Kickstarter backers ready class action lawsuit against Code Hero dev
kickstarter.com
kickstarter.com
In this sense, the crowdfunding forum gives a focal point for thousands of not only backers but also spectators to debate a continuing thumbs-up/thumbs-down narrative over whether something is great/viable/the-hope-of-the-future/flaky/scammy or whatever. By definition, such a forum will invite submissions from promoters who are, variously, supremely gifted, naive and unrealistic, crafty and conniving, or just hopeful founders who see this is their best funding mechanism, whether it turns out to be good, bad, or mediocre at it plays out. For any given project, who can tell exactly who the promoters are apart from the reputations they manage to build as they do various things in the development community or otherwise in the startup world. If they were doing a true securities offering by which they were selling equity in their ventures, they would be liable if they raised funds through intentional misrepresentations or other forms of fraud (which can include making specific promises without ever having any intention of performing them). But where is the liability when no equity is being sold and instead you have commitments that backers will receive only little perks associated with a completed development effort? There are all kinds of startup ventures that never manage to bring their development efforts to completion because of unforeseen technical issues, bad market conditions, lack of funds, and all sorts of other reasons having nothing to do with fraud or other actionable wrongdoing. If this is true where a venture sells equity interests that are true securities subject to the protections of securities laws, it is doubly true where the only thing being offered is a small perk tied to a development effort that is not guaranteed to be brought to completion or at least that is not guaranteed to be brought to completion within any specified time period. In such cases, you might conceive of cases where actionable wrongdoing might be proven, e.g., if a promoter raised the funds and immediately absconded with them, having made no effort toward development whatever. In almost every case but that extreme one, though, it is pretty hard to prove that a promoter never had any intention of making some good-faith effort to do the development, even if the promoter is flaky or uses bad business judgment in how funds are spent. In front of a jury, that one is a long shot by any measure and very likely a loser.
Which brings us to the economics of a federal class action case. Only specialty lawyers handle such cases. They are procedurally complex, take years to process, and are worth doing (usually) only against defendants with deep pockets where the remedy sought is (a) damages in a sufficient sum to make the case economically worthwhile for the lawyers or (b) an injunctive or other specific performance remedy aimed at curbing some abusive, recurring practice by a large company or important player in some key market.
Those conditions, by definition, do not exist here. A lawyer billing hourly would easily bill a six-figure sum in a typical class action case just to get through the class certification phase. Of course, such cases are not billed hourly precisely because the whole point of a class action is to allow the courts to aggregate a bunch of little claims to allow for a practical remedy for cases that would not be economically worthwhile to pursue separately. Thus, the class action vehicle requires that one or more "class representatives" appear in the action as named plaintiffs to represent the innumerable small claimants. But the claims of the class representatives have to be typical of the claims of the others, meaning that they are small claims as well. Because of this, no named plaintiff will be fronting hundreds of thousands in legal fees on behalf of the class and so, by definition, such cases are always done on contingency. That means that, for the lawyer, the case has to make sense as a business matter: it must involve the prospect of getting a recovery that will be large enough so that a 20% or 25% (or whatever percent) cut of such recovery will make the case attractive to the lawyer for the likely thousands of hours that will need to be poured into it (in cases where there is no money recovery, you still need defendants who, as part of a settlement, will be able to pay what is usually millions in fees to compensate the lawyers for their efforts in effecting the settlement). Of course, it is possible that a lawyer may be willing to take on the case, at substantial cost, just to get publicity or for some other non-monetary motive. That too would make little sense here. Class action lawyers are highly specialized and very busy. They will occasionally do something that is the equivalent of a loss leader but not in an area for which there is no long-term practice advantage. Since, for the reasons just mentioned, I don't see any long-term future for class action lawyers pursuing smallish claims over failed crowdfunding ventures, I can't see a lawyer doing it for that reason either.
To sum up: dubious liability, no deep-pocket defendant, a very small amount at stake, no economic or other normal motive for a lawyer to do this = no ingredients for federal class action.
Therefore (and conceding that I know little about the particulars here), I would imagine that the "class action preparation" here is mostly a rhetorical device by which to call out the promoter involved in this venture and, by the measure of those questioning his motives, to expose the fact that he allegedly took advantage of innocent backers in a way that went beyond the pale of what is legitimate. This may be a worthwhile debate but it will never see the light of day in a courtroom as a class action unless it defies all odds of how such cases work.
By this same reasoning I expect that if a litigator can't figure out a way to pull in Kickstarter then the case will never be filed, or will end up being 1000 small claims actions.
This is also why I facepalm when people suggest that most regulation can be replaced by private litigation.
BTW, I don't think this is a good example of replacing regulation with private litigation, I expect it will be an example of behavioral change in the presence of more literal examples of the risks. As lots of people point out in this thread, clearly a large number of people were thinking "store" not "random guy who might come up with the goods" when they backed a project, having a few of these get a lot of press might have a chilling effect on backers.
In theory, a class action suit would resolve whether the failure to deliver was just over ambition, etc, or due to some malfeasance, but for the reasons grellas outlined, such a suit is unlikely to be filed or carried through to a conclusion. In effect, the deck is systematically stacked in favor of the potential wrongdoer. He wins not only if he really did nothing wrong, but even if he did something wrong but it is non trivial to prove that he did something wrong.
I have the highest respect for grellas but I agree with what you are saying based on many years in business. (Most) Lawyers tend to evaluate things strictly from the legal perspective even taking things up to the "what would the scotus say if the case were brought to them?". Business people have to incorporate lawyers thinking but overall strategy is equally important. Kickstarter doesn't need a case that drags on or any publicity and something like this hanging over them (no matter how dubious a possibility) could easily effect funding going forward. They do have pockets (deep or otherwise) and there is a leg to stand on here (as you mentioned). It's not about whether in the end a case would succeed or not.
Another possibility: Some newly minted class action attorney will take this case solely for the publicity value not caring much even about the eventual outcome.
If only there were some novel funding mechanism that could enable a large number of people to each contribute a small amount of money to back some project that wouldn't be economically viable otherwise.
How about a crowdfunding mechanism to enable interested parties to donate funds to "kick" the "starter?"
Can you believe this mess was all initiated by one guy boasting about filing a class action lawsuit? I can see why lawyers make the most money in America... when someone is inconvenienced, their first course of action is to threaten with a lawsuit.
I run a forum about a band with creative fans who sometimes want to go to market with some band-related idea - unofficial posters, tshirts, videos... In the mid-2000s, pre-kickstarter, one or two of these people took pre-orders, got completely overwhelmed, and screwed up badly despite good intentions. In the case of the fellow selling tshirts, many great efforts were made to reach out just for some honest communication. He was happily taking pre-order money, but wasn't replying to any emails about why tshirts weren't being shipped on time, if at all.
After several months of asking, someone in the forum sought out the District Attorney in the town where these shirts were being sold. All the forum whining in the world did nothing, but the District Attorney got everyone either a refund or a shirt.
I think that if you've paid money for a promised product and haven't received it, and go for an extended period of time without honest communication, it's absolutely fair to get the law involved. That's what it's there for.
To make it out that calls for a class action in December are somehow the first course of action for not getting results from a Kickstarter that closed in February is misleading and doesn't really help anything.
If I remember correctly some weeks ago Kickstarter changed its terms and rules for running a campaign, in order to stress out that these are not pre-orders but just donations. You might receive something in return for this donation (i.e. the funded project thanks you for believing in him), but there's no way to be sure that you are actually going to get anything.
The problem is what people expected when they pledged money: they thought they were pre-ordering.. nope. They were just donating.
It doesn't matter what the T&Cs say now.
For instance, if I say "$50 will get you a T-Shirt", it seems reasonable to me that I am contractually obligated to give you a T-Shirt even if I am unable to follow through on completing the game to the desired standard. The extra rewards certainly seem like more than just a "donation".
The current rules on Kickstarter provide an obligation to provide the reward or refund the backer, so the model is still (by the terms) more like a sale than a donation. There's a "good faith effort" requirement regarding the estimated date on which the rewards will be provided, but that's really not that unusual for sales-type contracts.
The main thing I could tell is that this is the thing he seemed most to want to accomplish in the world (even though I wasn't certain it would work, thought he hadn't thought through the complexities, and might not have enough experience to pull it off).
In the intervening years, I have run into him at various conferences, and his interest in Code Hero has never seemed to wane: he even was making credible progress on it, and supposedly the game actually got released (although I am currently unable to find it? I'm on an iPhone, though).
I also recently ran into him at Science Hack Day last year, and I was floored at how well he was interacting with the kids there, teaching them enough JavaScript and Unity3D to make a "game" (actually, just a model and some floating platforms that you could move through; I don't even think you could land on the platforms: no collision detection).
I thereby highly question the validity of a malfeasance claim against him. I can appreciate that "he didn't spend the money well and the stated improvement project failed", but honestly: welcome to KickStarter... it is your responsibility to decide whether your money will be used effectively, as the entire point of the site is speculative funding.
People really want to support Alex and this endeavor. They're willing to make sacrifices. They just want clarity, and I don't think that's asking too much.
Kickstarter is not a rewards preordering system. You're not giving money expecting to see your reward show up on your doorstep "soon".
I'm not a backer, just sympathetic to the situation on both sides, but an obligation is just that.
In the faq you linked, here's a choice quote:
>It's not uncommon for things to take longer than expected. Sometimes the execution of the project proves more difficult than the creator had anticipated. If a creator is making a good faith effort to complete their project and is transparent about it, backers should do their best to be patient and understanding while demanding continued accountability from the creator.
So backers should be patient and not threaten lawsuits because the project is taking too long.
While I agree with that completely, there's two different sorts of deliverables promised as rewards - the actual project output, which as you point out may only be delayed and not cancelled, but also the "trinkets". If he's really run out of money without having already paid for the tshirts and usb keys (and if it were me, probably also the "special packaging" promised for some rewards), then I think he's done something _very_ foolish.
Disclaimer: I work for Teespring, and pretty much all we do is automate this sort of thing (so I may be biased).
"Is a creator legally obligated to fulfill the promises of their project?
Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. We crafted these terms to create a legal requirement for creators to follow through on their projects, and to give backers a recourse if they don't. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill."
It also cites this image: https://ksr-assets.s3.amazonaws.com/creator-responsibility.p... which I think describes this situation pretty well.
_BUT_… It's clear from this same situation playing out every week or so, that at least some project owners and certainly Kickstarter themselves are not doing nearly enough to make that clear up front. There are clearly _many_ people who, in spite of words like "Pledge" and "project" and "funding" and "reward", still have expectations that the transaction is a sale - and they then post using language like " I 'paid' for my 'order' and my 'product' hasnt arrived!"
I love the idea of "crowdfunding", but I think it needs to be much better understood as closer to a "donation" or "speculative investment" than a "sale".
The problem is with project creators who offer rewards that they aren't able to provide when the project funds, usually because they are promising rewards that include the output of the project when they are funding development rather than production.
Given KS's terms of service, creators risk substantial liability to backers when they do that; the better model would either be to offer rewards that don't depend on project success for development, or use Kickstarter to fund up-front production costs after development is complete and offer rewards that include the project output; there's no reason the same project couldn't do both, using two different Kickstarters, starting with one for development and followed -- once development is complete -- with one for production.
1) legality with respect to sales tax law: If Kickstarter actually requires that a good is shipped when money is given (the statement I was responding to with this comment), then this difference is barely even academic: it is just a way to do an end run around sales tax law, and I don't think it is one that most places would tolerate well (although enforcement on that sort of thing is slow and spotty).
2) terms of service on credit cards regarding pre-ordering: No, if you are giving Gamestop $60 to hold on to until a product is shipped, and you do this with a credit card, this is in violation of their agreements with companies like Visa. These requirements (obviously) flow through if you use third-party payment networks that, themselves, are based on the usage of credit cards by the end customer.
In fact, this is sufficiently true, that your example is actually wrong to begin with... Gamestop doesn't even do that, because (as I said) if they did they would be in violation. They have a page in the help section of their website where they go over this topic in specific.
http://www.gamestop.com/gs/help/Pre-orders.aspx
"""Your credit card will be charged only when your order is processed. In some cases, we will process your order and authorize your credit card up to 10 days before the release of the product. This allows us to get the product to you faster."""
In essence, they are taking your credit card number ahead of time, but they are not actually billing you; it is only when the product is actually pretty much available that they do the authorization on the card. Even then, I bet they are doing only an "authorization", and performing the "capture" when they ship: they do the authorization ahead of time to make certain there is time to deal with delays, mistakes, or simply a long queue, and then can do the capture quickly when they go to ship.
Then these agreements are utterly meaningless. Preordering via credit card is hardly a new concept.
As another cool example: if you were lucky enough to go to Google I/O this year, they were taking "per-orders" of Google Glass; however, as they are not allowed to take money via credit cards in advance of shipment (and as you can't delay a capture for more than a month or something after the authorization), they were forced to just take name and email addresses down at the event.
This cost me $60 about 3 months ago.
I've got the statement open, literally, right in front of me, and it shows a $60 charge from that store. I had to walk in and cough up the sales tax on launch day. I've got that charge right in front of me too.
The issue is that you cannot always issue a refund after $period, where $period ranges anywhere from 60-180+ days depending on dozens of different factors (three or four different banks, your payment gateway, various data retention policies, card expiration, and more).
Unlike raising a seed round, for example, it's rather impractical to give (remaining?) money back if you realize the project is not going anywhere after six months or a year.
Suffice to say, there's a reason that Kickstarter has started to clamp down on projects with a higher likelihood of failures and is outright blocking certain categories.
That question in the FAQ is new. It wasn't present when this project was funded [4].
Does any of this make a difference? Legally?
[1] http://www.kickstarter.com/help/faq/kickstarter%20basics#IsA...
[2] http://www.kickstarter.com/terms-of-use
[3] http://www.kickstarter.com/projects/guidelines?utf8=%E2%9C%9...
[4] http://web.archive.org/web/20110522104147/http://www.kicksta...
Set a standard. Say once a month for a minimum. If you don't have something to say to your backers once a month I have to wonder if you are placing the proper priority on the project.
If projects don't meet that standard, turn their page amber or something similar. A big visual sign that the project is not meeting the standard. If it goes 3 months with no update turn it red. Make it stand out. Make people feel some pressure to communicate.
In the end, it's best for Kickstarter to push projects to better relationships with the backers.
This can be built into the cost of the Kickstarter project, and for projects $100K and above, believe it to be completely reasonable.
But yes, they are basically trying to present it as a marketplace they have no control over, to avoid liability and getting themselves regulated by the SEC/others.
Whether this is going to be effective, I actually tend to agree with you and think it won't, but it's almost certainly why they are doing it.
The communication issue is, agreed, his own worst enemy.
Yeah sure, I'm definitely believing that in two months (just for an example) you are going to address every problem that has arisen.
http://www.rockpapershotgun.com/2012/11/28/the-kickstarter-s...
But I definitely share the opinion the project was (and still is) more ambitious than he (or anyone) could pull off on time or on budget.
Personally, I would have much more confidence in a totally dispassionate individual, who raised funds for a project because they saw it as a rational use of their time and other people's money, not because they had a deep emotional investment in a particular idea. I would certainly expect a dispassionate individual to make far more accurate predictions of the necessary budget and timescale of a project, and the likelihood of it failing.
Peake has no clear track record of delivering large software projects and interviews suggest that he has no clear constraints on project scope. To a developer, those are glaring warnings that a project is at risk of being vaporware, but I wouldn't expect anyone outside of the software industry to recognise that. I think Kickstarter need to think long and hard about whether they're doing everything they can to educate "backers" of the serious risks involved in certain classes of project. The lonely-hearts section in my local newspaper gives advice on how to avoid dangerous situations; The motoring section gives advice on how to spot a stolen or misrepresented vehicle. I don't see any equivalent on Kickstarter on how to spot high-risk projects.
If you read the linked comments, people seem to believe that he got bored and dropped the project: I thereby believe that his passion is actually the specific thing in question, dead center to the discussion.
> ...and at worst an indictment of his suitability as a candidate for investment.
FWIW, I chose to not invest anything in CodeHero at the time in 2007, and when I saw the Kickstarter go by (I believe I noticed it on my Facebook feed) I again made the decision to not invest in his project.
> ...[discussion of whether or not you would invest in Alex Peake to build a project]...
Actually, I believe that that is off-topic: you would not invest in him, nor would I have invested in him, nor did I invest in him; you are preaching to the choir on not investing in him ;P. (I can, however, understand why many people would: more on that later.)
However, if you were to have invested in him (as the people complaining about him obviously did), I will contend that it is then unfair to request a refund from him if he fails: you simply shouldn't have invested in the first place if you didn't understand that risk.
To put it differently: when you buy tons of shares in a stock of a company because they say "we've decided to build the next mobile operating system and have purchased one of the leaders in this space" (HP), and then just months later they realize that the hardware didn't work, the operating system was too far out to compete with the two major players, that the deals they had were with the wrong carrier, and thereby they make the painful decision to scrap the entire division, sell off the remaining hardware at a loss, and open-source the software seemingly only to not lose face with the wider development community, you might call for the CEO's job, but I don't see how you can demand a refund: that was just a stupid investment you should not have made in the first place... some might call it a "life lesson" ;P.
Of course, sometimes it crosses a line; that line is largely related to what he does with the money: if he hires too many people, gets a bad deal on an office, and misses his window, that sucks, but he tried.
If, in contrast, he spends it on a trip to Vegas and a new car, and never had any intention of building the product, that is something entirely different, and you would be right in calling it a scam.
In this case, though, I don't see any evidence of that being the case, so I am putting forward the only thing anyone here can offer: a character reference as to what likely happened on Alex Peake's side of this. (edit: After writing this, I noticed Alex Peake actually responded himself elsewhere on the thread, so that's much more useful.)
I thereby contend, with my more-informed-than-a-random-person's (but possibly not as informed as one would really want ;P) opinion, is that he may have used the funds inefficiently on a project that was barely achievable in the first place (and it isn't even yet clear that this is true), but I can't imagine his intent was a scam.
In fact, I have a difficult time imagining Alex Peake doing much else, for the rest of his life, other than working on Code Hero (or, furthest out, things that support his addiction to working on Code Hero). He has a really addictive vision, he actually makes progress occasionally, and he really does seem to understand how to interact and deal with young kids.
Even so, I wouldn't invest money in this project (hell, were I building this project myself, I wouldn't even go about it the same way: I'd start with machines, not source code, as that's what has worked best for me when I teach classes on computers to non-computer people), but I can easily understand why someone else would... they should just have low expectations of the result; if nothing else: "it's just a Kickstarter".
> I think Kickstarter need to think long and hard about whether they're doing everything they can to educate "backers" of the serious risks involved in certain classes of project.
Yes, they should; the fact that people do not realize this, however, is, in the end, their fault. I really do agree, however, that Kickstarter is going to eventually run into serious liability problems by attempting to paint a rosy picture that looks a lot like "pre-order a product" rather than "kick a quarter to your favorite street-performer".
It was somewhat nice that they backed away from this a little in recent months (including making it clear in September with some rule changes that "Kickstarter Is Not a Store", such as requiring creators to talk about "Risks and Challenges"), but they are walking a fine line, and seem to be doing it somewhat sloppily.
The terms of service at Kickstarter require a refund if the project creator is unable or unwilling to provide the offered rewards, not only if he didn't really try.
"Guys, I want to love you so badly... I met you at PAX and was worried how the exchange was going to go, considering we're so far behind schedule, updates are very insufficient, and I pledged at a high level ($313). You were very apologetic and assured me that things were going to take off right after PAX, but that is another commitment that hasn't been met. I'll be happiest if I can get my money back, but I doubt that's a possibility. I had time and energy to dive into this stuff earlier this year. Now I'm married, working different hours, and have a very different life. Lots has changed since the estimated delivery date flew by."
You were funding a product that you were told may or may not meet with success. You're now going to need to show in a civil court that there was wilful recklessness in the use of funds.
Kickstarter sits on the fence, too - it states that the creater is obliged to deliver pledges or refund, but that it hopes requests for refund will only be used for bad faith projects.
Given that he gave a video interview in November stating he felt the project had a year to go, and that the pledges specify "Estimated Delivery" only, I think that's a hard road to plow, leaving aside the fact that a malicious, or even unlucky/ill-planned project could keep pushing out the dates.
Some investments fail. Too many people view Kickstarter as an online store.
Kickstarter can't afford to conflate the two, or people will stop investing. So they're in a tricky spot, trying to ensure that users understand that they aren't customers and that the startups can fail, while also ensuring that customers have faith that the vast majority of startups will succeed.
It used to be said that the majority of software projects run by big stable corporations would fail, i.e., be cancelled before delivery for cost and time overruns.
I don't know what Kickstarter is really trying to be exactly, but it would be probably be the wrong thing to "ensure customers have faith that the vast majority of startups will succeed".
The annoying thing about educating your users is you're never done.
I'm glad that Kickstarter is trying an alternative business model, but I do worry for their long term viability/growth prospects. People reading HN probably understand concepts like investment and lack of guaranteed rewards. People who sign up to a $1,000,000 project for what looks like a really cool game that their friends showed them, and who then get told they weren't really buying anything but a possibility, might not. And in the long run, whether or not those people should have understood their role, they are the only ones who get a say in whether they open their wallets again in the future to support someone else's project.
Honestly, if the creator is realistic with expectations, goals, and required funding, it seems to me most every project on Kickstarter ought to be able to complete and thereby succeed. Not many are truly speculative "This could turn out to be impossible" sort of affairs.
[1] Fred Brooks, "There Is No Silver Bullet" http://en.wikipedia.org/wiki/No_Silver_Bullet
Investments usually have an upside commensurate with the perceived risk.
"Pay the regular price of a game, and you have a 50% chance of getting the game, and 50% of getting nothing" is not really an investment - it's a charitable contribution to someone's dream that you might see something out of.
This is why I think the current Kickstarter model is doomed in the long run. Once it becomes clear that a large portion of Kickstarters will never deliver anything close to what they promised (if they deliver anything at all!), the whole concept of crowdfunding will become a whole lot less attractive to a lot of people.
Not unless prospective projects were willing to take a substantial discount to soften the risk - but that destroys the viability of Kickstarter for many projects.
My mental model of Kickstarter is more like giving money to the EFF: maybe they give me a hat (they did, actually; I didn't want it; they seemed to refuse to let me leave without the hat... it was weird, as it almost made me want to give them money less, as they apparently were spending some of it on hats people didn't want, but hey: maybe it was some accounting thing), but the real reason I do it is I know I contributed to something that I believed in, even if it sometimes doesn't accomplish the things that they wanted to get done.
When I see a Kickstarter, I think the same way: I think of it more like deciding whether or not to give the guy on the street corner some money in the hat (more hats...) that they have next to them; I don't really get anything in return for that money (arguably I got the music they already played, but I could have easily freeloaded that): I'm just contributing to his life as an artist, in the vague hope that I've helped something beautiful exist in the world.
I maintain that if Kickstarter is "pay money now for gifts later" then they are not in compliance with either Visa's terms of service (no delayed renumeration for payments, a policy explicitly there to avoid "I have money ten months ago, and am now angry"), as well as laws regarding collecting sales tax (which are quite clearly written in a way that keeps you from just claiming "oh yeah, this thing where people give me money and I give them products? trust me: that's not a purchase... don't tax me, bro").
Come to find out, from the Kickstarter ToS[1]:
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.
Obviously, if that isn't the case, then my point is moot.
Read that again. If they haven't fulfilled their explicit promises, a refund is required.
In other words, they're obligated to refund $170k that they don't have anymore.
I've edited to reflect that.
But agree with your original comment: if this goes through till the end (with lawsuits and all the drama), it'll be great for Kickstarter. It'll improve the quality and create a much healthier ecosystem.
Another project that got really close to a class action was OpenVizsla USB Sniffer. The conversation moved out of Kickstarter into the discussion list that was created by/for backers, but the authors finally showed up and recognized (somewhat) the problems, and are trying to fix it.
I disagree. I think we really need a funding solution where $150k - $170k projects can fail due to poor execution (rather than fraud) without involving lawsuits. As long as everyone is clear about what their money's doing at the outset.
I don't see why crowdfunding should be any different than more formal investors here.
Founders (usually) give updates to their investors. They report the progress, ask for help, explain the issues. When things go wrong, usually investors are the first ones to offer help - providing experience, contacts, or sometimes more money. It's their money that is at stake, after all.
That's exactly the opposite of failed projects on Kickstarter. Usually (and I'm generalizing here; just using my own sample of 60-70 projects I sponsored, with 5% failure rate or so) the authors simply stop providing updates.
They realize they were overly ambitious, or underestimated the costs, or had issues with the team, or simply don't have the competence needed to execute within the time/budget available. Updates become more sparse, and eventually stops. The crowd starts to smell blood and gets angry, digs personal information about the founder, and things get nasty really quick. Just like it happened with the OP, or OpenVizla, or several other pseudo-failed projects.
I still think we need one good public failure, with all the drama associated, to clarify to everybody - authors & backers - some very wrong misconceptions about crowdsourcing. Yes, projects CAN fail, and as a backer you have to accept that risk, or wait to buy the product at Amazon.
But no, authors cannot simply disappear, run ashamed of their own failure. It doesn't matter if you underestimated the effort, or worked really hard over the weekends, or lost your day job, or life got in the way. Nothing will matter, unless you explain, clearly, to your backers. They may get pissed off, but it's better than the alternative.
Authors have to understand that if the ship sinks, you'll have to man up and stay till the end. So be prepared; this is not a free ride, with zero risks.
Another thing that would be very positive is to have public financial disclosure. Authors should be required to submit a financial plan explaining how the money will be used - and another one mid-project explain how the money was spent. I'm sure it'd be eye opening, in both ways (people would see how expensive it is to make, say, a game, and authors would think twice before spending every penny).
My point was that KS and traditional investment should operate in more or less the same way, especially regarding issues - whether that's simply letting people know they've hit a snag and are working on it, or are asking for advice on the best way to proceed. I realize it's difficult to scale the concept of a seed round to hundreds or thousands of backers, but an email blast to 5-10 is just as easy (or hard) to write as one going to 5000.
You just need much better filters on the responses.
The problem isn't backers treating Kickstarter as pre-order for the product being developed by the project, its project creators doing that by setting rewards that depend on project success.
The T-shirt and signatures are completely incidental to the project being kick-started, yet the arguments here are as if someone had purchased a T-shirt on Ebay for $1000 and the seller failed to ship.
That means that if I'm a recording artist, I would be a fool to make the reward a copy of the finished album because that means that if the album is never completed, the reward cannot be delivered and I would therefore have to refund money I already spent.
If it's a case of "I've written an albums worth of music, but I need $ for studio time, post-production and pressing CDs", then it should be low risk for the artist. You should know how much those things cost, and set your goal accordingly.
However, if you want the money to take X months off work and write the music, then go to the studio ..., that will create risk for you. What if you don't get a CD worth of music written in those X months? (Short answer: Just record random crap, nothing says people have to enjoy your rewards)
The risks for the producer are: 1) If the project is something that is difficult to cost up-front (like all these games that get funded on KS) 2) Your rewards are things you're inventing just for KS (like T-Shirts). Those things cost you money, that money comes out of your total pool, so you need to put extract capacity into the pool to pay for the production of the extras. Getting that right can be harder than people think.
All those KS projects that amount to fund my (team's) time to develop stuff are high risk for both the backers and the producer (if it goes wrong, the producer will owe money, but the backers won't ever get what they're owed)
The projects that are about funding the production phase of a project after the producer has poured their own time into the design phase are much more in line with what KS's ToS actually expect.
I've heard too many horror stories about people on KS offering tees for $X only to find that the screen printer didn't mention a bunch of fees relating to setup/fulfillment/shipping and the true cost is $X*2 and the creator ends up spending a ton of energy and money trying to fix the issue.
Disclaimer: I work for Teespring, and this is exactly what we do (so I may be biased).
Yes, it does, just not in the excerpt provided upthread. The following bullet point is: "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."
I don't think its too loose to hold up at all, but I do think there is some question about how courts will construe timing requirements. Certainly, there is no obligation sooner than the estimated delivery date, but its not entirely clear when a deliver-or-refund demand becomes enforceable.
<blockquote>It will be too easy for a lawyer to say "my client is both willing and able to fulfill these rewards, he just needs more time/money/etc". </blockquote>
Saying that you need resources (e.g., money) you do not have to meet an obligation is equivalent to saying that you are unable to meet the obligation. Given the way the time conditions are written, demonstrating that more time was needed, and that that time was reasonable in light of the circumstances, and that the creator did not need other resources they didn't have might work.
To be sure, this is new territory for all parties.
When I first met him, his game was very rudimentary- basically just a tree in space. That was actually pretty much it. He was able to weave such a compelling story around the project that a lot of people pitched in to help him with it. He was able to actually get some pretty high calibre people to spend a lot of time advising him and giving him contacts.
At one point, he had 5-6 developers working with him to get the game ready for a YC application. He was actually able to get someone to let him use a large office for free in SOMA, while they waited for the response from YC. When the YC funding didn't come through, a lot of people were pissed at him. But honestly, nothing is certain in a startup, and they should have known that.
I've personally always found his ideas very inspiring, although maybe his business sense lags behind. He really has thought out an entire dream for what he would like to build, and it is very compelling in a way. It's unfortunate that he's let his gift of gab get ahead of him.
It looks like his main mistake here was not sending people their trinkets? not sure from the KS page, and I haven't talked to him in a while. Honestly, so many startups fail, and it seems like it would be pretty tough to build a full 3d game with a built in code editor on 170k. There are many many startups that have gone through way more money and not shipped.
But if I took people's money to build them an X, and I failed, I would feel really bad about it. I would offer a heartfelt apology, and I would give them what I could to compensate them for my failure.
Alex may have tried hard. And he probably doesn't have the money to refund to people. But he could help his case by being honest about the project, and to recognize that he failed to deliver to those who invested in him.
Not only will that calm many upset investors, but it's the right thing to do.
Like I said, he sometimes let his gift of gab get ahead of him, promising things that were not possible with the resources he had at his disposal. He's one of the most persuasive people I know, and had an easy time talking people into things.
Here's a previous venture of his, which also resulted in a lot of bad blood, although he seems to have resolved it to some degree: http://blog.sinthetik.com/?tag=tacticalcorsets
This is a shame. He's not a "scammer" as some here are saying. He's a guy who's in over his head and probably in depressive paralysis. They say entrepreneurs are people who jump off a cliff and build a plane on the way down - this is what can happen when you hit the ground first.
Just remember: bad news is ALWAYS better than no news. This was probably salvageable a few months ago, but now it seems unlikely.
What other suits (other than the 3D Systems v. Kickstarter & FormLabs) is Kickstarter currently involved with?
For this project you have 1217 backers at the $42 level who get a digital download, a usb drive boxed up and signed by the whole team, and a t shirt. Obviously for such little money and so much in return, this is going to be incredibly popular. So now you have to sit your entire team down to sign their name 1200 times, purchase 1200 USBs and produce 1200 tshirts. That's too much time and money wasted. And yet money is exactly what you're asking for.
Right now there are scads and scads of project creators competing for the supply of microdonations. Their main avenue for competition is prizes for donating, so they're under a whole lot of pressure to make the prizes as generous as possible. Meanwhile, there are also scads and scads of people looking to fund projects, and they've got a natural interest to kickstart projects that have the most attractive prizes, for the price. These pressures are naturally going to encourage the difference between the amount of money being sought and the cost of the prizes to be as small as possible.
And there's really not a whole lot counteracting that pressure. The business acumen of the project creator might help, only people who use Kickstarter to fund projects are almost by definition not terribly experienced in running a business. And the backers have no material interest in that regard. Since they have zero equity in the venture, they really have no intrinsic reason to care whether the project succeeds or fails, just as long as they get their prizes.
All that's left as force to encourage folks to make sure there's enough money to ensure the project's success (or even give it a fighting chance) is everyone's interest in the cause for its own sake. While that's certainly worth something, the wet blanket in me can't help but muse that Polyanna isn't exactly the archetype of a successful business builder.
</WildSpeculation>
That leaves $22 for the download and time spent prepping, signing, and shipping everything.
If you invest on Kickstarter do it on the assumption that you'll never see the project realized and that there will be no net benefit to you personally. Do it because you wish to back the people, not the project per-se and if it works out then be happy.
This all looks like crying over spilt milk and trying to find a way to blame someone (anyone!) for the loss of little bits of money. If you can't afford the loss then DO NOT INVEST. Not in kickstarter nor anywhere else.
Going in without expectations will make it a much better experience for you as well as for the people trying to realize their project. If this guy spent it 'recklessly' then you're going to have to come up with some iron-clad proof of that and by definition you've already made your case impossible because clearly you're going to have a real problem to collect.
This case is a non-starter.
IANAL but you probably want to incorporate before posting on Kickstarter to protect yourself from backer lawsuits if things go south.
The most problematic reward is the $42 one with 1217 backers because it promises a physical box and USB stick, but you could get those pretty cheaply, much cheaper than the $51,114 of the total that represents.
you probably want to incorporate before posting on Kickstarter
Perhaps but if someone claims you acted fraudulently, you're still going to have to defend it; and, if the claim is validated, likely offer no protection.
"Dealing with People"
Things fail by default. Look at how many companies have been started by geniuses, funded with hundreds of millions of dollars, mentioned on blogs all over the internet, and still the majority of them fail. So you can only imagine how the average person running a kickstarter feels when they can't reach their deadline. At least VCs understand the success/failure ratio.
VC investors are giving, few in numbers, and understanding. Crowd funding backers are the opposite: large in numbers, a pain in the ass to deal with, and irrational. If they give you $5 so help you Jesus/Alah/Buddha they will find every reason imaginable to yell at you for spending those $5 incorrectly. (see Amanda Palmer's kickstarter backlash story)
Maybe the guy has a couple of reallly rich friends?
I've also heard speculation that, if a project is near it's funding goal but looks like it won't quite make it, the people running it might pitch in the rest.
http://www.joystiq.com/2012/12/04/alpha-colony-misses-its-ki...
[1]: http://www.escapistmagazine.com/news/view/121069-Code-Hero-K...
"Alex Peake seems to have run out of money ($170k) after spending it recklessly, and doesn't plan on continuing with this project.
There are well over 1000 backers out there who pledged for physical rewards. And, tragically, 6 backers who pledged at the $1k level who thought their money would be well spent on an educational tool for schools."
I'm really curious as to how Dustin came to this conclusion - given that many people have stated the project has had multiple developers at times, and nearly a year or more of development.
It's a claim with serious implications - wonder what the backing for it is?
There was a demo at PAX, which I saw; It looked okay, but barely more than the unity dev tools. There was something slightly off about the person I talked to at the booth, they seemed oddly desperate, but I'd put it down to it being a slow day for them.
I'm glad to see this fail, actually, if it fails - It was ambitious, and would have been cool, but if it fails it's a good wake-up call that these are, in fact, attempts - Not guarantees. I feel sorry for the ~20 people who put $1k+ into this for essentially nothing, but caveat emptor.
Ironically, that doesn't even apply here - 'emptor' means 'buyer', but the whole point of Kickstarter is that you're not a buyer - you're a backer.
Your point still stands; I just found the aphorism amusing, since the whole point is - as you said - that Kickstarter projects are attempts, not guarantees (purchases).
The problem is that project creators are treating Kickstarter as if it were a source for speculative investment with no obligation to deliver rewards when Kickstarter's own terms make it a system for purchasing with a commit to deliver or refund.
I don't know what happened or why the need for a lawsuit, but this could have some very scary implications for crowdfunding. Especially as Kickstarter is now the subject of a few lawsuits (http://techcrunch.com/2012/11/21/3d-systems-sues-3d-printer-...). It is interesting that Kickstarter chose not step in.
I really hope Kickstarter doesn't end up like EBay and Paypal, the go-to marketplace of scammers.
One of the really interesting things about the entire kickstarter model has been how it doesn't seem so scary to people offering up a kickstarter project. I remember raising the first round of funding at a startup and how "real" it suddenly got when you had a big chunk of someone else's money and some serious expectations there. But I knew people in the dot-com days who got funded and almost immediately blew through their series A on re-designing their workspace and buying awesome chairs and video games for the cafeteria.
One of those weird childhood experiences that I got while growing up in Las Vegas was seeing people suddenly come into what they consider a "lot" of money. Some folks would get meticulous and figure out how long they could make it cover their current expenses, some would spend it in lavishly stupid ways for cheap thrills. The trick is that when you're walking around the models at a car dealership and you realize you could write a check for any car they had on the lot with no haggling, you don't succumb to that. You find the place were you assume you have no money available and work out what the best value is. Easy to say, hard to do.
A friend of mine from Sun cashed out his stock and asked me what he should go out and buy. I suggested he pay off his house. That would translate the money into a monthly 'benefit' in the form of one less bill to pay, and it would save him a ton over the life of the loan which seemed like a pretty reasonable rate of return. He did, and thought it was a really boring use of the windfall. Until 2001.
http://primerlabs.com/developmentcontinues
Changed link for the actual post.
I'd guess that he's somewhat overwhelmed by the situation and unable to deal with it, so he's pretending it doesn't exist. If this is the case, I hope, for his sake, he manages to face it long enough to get it out of his system. I know from experience this sort of thing can eat away at you, and that letting people know you messed up can be a huge relief.
https://primerlabs.com/developmentcontinues
Here's the Google Hangout where you can talk to us:
https://plus.google.com/hangouts/_/2f0778f953e6506ccb5e95232...
Here
Code Hero development continues. We released the first alpha build of the game after PAX and we're releasing alpha 2 soon to show you the latest progress.
https://primerlabs.com/download (You do have to buy the game to play the alpha as that is how we sustain development, but you can see how the game has evolved over the last year in the trailers: http://primerlabs.com/trailer)
UPDATE: We reached Dustin Deckard by email. He said he wants the game to succeed and that his position is being misinterpreted in some media reports. He's not suing us, he's just trying to get answers about the project's progress as we hadn't replied to his email before. We're answering journalist and backer questions since posting the first response and posting them here. Our ongoing updates will be posted below as we answer people's questions as transparently and quickly as possible to make sure people are clear that the game development continues and we're going to communicate everything about its progress from now on.
UPDATE: We're on a Google Hangout you can join if you want to ask us whatever you'd like. Some journalists have questions and a lot of our friends and supporters who believe in us have reached out and asked how they can help.
https://plus.google.com/hangouts/_/2f0778f953e6506ccb5e95232...
We are committed to finishing this game and although progress has slowed down and the release is taking longer than we planned, we remain dedicated to working on the project and will continue to do so because we believe in this game and we believe in making programming fun to learn.
We are testing a second alpha release of the game to release soon so you can see what we've added since the first alpha. We exhibited our first alpha release at PAX and you can download it here.
Some of our Kickstarter backers are frustrated with the lack of updates on progress, and Code Hero lead developer Alex Peake would like to make a personal apology:
Hello backer. I owe you a thanks for your support and an apology for our lack of updates on all the progress we've made with your help. I started the Code Hero project to make a game that teaches people how to make games and you backed us to help make that happen. We are going to finish this game for you and everybody else in the world who wants to learn how to code.
I believe in this mission and I'm grateful that you and so many others have believed in Code Hero too and supported us to work on this project. I worked on the idea to make a prototype for a year before asking for your help on Kickstarter, I built a team to work on it for a year since, and we are committed to finishing this game and continuing to add to it so you can make games of your own.
Game development is hard and many studios and projects fail, but I can't let you down because what we're making is important. It's important to me personally to give all the people in the world a way to learn to code that is actually fun. I won't let any obstacles stop the Code Hero team from completing this. It's my life purpose to make this game because I want to see you make games of your own. Software development is hard work and we're behind schedule and solving technical challenges to add player level creation much harder than the already huge creative challenge we set ourselves to begin with. But every big project faces big challenges and we're going to figure ours out and get the game out and keep updating it and expanding it to make it grow to keep challenging the skills of our players as they learn more and more game coding skills.
Many of you may not have tried the latest alpha we showed and released at PAX. I encourage you to download it and try it and see how much we've accomplished so far. The first alpha shows a world called Gamebridge Unityversity and your first mentor Ada Lovelace who guides you through the tour of the game. First you visit the Arcade you can play and post player-created games built with the world editing tools, but first you visit the Labyrinth where you learn how to edit the game's variables to beat it. Next you visit the Library where you can learn about Unityscript programming. Then you visit the Real Artist Shipyard where you're introduced to the Scenebox world editor to make and ship your first level. The tour is designed to take the player from playing an adventure game to making their own right from the outset. It isn't complete yet, but it shows what we built and we're hard at work expanding on that first release to get the new functions fully working and the new training levels fleshed out.
We're testing a new second alpha release tomorrow to show what we've added since then and we're working towards a third more feature complete alpha that will be ready for general use as a complete learning tool.
I know the level of frustration some people have is high right now and that it is my fault for not communicating about our ongoing progress, but I want to reassure everyone who has backed us not to panic: Code Hero is not dead and we will not let our supporters and Kickstarter backers down. All our backer rewards will be delievered along with the game. It is taking longer than we hoped, but the game is becoming awesomer than we planned too. I'll post a more detailed update soon with the new alpha build and answer any questions and concerns people may have.
If you'd like to reach me, my email is alex@primerlabs.com and I'm on Google Hangouts and skype username "empowerment" and I will answer your all your questions or concerns.
VC's, who are professional investors and certainly better versed than the general public on how to triage projects going sideways probably have ~5% of projects totally fail, where the product never reaches production.
Kickstarter needs to manage expectations and have a solid policy on how to deal with situations like this... else, they'll be the next failure.
I don't consider Alex the most experienced dev, but I do think he is one of the most passionate people I have met. He tries for the stars and often times falls short, but so did the Wright Brothers, Tesla, and Edison.
Even the best of startups fail. I think the rate is like 1 in 100 that succede. I hardly think we should hold kickstarter projects to a higher standard.
I have contributed over a thousand dollars to Kickstarter projects, and I don't consider any of those dollars, purchases. I consider them donations. Some projects will succede while others fail.
Don't let the legal system make an example of this.
Prosper is still a great company, but legal quagmires made it much less than it's original vision. I'd hate to overly regulate kickstarter.
I'd actually suggest the reverse - linking this thread to people on Kickstarter. I think a lot of people posting on Kickstarter need a little more education on what it is exactly that they're investing in.
It doesn't matter if he's the most passionate person in the world. Lack of communication and failure to deliver is what matters here.
> Even the best of startups fail. I think the rate is like 1 in 100 that succede. I hardly think we should hold kickstarter projects to a higher standard.
If a startup receives $170k in angel funds you'd better believe the angels would expect frequent, regular updates on the progress (or lack thereof).
> I have contributed over a thousand dollars to Kickstarter projects, and I don't consider any of those dollars, purchases. I consider them donations. Some projects will succede while others fail.
It doesn't matter if you consider them to be donations, they're not. If a company promises to deliver items like shirts and USB drives in exchange for money they're legally obligated to follow through.
In short, I don't think there was any malice at work here.
TL;DR: Don't Duke Nukem your backers.
I do wish the pursuit on the side of Alex Peake success, people should ask questions and investigate how he lost all that money. I like the idea of crowd-funded & crowd-accountable.
This is why crowdfunding is a bad idea. Even if you are a scam artist (which I am not saying potential defendant is).
Which, if you think about it, makes sense -- fixed rewards (the loan/sale model) come with obligations to provide the reward, equity stakes carry more risk.
It wouldn't make much sense for Kickstarter to use a worst-of-both-worlds equity-like downside risk with loan-like upside reward.
I guess the lawsuits were bound to start flying sooner or later.
This seems to be meant to give some legal pressure on project creators without punishing them too much if their projects fail for whatever reason. It's interesting though that many projects (like this one) promise rewards that explicitly require the completion of their project, in effect making them completely liable for refunds.
Not sure I get it, seems a lot of people don't understand things can fail, then people become overwhelmed and to scared or inexperienced to deal with the issue.
Maybe there's more to it and the are still trying for money?
Kickstarter is supposed to make it easy and lightweight to raise money for projects, but if a failed project can ruin your reputation, then that money is coming with some severe strings.
If he really is fraudulent, then he probably should be sued and he shouldn't get funded again, but I see a bad precedent and a chilling effect here.