less useful and interesting as a proposition.
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 ...
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 ...?
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 feel that the system used by quirky.com is more conductive to a real world product.
I give projects my money because I have money to spare and want to give them a chance to succeed. Nothing more.
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."
The article says
> [Kickstarter]'s policy says creators have to give refunds on failed projects
"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.
(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…)
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.
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." ``
http://a.wholelottanothing.org/2012/01/lessons-for-kickstart...
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 is a gamble. End of story.
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.
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.
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?
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."
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.
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).
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...
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.
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.
http://www.kickstarter.com/projects/531383637/jot-capacitive...
I've backed one other project. It is severely late.
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.
http://www.kickstarter.com/projects/1185564491/hot-cakes-an-...
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.
That said, I did just buy my first batch of Stack Soap, which was a Kickstarter-funded venture. nifty.
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.
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.
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.
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.
Nothing to do with securities, stocks, options or ownership. Therefore it is really nothing to do with 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.