If you invest in a company that has nothing more than a rough sketch of a product on their roadmap, and the company folds 6 months later with no actual product, do you get a refund for your worthless stock?
Usually not.
Investing is a risky business. Crowdsourced investing only distributes that risk over a much larger group of investors.
An honest founder might do his best to return the remaining funds, and Kickstarter might even decree (as the article suggests) that a refund be made, but there's no guarantee that any funds will remain by the time the project is declared a failure.
So the real question is: When you fund a project on Kickstarter, are you making an investment with a certain amount of risk associated with it, or are you simply pre-ordering a shiny new gadget? If any failed Kickstarter project actually went to court, this might be the single most important question to be raised.
Actually I think its more like donating money to a cause you agree with, with the proviso that if it works, you'll get something for it.
Put it this way. Kickstarter just hands your money over. Of course its possible for somebody whos raised money to disappear with it without providing any product or refunds. Even if you threaten legal action and they are in the USA, its going to be quite a process (a lot of time and money) to recover your tiny investment.... And if they choose to move to another country or claim to be 'late but still providing it', even more complex...
I guess the sane way of viewing a kickstarter that way.
Personally though, the way kickstarter and (many) projects describe rewards as preorders, then I think they should be liable to fulfill the or return the proceeds. If the money is invested in this bast case scenario you describe, than kickstarter and the projects should clearly state that.
If they don't than kickstarter or some of the projects facing some kind of legal action when the money just disappears would be a good thing, so that the descriptions start reflecting reality again.
Edit: I've not donated on kickstarter, so I don't know if they clearly state this somewhere later in the process. But from what I've seen kickstarters "preorders" seem irresponsible to me.
Its not in the users interest to pre-order, unless there are steep discounts. So if the pre-order is discounted, i'd say a user can weight his/her risk and then do it. However, if it was a full price preorder, then its definitely not worth it.
Kickstarter projects are different from traditional investments because the absolute best case for consumers is that they get the product they were promised.
If the project succeeds in a big way and spawns a successful company the project creators who reap 100% of the benefit. Whereas for investors failures are balanced out by the successes.
I've personally reaped the benefit of knowing I've helped launch projects for people who might not have been able to accomplish it themselves. There's a bunch of music projects, a documentary, a short film, and an Arduino Shield that wouldn't have existed without my (and a bunch of likeminded people's) help. There's a few things that clearly _would_ have existed without my help (Amanda Palmers current project, for example), things that clearly didn't need my tiny bit of help, but that I feel good about being part of anyway. The hundred or two dollars that those Kickstarter projects cost me was worth every single cent, and would have been even if a few or even all of them had failed. At least we tried…
And more power too all the project creators - I hope they all get corruption-inducingly-rich out of the things my $5 or $50 or $300 helps get started. Anybody who thinks "investing" to the tune of a couple of hundred bucks entitles them too, or even stands any chance of that resulting in a significant equity stake in something - probably hasn't thought that through very hard...
The warm fuzzies you get have very little to do with it. I'm sure the angel investors who front millions for medical research into a disease get the same rush from their cash as you do, but there is more different between your spending and theirs than magnitude. If you invest in a company you have a legal claim to own part of it, and it's pretty clear that Kickstarter backers own no part of the companies they support.
Whether the cash is given in the spirit of altruism or profit-seeking isn't the real question; the question is whether equity is expected in return or not. Of course people don't expect "significant" equity for their contributions, but a good fraction may think they are really investing.
You're right, but at least in my head there's a _big_ differences between $5 or $10, or even $300 Kickstarter pledges, and the amount of money required before "whether equity is expected in return or no".
Unless otherwise stated, my personal expectation would be that amounts under about $1000 wouldn't possibly be expected to have equity in return.
Other people may have different thresholds, but surely nobody really expects equity for sub $100 "investments"?
> Unless otherwise stated, my personal expectation would be that amounts under about $1000 wouldn't possibly be expected to have equity in return.
For me, I'd expect equity starting at the point where I'm providing something significant, rather than simply part of a mob. If I'm providing the equivalent of living expenses for a year or two, for instance, or enough money to purchase serious infrastructure, like an office. I think the floor for that amount starts at 20k as an extreme minimum.
If [a Kickstarter] project succeeds in a big way and spawns a successful company, it's the project creators who reap 100% of the benefit.
I'm completely fine with that. Could it be any different? Maybe, but changing the Kickstarter equation may also have the consequence of killing the magic that makes it currently work.
As an example I contributed to Tim Schafer. He is showing us how a real game is done, the ups and downs. This is very valuable information much more expensive to get any other way.
I'm getting tens of times more value from my KS projects that what I paid for them, and I had paid A LOT of money. Not a single of them failed(Double digit number). It is easy to spot a professional(or someone that will become a pro) from a video.
I've backed a fair few (over a dozen) KickStarter projects, and every single time I've seen it as a risky investment with the HOPE of getting an awesome product out of it.
Some of my backings have been in the few-hundred-dollar range, and as much as I'd be upset if they didn't success and send me my product, I wouldn't expect a refund.
The only point I could see myself actually BLAMING them, would be if they didn't put their best efforts into creating the product, and just bailed with everyones money.
If they truly do try their hardest to create the product, and use up all the money trying, but still fail... I'm OK with that.
I've backed a bunch of small, and a couple of large Kickstarter projects. I viewed each and every one (including the high-value ZPM Espresso Machine and Pebble Watch ones) as a gift to someone with an exciting idea, with the understanding that if things went OK I'd probably get a Watch/CoffeeMachine/AduinoShield/Album in return - but if things went badly I'd get nothing.
I'll be sad if the Pebble guys don't deliver, but sad because I want them to succeed, not because "I bought a watch and they never sent it". Even if they took off and spent all the money on hookers and blow, I'd mostly be sad that an apparently great product never made it to the market, rather than sad about my couple of hundred buck having gone.
Surely this sentence "But financial backers have no clear way of getting a refund if the young businesses fail to deliver." represents a fundamental mis-understanding of what Kickstarter is? If you want "refunds", go buy things from a store with a unambiguous refund policy. If you want to be a "financial backer", work out what that means before claiming you're owed a refund…
That is true for deals that don't get funded. This is talking about the case where the deal is funded but the service is never delivered. Like having a Groupon for a company that went out of business.
Because then where is the risk? It would be entirely with Kickstarter, since they would have to give their own money to the creators before taking any money from customers.
It is quite clear that Kickstarts are pre orders, because the SEC would shut the whole thing down if it claimed to be an investment scheme.
Really, any Kickstart that isn't "we need $X to place a bulk order with our raw materials supplier" is at best wishful thinking, and more commonly an abuse of how Kickstarter presents itself. It should not be for paying speculative salaries to the campaigners (Hi, LightTable!).
I don't think that it is clear to many people what a Kickstarter is actually. It is neither and investment, nor a pre-order. I personally view it more as a gift, which perhaps has a reward at some point. The backer "rewards" are aptly named- they aren't items for purchase, but something you might receive if the project happens to be successful.
When I back Kickstarter projects, I personally have no expectation of getting anything. I just want to see something cool happen.
While perhaps off topic, this is pretty much the model we take with the Awesome Foundation. We give money to people with a cool idea, expect nothing in return, and simply hope that they do something great with it. We take no ownership, and if it fails then that's ok. It was up to our judgement if we wanted to back them or not, and if we failed in that judgement then thats our fault and just a lesson to learn from.
Whatever it is called, you should never gift, invest, etc more than you can afford to write off and lose.
I feel too, that's it's sort of a gift or a "vote" that this project/idea should happen.
It's very much an "if, if, then" proposition. If you donate X amount and if we're able to build Y, then you'll get Z.
I think the risk is entirely on the donors, but since it is crowdsourced and the large majority of donations are so small, it seems like a fair trade most of the time.
The big problem comes when you get people donating 1k, 5k, 10k, etc and not seeing any return. I think those are the times where funds are seen more as "investments."
Boarders, perhaps. I've found that turning it the other way works best - Get a boarding party of your own, because taking a ship intact yields way more scrap.
I think I rushed forward far too quickly and ended up in a universe where I was outclassed and then had a little oxygen related mishap and it all went downhill from there!
- 900K is not much of a budget for a game with this scope - it may be a stretch for the team to deliver this.
- Team has experience with RTS.
- The pay off in terms of what I get is great.
- There have been no ground breaking RTS for the last 10 years.
Ultimately what got me over the line was the reputation of the company and the team.
I am fully aware that there may be nothing to show for it... I am sponsoring an opportunity for something great to be produced. Something not that far from music or art in my opinion.
I would say that it's quite clear that Kickstart campaigns are not preorders (unless they blatantly claim to be). I don't know the details, but the JOBS Act in the USA supposedly made sure that crowdfunding is allowed. http://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups...
While the JOBS act made crowdfunding possible, it is still regulated by the SEC, and kickstarter is not a crowdfunding platform. Kickstarter cannot be a market for equity in companies.
I'm probably biased but I disagree. I initially funded The OpenPhoto Project on Kickstarter. There was a deliverable but it wasn't a physical good.
The deliverable was completed as promised and we continued to build additional features and services above and beyond what the Kickstarter campaign allowed us to do.
Sure. It's great when it works. The worry is what happens when a hard-working project is unable to deliver, or when a con artist takes the money and runs.
"The worry is what happens when a hard-working project is unable to deliver, or when a con artist takes the money and runs."
Do you worry about that?
You should not get out of your house then. Meteorites keep bombarding the earth(they are falling right now!!). A king cobra could scape the zoo and reproduce(they store sperm) in the woods, don't go there.
It is really difficult that someone could not deliver something. If so hardworking then something is better than nothing. A con artist is not going to give their face in a video for all Internet to know, a con artist have not a proven record.
People forget what the millions of people that could see something means.
>You should not get out of your house then. Meteorites keep bombarding the earth(they are falling right now!!). A king cobra could scape the zoo and reproduce(they store sperm) in the woods, don't go there.
Don't be a dick. Online fraud is a real risk, it happens to people every day. Most people know not to send money to some random stranger who emails you, only to buy from reputable sites, or at a minimum to make sure you can claim back your money from your credit card provider if you get scammed. Which scenario is kickstarter more like?
>It is really difficult that someone could not deliver something. If so hardworking then something is better than nothing.
It's pretty easy to fail to deliver, even if they've tried; there was a story here not so long ago about a kickstarter made an iphone case that turned out to block the signal.
>A con artist is not going to give their face in a video for all Internet to know
Why not? Plenty of 419 scammers do.
>a con artist have not a proven record
Nor do many legitimate kickstarters. It's not like ebay where they post the feedback score right at the top and anyone without a high rating is suspicious.
This may well be "true" in the legal/accounting sense, but just because it's not allowed to be "an investment scheme" that doesn't automatically make it a pre-order, nor does it stop me from giving people money for investment-like-purposes but calling it something different to avoid both SEC shutting it down, and at the same time with the understanding that I'll have none of the redress that an SEC sanctioned investment might give me.
Yeah, there's a no-zero chance that the Kickstarter money might get stuffed in someones pocket without even a token effort to achieve the stated goal. One could also argue there's a lot of subprime mortgage holders and CDO investors who are fundamentally no better off than if every Goldmann Sachs employee was currently living it up in Mexico on stolen, instead of just "irresponsibly but legally paperwork compliant" SEC-approved "investments"
No, we should. Complain loudly about "fradulent investment schemes".
But at the same time, wonder what the _next_ money-losing thing that anyone who thinks Kickstarter is an "investment scheme" is going to need government protection from.
Do people _really_ think Kickstarter projects are the sort of thing that requires government/SEC oversight?
Edit: In retrospect, looking through the replies in this thread, there clearly _are_ people who consider Kickstarter backing to be "investment". I'd love somebody of that opinion to explain why they think that, and whether it's a wording/terminology issue with how Kickstarter and/or projects describe what they're doing, or whether it's something fundamental in the Kickstarter and/or crowdfunding process.
Not at all: complain about it all you want, and make your decisions in accordance with your understanding of the relevant risks.
Just recognize that a certain level of risk - in the form of possible breaches of promises - is inherent in the nature of all of these things - traditional investment, pre-orders, and Kickstarter alike - and that there's no way to pre-empt that downside without eschewing the upside.
With a traditional pre-order I have a pretty strong guarantee from my credit card company. With a traditional investment I take on the risk in return for a chance of a big gain. As a client/customer Kickstarter seems to combine the disadvantages of both with the advantages of neither.
Usually not.
Investing is a risky business. Crowdsourced investing only distributes that risk over a much larger group of investors.
An honest founder might do his best to return the remaining funds, and Kickstarter might even decree (as the article suggests) that a refund be made, but there's no guarantee that any funds will remain by the time the project is declared a failure.
So the real question is: When you fund a project on Kickstarter, are you making an investment with a certain amount of risk associated with it, or are you simply pre-ordering a shiny new gadget? If any failed Kickstarter project actually went to court, this might be the single most important question to be raised.