The Inevitable Crowdfunding Backlash When People Realize Projects Fail & Change
from the early-excitement-can-lead-to-disillusionment dept
We’ve been unabashed champions of crowdfunding and platforms like Kickstarter for quite some time now, though we’ve also tried to temper some of the hype. A little over two years ago, for example, we used the story of the open social network Diaspora as a possible warning for some of the initial excitement about projects. Much of that comes from just knowing what entrepreneurs go through: the initial idea is exciting, but things change over time, and expectations change… and some projects fail. When you’re dealing with investors, that’s one thing — they’re sort of designed to expect such a thing. But crowdfunding had a different vibe. Because people got so excited in the idea and really (quite literally) bought into it, we worried that as some projects failed, it might lead to a serious backlash.
It may be a coincidence that we highlighted this risk with Diaspora (one of the first Kickstarter projects to go really “big”) a couple years ago… but it’s possible that our worries are coming true. Last week, I saw a report from Liz Gannes at AllThingsD, which suggested that the Diaspora team was focusing on something completely different, a “collaborative web remixing tool” called Makr.io. The team definitely went through some significant hardships so it’s not that surprising that they’ve shifted gears. Given that story, it’s hardly a surprise that they’re now officially “handing control of the project over to the community.” They claim they’ll still be playing an important role, but it seems pretty clear this is an effective withdrawal from the project, which never really caught on the way some people hoped.
And, of course, this isn’t just limited to Diaspora. Bloomberg recently had a (well-timed) story highlighting how an awful lot of successful Kickstarter projects, at the very least, don’t meet their deadlines to actually make or ship a product. This has turned at least some people off to the service, which (again) is unfortunate.
Of course, these kinds of platforms are only a few years old, and of course they’re going to go through growing pains. I hope that, as they continue to grow and find success, at least there’s some greater recognition — and public admission — of the potential risks involved, so that they don’t take people by surprise, and that people understand that as much as they love an idea, execution is the truly hard part. Investing in the idea is great, but there’s a risk involved that the end result won’t match the snazzy video that the team put together for Kickstarter in the first place.
Filed Under: business models, changes, crowdfunding, failures
Companies: diaspora, kickstarter
Comments on “The Inevitable Crowdfunding Backlash When People Realize Projects Fail & Change”
first!
“Of course, these kinds of platforms are only a few years old, and of course they’re going to go through growing pains.”
What you don’t seem to understand that it isn’t just growing pains, it’s reality setting in. It’s the point where people who are less than honest come in, and start shearing the sheep. Most of it for the moment is unintentional, but it is almost inevitable that, over time, the scam rate goes up until the concept is almost unusable. Worse yet, as you showed last week, the federal government could start to get involved and look into the way these things are financed.
It’s like most things in the “free internet” universe. They sound good on paper, they work great when it’s the idealists using it, but as soon as the general public catches on to them, they get infested with scammers and problems and the game is pretty much over.
Things like this are why I don’t agree with on many “new business models” that you bring up, because you don’t seem to be able to see the weaknesses and risks in them.
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“Things like this are why I don’t agree with on many “new business models” that you bring up, because you don’t seem to be able to see the weaknesses and risks in them.”
What about the weaknesses in the current business models that our AC trolls are incapable of seeing?
Here’s a revolutionary business fact for you – there is no such thing as a business model free of weaknesses and risk. All one can do is minimise that risk.
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I should have added that it is going to take time for people to realise the best way to minimise that risk but it is no excuse for ignoring new business models because coming up with new ways of doing business is what innovation is all about.
Perfect
“What you don’t seem to understand that it isn’t just growing pains, it’s reality setting in. It’s the point where people who are less than honest come in, and start shearing the sheep. Most of it for the moment is unintentional, but it is almost inevitable that, over time, the scam rate goes up until the concept is almost unusable.”
I think you just described the gatekeeper business model perfectly.
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“What you don’t seem to understand that it isn’t just growing pains, it’s reality setting in.”
…and you’re basing this on what, except for your own personal opinion, which we’ve already seen is based on fiction to begin with?
“It’s the point where people who are less than honest come in, and start shearing the sheep”
a.k.a. what’s happening in every business model, and is inevitable with anything popular. Why do you lie and pretend this is restricted to this model?
“It’s like most things in the “free internet” universe.”
What the hell does this have to do with “free”, other than it allows people to bypass the corporations?
“Things like this are why I don’t agree with on many “new business models” that you bring up, because you don’t seem to be able to see the weaknesses and risks in them.|”
Why don’t you discuss these then, instead of lying and name-calling? If you’re such a prophet, maybe you could at least mention these things instead of trying to distort facts.
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“It’s like most things in the “free internet” universe. They sound good on paper, they work great when it’s the idealists using it, but as soon as the general public catches on to them, they get infested with scammers and problems and the game is pretty much over.”
Uh…doesn’t that happen in pretty much every branch of human existence?
Build something successful and scammers will try to dupe people and game the system. Has been happening forever. It’s not new and not specific of new business models.
“Things like this are why I don’t agree with on many “new business models” that you bring up, because you don’t seem to be able to see the weaknesses and risks in them.”
Every business model has risks. If we listened to people like you and took no risks, we’d still be stuck in caves and being eaten by pretty much every animal out there. Because, you know, trying to fashion axes out of rocks and twigs brings risks, like cutting yourself. And they could be used to attack other humans. Too risky. Better just sit here and wait to be eaten by a giraffe.
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“Better just sit here and wait to be eaten by a giraffe.”
I love your summary.
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!!! Really? You mean …. like Hollywood? You don’t seem to be able to see the weaknesses and risks in them.
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And copyright, and IP and so on.
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Perhaps we should just kill everyone. No scammers then.
Minimizing Risk
I wonder if bonding is a potential for solution for scams and people in over their heads. Kickstarter could start placing requirements of a xx% of the fund to be bonded. It could then provide refunds or sell the contract to a larger more capable competitor… Construction Contractors have this via a performance bond often times and if they fail to live up to their contract the owner can initiate the bond and get a different contractor to complete the work.
This might help reduce the risk.
There needs to be a balance made, everyone loves to talk up the successes… They raised millions! But where is the followup for the general public? Even just a scoreboard where they can show the progress they made.
While people won’t want to, you need to show the failures as well. Dates missed, projects abandoned, etc. We all love winners, but you need to temper the enthusiasm with some reality. If you believe in something enough, knowing the risks, and invest your making an informed decision.
A project that springs to mind for me that went poorly for some investors was for a Pathfinder RPG based MMORPG. For people who didn’t read, and just gave… they missed they were investing in getting a demo ready to find real investors. It was way to easy to get swept up into idea of making something awesome… and miss that very important detail.
Then there is the Reaper kickstarter… wildly successful but success has its drawbacks. I doubt they will meet their original deadlines to provide the miniatures they promised because they are now dealing with thousands of people where they maybe expected hundreds. But Reaper is an established company and I am certain they will not fall silent and leave their fans hanging for information. They might not meet the dates, but investors will know why and when they expect to get everything out.
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Hmm. Good point. There won’t be any pirates either.
This may be a dumb question, but what happens when a Kickstarter project raises the funds it was after, but then for whatever reason, the creators decide not to go through with it?
I don’t mean a case where they underestimated and run out of money, but where they just decide that it’s more than they can handle and don’t go through with it at all.
Does the money get given back? After all, if people donate based on the promise that the money will be used for one purpose and then the creators decide not to use it for that, isn’t that fraud?
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I think the money is given back.
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“What about the weaknesses in the current business models that our AC trolls are incapable of seeing?”
Umm, yes, every business model has weaknesses and potential abuses. That’s why we tend to end up with that magic thing called REGULATION. The real issue here is that, for the moment, crowd funding is unregulated, and thus potential users are expose to all those weaknesses and risks in the system.
Minimizing risk likely will come with regulation, and with regulation will be the loss of the basic idea.
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“What about the weaknesses in the current business models that our AC trolls are incapable of seeing?”
Umm, yes, every business model has weaknesses and potential abuses. That’s why we tend to end up with that magic thing called REGULATION. The real issue here is that, for the moment, crowd funding is unregulated, and thus potential users are expose to all those weaknesses and risks in the system.
Minimizing risk likely will come with regulation, and with regulation will be the loss of the basic idea.
Simplified:
Either you give your money to the “pros”, minimizing your risk, minimizing your return, being more or less left in the dark about the money trail (it could be used for thing you may find morally objectionable) and therefore needing no time invested.
Or you invest your money yourself, maximizing your risk, maximizing your return, being fully aware where your money goes – if you also invest the time needed to make an informed decision.
Both models have their pros and cons.
I’m really not sure how the project has failed.
They’ve built a decentralised social network. It works. Not every individual aspect of that goal has been met yet, but the project has been going for 2 years already.
The founders moving on hasn’t shut down the project, nor has it meant the money they got 2 years ago has been put elsewhere. They’ve also stated previously that some of Makr.io may go back into Diaspora.
It’s a case of buyer beware – as Kickstarter tries to warn you. This is a method of raising capitol for something where other methods are not as good – and that, itself, should say that you need to be aware of what is going on before you invest.
To specifics – personally, I went for the Reaper Mini Kickstarter, and I put down way more than I probably should have – so Reaper is ahead there; I don’t buy many minis normally.
I rather expect it to take a while for it to all ship with as many as I expect to be needed. Quite possibly they will be a good bit later than Reaper has stated ; stuff happens, and this has to be completely overwhelming.
However, the risk of them not being shipped in time seems acceptably small. Reaper is a reputable company, this is well within its competence, and the amount given per pledge seems like something they can fulfill. It doesn’t hurt that as such a large high profile success, any failure to follow through would also be very visible and lose them customers – but I don’t actually think that’s necessary in this case. Everything points at this Kickstarter being a good risk.
That’s what everyone who pledges to a Kickstarter needs to consider before pledging : will I get what I expect? Am I okay with the risk involved that it may not succeed? Do I want to maybe just show my support with a very small pledge or are they offering a reward I’m willing to risk?
It’s like any other investment – and if you aren’t aware of that, that’s when you’re really taking a risk.
Reminds me of Gizmodo fail
Basically people aren’t happy because there are bad things there. In the giz article (which their article’s have been going downhill imo) he talks about how they are done with kickstarter and it sucks cause basically they fail at picking good kickstarter projects. Obviously you can’t go and fund any project, you have to actually check up on it, and no matter how much you check up on it, if it’s a project to build a Robocop statue, what the hell are you expecting? I have funded several projects, probably about 10-20, and have yet to be disappointed in them. Yes, they typically get push back on the ship date, but who cares, I generally only put a small stock in the date they say and figure it’ll come out sometime after that.
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You seem to assume that the regulation will come from without, but I think it will come from within. People will begin to learn which Kickstarters smell like a scam, just like people who play MMO’s become able to spot the scams. The thing about Kickstarter is that people can point to a scam project and call it out, which informs the rest of us. This won’t solve 100% of all issues, but social pressure tends to be the most effective deterrent for deviant behavior.
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Nah, just abolish copyright. Then there wouldn’t be any more infringement.
If these types of fundraisers don’t fail completely I think a dramatic change will happen in the ones that are actually successful. The first example that comes to mind is a recent crowd funding campaign for a book from a well known/liked author. This is more of a guaranteed success than a disruptive new business model and is far more likely to deliver what is promised with each tier of investment. The future of crowd funding success will be reserved for those bringing a ‘completed product’ or at least ‘far enough along that it will be completed’ and asking for crowd funding to help bring the product to market (and to pay for the creator’s/developers’ initial investment).
The problem with crowd-funding entrepreneurs is that there is virtually no risk for the people receiving the money. Without equal risk on both sides, someone is bound to end up unhappy and those w/o risk are less likely to appreciate/respect the money from their investors. Do you walk into a bank and ask for $500,000 to start a business w/o collateral to back up the banks investment? Well you could do that but the answer would be ‘No’. Typically the person asking for the loan will need to have more money invested/available than the amount of the loan they are asking for OR have a very long track record of success – preferably both. Crowd-funding will adjust to incorporate some of the prudent methods ‘old school’ investors have learned or it will fade and be thought of as a naive trend.
Reminds me of Gizmodo fail
Agreed on the Gizmodo sentiment. First TC, now Giz.. :(. My Reader feed is looking sparse lately. At least Techdirt always has bad news (but great articles) waiting for me.
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Greevar, that is a pipe dream. If that was the case, people wouldn’t fall for stupid Nigerian scams and other “pre-paid lotto winnings” scams, and we would all be processing payments in our homes and taking 10% to the bank.
Your ability to sniff out a scam (or the ability you think you have) is perhaps more than the average person. Should the average person suffer because you are so brilliant?
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The vast majority of people do not fall for any stupid Nigerian scams. People are not that stupid. What planet do you live on? I saw stats on it once. Only a small fraction of 1% of people are prone to scams like that, but since you can send millions of emails at essentially zero cost, a miniscule fraction is all it takes. The same cannot be said for Kickstarter.
Depends on why you're funding a project
Up until seeing this post, I hadn’t considered using Kickstart or other crowdfunding to do something other than offer a way to see a project that might not otherwise happen. I’ve funded two things so far–a gay-themed superhero comic book (and seen the pages the author and artist has posted over the last months) and a coming-out film (it didn’t make it’s goal so the film didn’t happen and my card wasn’t charged $20). In both cases, I was funding something I wanted to see happen.
If it something to “invest” in, where I expect a monetary return for my money, that’s another matter. I see crowd funding as a dicey proposition for that–rife with fraud and possible criminality as well as an opportunity to make money faster. It’s not what I would do with my money in order to grow it.
I’d rather spend $$$ to keep the Castro Theater in SF showing the nightly eclectic Queer-friendly fare rather than it turn into another souless cineplex for the yuppies that are invading the neighborhood. They growl at the same sex couples holding hands and get all bent out of shape when those same couples tell them to ‘F*ing breeders. This was _our_ neighborhood before you were even born. Take your 2-cup baby stroller and go live in the Marina.”
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If you make copyright illegal only criminals will have copyrights!
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“Why don’t you discuss these then, instead of lying and name-calling? If you’re such a prophet, maybe you could at least mention these things instead of trying to distort facts.”
Because it is hard as fuck to have a discussion when I have to deal with turds like you. However, since you ask nicely, let me blow you into the weeds.
“.and you’re basing this on what, except for your own personal opinion, which we’ve already seen is based on fiction to begin with?”
Umm, IT”S MY OPINION. Get over your bad self.
“a.k.a. what’s happening in every business model, and is inevitable with anything popular. Why do you lie and pretend this is restricted to this model?”
Umm, I DIDN’T SAY IT WAS LIMITED TO THIS MODEL. This model just happens to be more clearly and obviously prone to scams, because of it’s cash collecting nature.
“What the hell does this have to do with “free”, other than it allows people to bypass the corporations?”
This is proof perhaps that you are truly an idiot fanboi. Free doesn’t mean without cost, it means in this case WITHOUT REGULATION. When one pushed for a free and open internet, they aren’t discussion price. Well, maybe you are, but you just are like that.
Perhaps if you stopped trying to shove you personal bias onto my statements, you might be able to have a discussion. For the moment, you are just being a turd, and that’s not really adding anything except perhaps a bad smell.
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“Because it is hard as fuck to have a discussion when I have to deal with turds like you.”
Yeah, that’s the way to gain sympathy. Bravo.
“Umm, IT”S MY OPINION.”
Yeah, I know. That why I said “and you’re basing this on what, except for your own personal opinion,”. You’re not an expert, not an insider, not someone whose opinion should be expected to consider better than another’s opinion. I happen to have a different opinion, and I can state why. Are you able to quantify why you have the opinion you hold? If not, I’m not sure why I should consider it apart from the opinons of many others here who are at least capable of stating their opinion without childish tantrums?
“Umm, I DIDN’T SAY IT WAS LIMITED TO THIS MODEL. This model just happens to be more clearly and obviously prone to scams, because of it’s cash collecting nature.”
You’re aware that other models do this, right? Why do you only attack this one? If you admit that other models have the same problem, why do you give those a pass while only attacking the “new” models in the least constructive way possible?
“Free doesn’t mean without cost, it means in this case WITHOUT REGULATION.”
No it doesn’t. Besides, if you’re going to use common words with multiple common definitions, don’t get your panties in a twist if someone assumes you’re using a definition other than the one you intend. Your writing skills are as poor as your reading comprehension skills, sadly.
“they aren’t discussion price”
Yeah, I’M the ones with English skill problems, got it…
“Perhaps if you stopped trying to shove you personal bias onto my statements, you might be able to have a discussion. For the moment, you are just being a turd, and that’s not really adding anything except perhaps a bad smell.”
I talked to a 5 year old today that said something similar. I’m sorry you feel that this discussion belongs on that level. As ever, feel free to join the adults when you’re old and mature enough, but it ain’t now.
Depends on why you're funding a project
It depends on your use of the word “invest”, there. Both of the things you’ve funded sound like they were good investments for you – you got what you wanted or didn’t pay, after all!
I’m using the term fairly broadly – for example, higher education is an investment where the return isn’t direct (and may or may not be monetary depending on the person) .
A better term might be speculation, though again that has the implication of a monetary return and some unfortunate connotations.
Anyone have a better word for … well, giving money with the expectation but not certainty of receiving something that is not money and may or may not be a physical good?
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The world is only going to become more connected, not less.
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This is different than the current state of copyright?
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“This model just happens to be more clearly and obviously prone to scams, because of it’s cash collecting nature.”
Ponzi schemes, Pyramid Schemes, Pump and Dump…plus a lot more funny names. These are things that have happened and will continue to happen in currently implemented business models, because, as we know, humans are assholes. Scammers will scam whenever they get the chance. This new model is no more prone to scams than the currently existing ones.
“Free doesn’t mean without cost, it means in this case WITHOUT REGULATION.”
No one wants an unregulated Internet. An unregulated Internet means that DNS can’t be trusted. Communications are unreliable because protocols are not adhered to. It would be utter chaos. Nobody wants that. I have no clue why you would claim this.
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Right, and what do people do when they get caught in one of those scams? They learn from their mistake and tell others about it. There is no regulation that is more effective at combating scams and frauds than an informed public. Forewarned, is forearmed.
Maybe Kickstarter should do what Craig’s List does about scams? Before every search for listings, they put up a warning about scams and frauds with information on what they might look like or the scam might promise in order snag rubes. When people learn to recognize what scams look like, they can better separate the real from the fraud. Once again, education is the best defense against frauds and liars.
Disappointment rate is the category killer
I’m a big fan of the shareable movement, so Kickstarter and the like are experiments I support.
However, it is true that if enough projects don’t deliver as promised (I don’t think we’re there yet), givers will back off and the concept will fall out of favor.
It is in the best interests of companies like Kickstarter to make sure there are a high percentage of satisfied givers.
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Umm…I don’t think so.
Why would you think the money would be given back?
The terms as I have read and understood them (and contributed to several projects) are that the money is only given back…actually never collected…only if the fundraising goal isn’t achieved.
I suppose one could give the money back if the project didn’t work out…but unless it was never started, wouldn’t the money (at least a portion) already be gone???
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As far as I can tell there is nothing that would prevent a person from taking the funds raised and immdiately repurposing them. For example raising $3000 to manufacture a new type of iPhone case and immediately booking a trip to cancun with the money. You could probably try to chase the fraudster down after the fact and probably have a pretty decent case for mail/wire fraud, but by that time they will have already spent your money.
Kickstarter does set the expectation/requirement that you refund the money for any rewards you cannot or will not fufil, but I don’t think the policy have much teeth other than preventing you from starting another project. If you are going to steal through kickstarter, do it big becasue you will only get to do it once.
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“You could probably try to chase the fraudster down after the fact and probably have a pretty decent case for mail/wire fraud, but by that time they will have already spent your money.”
Indeed, but is that really any different from other models? No investment is ever completely safe, no matter what a salesman tells you. If this fails, you have… exactly the same recourse as other methods give you. This is meant to be a problem that invalides the entire system?
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For example raising $3000 to manufacture a new type of iPhone case and immediately booking a trip to cancun with the money.
Most likely this is already happening, but in a form that isn’t obvious. Let’s say your rewards cost you almost nothing to make and your margins are huge. You don’t bother to tell people that most of the money you are raising is going directly into your pocket, but as long as you deliver what you promised to deliver, then theoretically you’ve done nothing wrong.
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But giraffes are leaf eaters!
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That’s what they want you to think…..
Monitoring it like a charity
There are groups now that check to see which charities are actually using the money you give them for the causes they say they support and which charities are using your money to pay lavish salaries to the employees.
If people are crowdfunding because they think the people they are supporting need the money, then they are likely to get pissed if they find out the money is really going to pay for generous salaries and perks to those involved in the project.
If, on the other hand, the crowdfunding project is really just a form of presales, then the people signing up for the rewards will likely be satisfied as long as they get the product they were buying in a reasonable time and of the quality they expect.
As I said, whether crowdfunding as a concept continues to work depends on how many people are satisfied with the process. If there are enough scams that people learn to be wary, it won’t continue to work.
The shareable movement as a whole is grappling with how to facilitate exchanges while also reducing risk to everyone involved. eBay is the biggest example of a system that mostly works, although there are categories of products I would never buy on eBay because there are too many scams for those items.
The primary reason I don’t fund any Kickstarter projects is that too many of my friends are doing them. It is easier to tell everyone I won’t contribute money that way than to explain why I backed some projects but not others.
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Indeed, but is that really any different from other models? No investment is ever completely safe, no matter what a salesman tells you. If this fails, you have… exactly the same recourse as other methods give you. This is meant to be a problem that invalides the entire system?
There’s a difference between failing and the project originators just saying “Screw it!” and keeping the money.
Let’s say that someone pitches an idea for a new local business and you like it, so you invest. A month later, you ask how it’s going and the guy in charge says “Yeah, it didn’t work out. There were too many regulations, so we’re just going to buy some stocks instead.” Would you be OK with that?
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Of course not. But, that’s not suddenly a new risk or something that only started happening with Kickstarter.
Equity crowdfunding
Of course some crowdfunding projects will fail or change. What really gets me is people being surprised by that! People should be expecting it. It is even more important when referring to equity crowdfunding, where there is an expectation of financial returns and potentially larger amounts of money being invested.
Regarding equity crowdfunding I think people should be able to make their own decisions as long as they are informed decisions. Important to avoid the myth that all startups make a huge amount of money to investors, but equally important to allow informed investors to make their decisions and take their risks.
I’ve written a blog post on what the problem with equity crowdfunding is and why equity crowdfunding should be allowed – Honestly what is the problem with equity crowdfunding?
ways to win
Interesting prize structure with this one..
http://www.indiegogo.com/thecomingsummer
Answers to crowdfunding
I just stumbled on an event taking place in Las Vegas in October that seems like it can answer a lot of questions regarding how to properly use crowdfunding. I went to http://www.crowdfundingroadmap.com/bootcamp and got tickets for relatively inexpensive. I used the promo code Laughlin for $100 off