Invested In A Scam Project? That’s Not Kickstarter’s Problem

Kickstarter is a platform that lets artists and inventors go straight to consumers with their ideas, and let the marketplace decide which ones are worthy of becoming reality. Supporters pledge money, and if the project reaches its goal, the project is funded, and the creator receives the pledged money–minus Kickstarter’s 5% cut–to go off and create. But what happens when you’ve invested in a project that never comes to fruition? Jack squat, experts say. And Kickstarter’s own terms of use agree.

The terms of use emphasize that Kickstarter is a platform that facilitates transactions between users, and users are responsible for determining if a project smells rotten or looks impossible. Here’s the relevant section:

Kickstarter is not liable for any damages or loss incurred related to rewards or any other use of the Service. All dealings are solely between Users. Kickstarter is under no obligation to become involved in disputes between any Users, or between Users and any third party. This includes, but is not limited to, delivery of goods and services, and any other terms, conditions, warranties, or representations associated with campaigns on the Site. Kickstarter does not oversee the performance or punctuality of projects.

Of course, the Onion came to a slightly different conclusion a while ago:

Why Kickstarter ‘can’t’ and won’t protect backers once a project is funded [Polygon] (Thanks, Phil!)

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  1. theblackdog says:

    This isn’t much different than investors who invest in a company because they’re excited about an upcoming product that ultimately turns out to be vaporware. You take a risk anytime you send money out, and yeah it sucks to get burned, but you’re the one who made the choice to send the cash.

    • Coles_Law says:

      I came here to say the same thing (and did, thanks to a failure to refresh the page).

      • theblackdog says:

        Apparently a number of us feel the same way about this

        • Zelgadis says:

          I shall add my agreement. I was just thinking the same thing. Any investment is a risk. Kickstarter is merely a tool. It would be like suing your bank because you used it to pay a shady investor who promptly ran away with your money.

          • DaltonG says:

            And your bank analogy doesn’t completely hold up, unless your bank also offers consultation to shady investors that includes advice on what kinds of rewards to provide to encourage people to “invest”, and how to market themselves on their websites.

            Kickstarter makes 5% off of all the monies “invested” in a project. This is why they have ZERO incentive to disallow further funding beyond the specified goal.

            At best they’re marginally complicit BEFORE they start applying disclaimers.

            Don’t get me wrong. I also think Kickstarter is a stupid way to shop/invest/fund.

    • BStu says:

      Yeah, I don’t see how Kickstarter is in the wrong here. Vetting projects would be a vastly different business model and one I hardly blame them for not wanting a part of. Its worth educating consumers about how this dynamic works at Kickstarter, but I don’t think investors deserve a bailout when some fails after a kickstart.

      • LabGnome says:

        Yeah, this is all I think the site would really need to do. Make it clear that there is risk. Maybe even give pointers (especially if this becomes a bigger problem) on how to avoid investing in scams.

        Personally, I really like Kickstarter conceptually. It gives, me, the little guy, a little more say in what products are being made out there. Instead of throwing money into a companies stock, I am giving them money for a product down the line.

    • Mary says:

      Yeah, I think people who are making a big deal out of this are vastly missing the point. Mostly I see Kickstarter used to fund films, and I used it for a film.

      My Kickstarter campaign was for part of the funds I needed, because with their all or nothing system, there was no way I could actually raise the $100k I’ll need to completely fund the project. I was lucky to get $10k and then I didn’t actually because of a backer putting in false credit card information just to troll me (but nobody is up in arms about THAT being possible).

      I’m going to finish my film, and anything that was possible to be sent before completion was (stickers and stuff) but when you back a film, it’s a poor investment, it always has been. I find it a bit insulting that people are walking around going “but what if it isn’t WHAT I WANTED??” or “What if it isn’t perfect?” Man, life isn’t perfect. You invested in something you thought would be cool and it wasn’t. That’s the way it goes. Welcome to life as an artist.

  2. Coles_Law says:

    Well, yeah. That’s the risk with any investment. The guy at the gas station doesn’t refund me if my lottery ticket is a loser. You’re not buying a product; you’re investing in an idea. Some ideas suck. some ideas are good ang fail due to other reasons.

    What Kickstarter does is allow every Tom, Dick and Harry to become their own mini venture capital firm. Sometimes, those firms invest in something that doesn’t pan out. That doesn’t make it a scam project; it could well be the group tried and failed to accomplish what they hoped to do. Like any investment, you should research the group you’re investing in before forking over your cash.

    • Coles_Law says:

      Note: To clarify, I do not consider lotto tickets investments. Poor writing on my part.

      • dwtomek says:

        Not a great analogy but not terrible either. In either case you are paying in the hopes that a desired outcome is realized. In either case that conclusion is not guaranteed.

  3. Harry Greek says:

    SHUT UP AND TAKE MY MONEY!!!

  4. Loias supports harsher punishments against corporations says:

    It’s not usual that projects don’t follow through – but that is the risk you take when investing. That is why you need to pick your horse based on how good and thought-out the product looks, professionalism, etc.

  5. Coffee says:

    This article could use a little more information about how the Kickstarter system actually works. When the project is underway, people pledge the money, but is a campaign is not completed, it is refunded to them. Furthermore, the site works with contributors who may suspect that a project is fraudulent, and if the creator cannot show that they have held up their end of the bargain, the project is cancelled and all monies are refunded. People are only out of money if the scam is successfully completed – which is possible, I’m sure.

    • InsertPithyNicknameHere says:

      Unfortunately, yes, it is very possible. A somewhat notorious example is a project called ZionEyez ( http://www.kickstarter.com/projects/zioneyez/eyeztm-by-zioneyez-hd-video-recording-glasses-for ). At the time of the project funding, there was no tangible product. The investment was for development and production, none of the backers had reason to believe the project was fraudulent. But after funding ended, a continued lack of communication and progress has convinced most backers that this project will never be completed ( http://zionkick.com/ ).
      Ultimately, I don’t blame Kickstarter if the project doesn’t follow through after completion, because Kickstarter’s job is to provide a platform, not to administer the actual projects.

      • Loias supports harsher punishments against corporations says:

        Which is why, I think, the general guidelines for kickstarters is to fund projects with at least some tangible product they can see and review.

        Though looking at the article, it appears there IS a tangible product. But it looks a little too perfect.

    • Mary says:

      It’s not that the money is refunded, it’s that it’s never taken in the first place.

      Which, from a project creator’s point of view, is the fundamental problem with Kickstarter’s system. With a project I ran, we had somebody send in a bogus pledge, along with a dozen people who either cancelled or decreased their pledges over time. In the end, the fact that a pledge amount could change/decrease/never materialize cost us around $6,000, and an untold amount of people who didn’t pledge because we were supposedly “funded.”

      Just a personal pet peeve.

  6. Blueskylaw says:

    Kickstarter – The new Pink Sheets

  7. Back to waiting, but I did get a cute dragon ear cuff says:

    OK, There is a big difference between a scam and a business failure. Did they set out with good intentions and fail for whatever reason? Happens to the best of them. That is a risk in investing. I am counting on my one Kickstarter investment to come through, A new CD from The Village Idiots. They are recording now.

    Did they start out with no intention of doing it? Then that is a scam and fraud. Lock them up a la Maddoff.

  8. ferozadh says:

    Rule of thumb: don’t Kickstarter YouTube projects. A webcam and fraps cost < $100. Obvious money grab for rent money is obvious. YouTube partners program actually pays pretty well once you're up and running.

    • LadyTL says:

      Right so all youtube projects are about video game playthroughs, don’t need a microphone and never use special effects, editing software or time. Oh wait…

    • InsertPithyNicknameHere says:

      Isn’t that a bit like saying “don’t back ebook projects, because word processing software comes standard on almost every computer”? Yes, they may spend the money they raise on things like rent and food, but I would think that’s because they’re spending time on the project in question rather than a paying job.

    • justhypatia says:

      As others have mentioned, there’s more to it than that.

      You need to be compensated for you time, you need proper video editing software. Things you might need could include special effects, lighting, studio/soundstage time, a good mic, advertising… You might need some paid artwork or to be able to compensate guests if you regularly do interviews.

      Also a under $100 dollar webcam is going to be absolute crap video quality. Anyone who is serious about making videos needs to get a proper camera.

  9. chiieddy says:

    Just because the project fails, it doesn’t mean it was a scam. That’s a bit of a misrepresentation. Like any business venture, some succeed and some fail.

    • wombats says:

      The scam part comes when the people behind the project choose not even attempt to execute said kickstarter project.

      • chiieddy says:

        In that case you should get the police involved. At that point, the project had funded. If you can get the police to investigate a massive fraud against people and prove there was no attempt to use the investment currency towards what it was sent for, then you, like Rhode Island vs. Curt Schilling, may have a case. However, Kickstarter is the go between here. They already released the funds and have no ability to refund what they don’t have.

    • Loias supports harsher punishments against corporations says:

      In theory, you’ve got a mostly-finalized product, a prototype to show, manufacturing vendors lined up, a business plan, and just need the funds to mass-procuce what you have.

      If not, you might not be ready for kickstarter.

      • chiieddy says:

        Exactly. And if you’re not savvy enough to review the potential project before investing… a fool and his money are soon parted.

  10. aloria says:

    About two years ago I donated to a Kickstarter that raised over $87k– well over its $6k goal. Kickstarter doesn’t seem to care that this guy basically took tens of thousands of dollars of peoples’ money and ran. He has been very active in the past two years teaching classes and going to conferences, so it’s not like he disappeared off the planet… he just essentially abandoned the project. http://www.kickstarter.com/projects/schuyler/lockpicks-by-open-locksport

    • hoi-polloi says:

      Wow! I read several of the updates and comments. What a complete mess. Even if you give the guy the benefit of the doubt, calling this grossly mismanaged is an understatement. I’ve had friends who have raised money for art projects through Kickstarter, and their goal was always the bare minimum they felt they could get by with. Even so, how did he expect to meet any promises with the original $6K goal? I hope you weren’t one of the major contributers, but it sucks in any case.

      • aloria says:

        It’s a huge disaappointment because this guy is/was very well respected in the community and nobody would have, in a million years, guessed that it would turn out so poorly. Sure, you make a gamble when you fund a project run by someone you don’t know from Adam, but a lot of people knew this guy, took his classes, etc.

        It would have been super simple for him to come out admitting he was in over his head and asked for some help managing/running the project; it really didn’t look good when he was rubbing elbows at various conferences while the project just sat and stagnated.

    • humperdinck says:

      None of that is Kickstarter’s fault.

  11. SirWired says:

    If you buy a bad stock, you don’t go whining to the magazine you read about it in or the stock exchange you bought it from. Don’t go whining to kickstarter because somebody scammed you.

    Work with projects started by people with an established track in whatever community they participate in. Don’t invest in something pushed by a nobody who has no record doing anything whatsoever.

  12. wundram says:

    You can still sue the recipient of the investment money in small claims court if the project turns out to be fraudulent. Of course if it just fails, then you don’t really have any recourse

  13. Dre' says:

    Kickstarter is a *Donation* not an *Investment*. Plan accordingly.

    • Bsamm09 says:

      True. No way I am giving money to help someone get their business off the ground unless I get ownership or interest in return.

    • Mary says:

      Yes, true, but a good Kickstarter campaign does promise goods or “perks” as a return.

      For example, with my film anybody donating above $25 gets a copy of the film. The way I see it (and the way many of the donors did) was that it was like pre-ordering the film. Which doesn’t really fall under donation or investment. Sometimes people donate because the perks are something that they’re interested in, so in that way it becomes more of a purchase maybe?

      But in general, it’s best for people to view it as a donation, IMHO.

      • dwtomek says:

        It may become a purchase in the donors mind, but that doesn’t mean it is in reality. It is a donation. Not sure why the good doctor felt the need to imply that it wasn’t a donation by adding asterisks. If you are using kickstarter like an amazon pre-order, you are doing it wrong. Now, obviously perks are a good way to stir interest in your product, but as the donor you need to realize that you are donating money, not conducting commerce.

        • RvLeshrac says:

          KickStarter is an *INVESTMENT,* as you’re investing money in a project hoping for a payout in the form of the object.

          Sometimes investments fail. That doesn’t mean they weren’t investments.

      • chiieddy says:

        I donated to a documentary project and I did pick a level that will get me a physical copy of the DVD. However, my money was a donation to keep the project going another year and not specifically to get the DVD because there is always a possibility the finished product won’t make it past editing or be distributed. I don’t think it will happen here, the person making this documentary is well respected, but it could happen. You have to go into Kickstarter KNOWING that.

  14. TakingItSeriously is a Technopile says:

    I have contributed to three projects. I reaserched the recipients as much as I could to verify they were legit and would deliver. If someone doesn’t have a history in whatever they are kickstarting … I stay away. All the projects I helped fund are very communicative with frequent updates an communications so I am confident that they are at least trying.

    • hoi-polloi says:

      I’ve contributed to a few art projects. All of them have been by people I actually know, and it’s been relatively small amounts of money. I’d be open to contributing to projects by people I don’t know, but as others have said it would be without any expectations.

  15. InsertPithyNicknameHere says:

    Personally, I look at backing a Kickstarter project as a bit like loaning money to a friend. Don’t give more than you can afford to lose. It’s great when it pays off (and out of over 100 projects, I’ve had one that disappeared and one that periodically updates but has not yet provided any tangible results). But if it doesn’t pay off, I keep the amount small enough that I can afford to write it off if need be.

  16. gtrgod01 says:

    I wonder what the manager would think if I came into the deli with 10 friends, a few of which were on cell phones, and right before the 1st person (who just happens to be on a cell phone) was about to order notices the sign and says “i’m not going to pay more for my lunch because this place doesn’t like that i’m on a cell phone”. The entire group then walks out. I don’t think the manager would be applauding his policy at that point.

    For all of you who say “good riddance” do you REALLY honestly think that losing customers (even a small handful in this economy) over this is a good idea for ANY business? Seriously, NO ONE is really going to start going to a place just because they have a policy like this. It’s only going to make people not go there anymore. No chance this is going to work in the deli’s favor. All people are going to see is an angry owner/manager and a FEE for something. In case you haven’t read any airline stories lately, people tend to not like fee’s.

    • gtrgod01 says:

      Not sure why my comment showed up on the Kickstarter story when i was on the deli story…..I hadn’t even clicked on the Kickstarter story yet. Very strange indeed….

    • InsertPithyNicknameHere says:

      Um, I think you’re in the wrong forum. This is a story about Kickstarter, not fees at a deli.

  17. Schildkrote says:

    Paying someone for a product that doesn’t exist is a bad idea?! Who would have guessed?

  18. PragmaticGuy says:

    Does Preston Tucker have anything to do with this company? I’m not really sure how Kickstarter works but if people who donate actually get a piece of the business that may be violating SEC rules as it would be the equivalent of selling stock.

    • chiieddy says:

      People don’t get a piece of the business. Usually they get a thank you or whatever product the business is working on. I’ve gotten comic books and subscriptions to magazines. I’m expecting (maybe) a book, t-shirt, pebble watch, etc. I might not get any of those.

  19. heldc says:

    I committed $75 to a really nifty sounding phone/tablet stand. A year later, it’s too late to do a chargeback;, I, along with bunch of other posters to the kickstarter, have no tablet stands; and the company, which made about 4 times what it was trying to get, isn’t actually replying to emails or posting to their facebook page or, well, showing any signs they still exist. Then again, I got a nifty stylus via kickstarter. I’m not completely soured on kickstarter, but I am a LOT more hesitant to commit more than about $30 to a project anymore.

    • dwtomek says:

      Pro-tip, kickstarter is not amazon. Sucks that you donated money to a flop though. I’m a little surprised that some commentors here seem to treat kickstarter as just a way to pre-order products. Seems asinine to me…then again I realize the difference between a donation, investment, and purchase.

      • chiieddy says:

        Some companies are treating Kickstarter as a way to pre-order their product.

        For example, the Pebble watch. If you went to http://www.getpebble.com while the Kickstarter was in progress, you’d get a link that says ‘Pre-order here’.

        I also recently watched an unsuccessful Kickstarter for Blank Label women’s custom shirts that also, if you went to the Blank Label men’s site, would tell you to pre-order via Kickstarter.

  20. Robert Nagel says:

    No one should lose money on any investment. The government should guarantee a profit, or at least a return of invested funds, to anyone who invests. After all this creates jobs which will pay taxes which will pay for any losses.
    Free health care, free housing, free prescription drugs, free cell phones, free student loans, free grant money to investigate the sex life of worms, free food, free child care. The only thing that doesn’t seem to be free is my income tax bill.

  21. sebastian tombs says:

    Then every opportunity on kickstarter could be a scam and you would never know it if it is presented in a plausible way. Which most con artists can and do. How do you know its not a scam from the start.