Kickstarter's “Successful” Failed Projects

Kickstarter's “Successful” Failed Projects

This is a Facebook post I wrote back in 2014, in reaction to Kickstarter changing their terms of use, with regards to failed projects. I’ve updated and clarified in a few places, but it’s largely the same.

Ref: Kickstarter Updates Terms Of Use Section Related To Failed Projects

I’m really sick of this attitude by Kickstarter.

I’ve backed almost 60 projects, of which almost all have been late (some more than a year late), but only two have actually properly failed. The first of which failed for apparently legitimate reasons – a little mismanagement, supply chain issues, and finally just running out of money. While silent for too long, the creators are finally trying to make good with partial refunds, alternatives and so forth. To be honest, I don’t mind if I don’t see a refund: it was all exercised in good faith, and it’s the risk I’m willing to take.

The second failed project (Ringbow), on the other hand, has gone utterly silent with only an occasional vague update: the last being in November 2013. They’re still apparently allowing pre-orders on the website. Charitably, I’m assuming this was still just a major cock-up rather than being a scam. It seems there was a founders’ dispute, and it’s all entered into a legal mess.

That project took $135,000. Kickstarter takes 5% of that. So, the only winner here was Kickstarter. They get paid whether the funded project succeeds or fails. What risk are they taking? I suspect they’re even insulated from credit-card chargebacks, with Amazon Payments taking the hit on that.

This is not about Ringbow. This is about Kickstarter.

I’m not expecting Kickstarter to provide completion guarantee on all projects. I’m not expecting them to be liable for projects once funded. However, I do expect them to be a bit more diligent and ensure that project creators act responsibly.

A few ideas of what they could do to justify that 5%:

  1. They could do a little more investigation before allowing a project: assess how rational the project plan is before allowing it. I’ve seen some projects that are little more than perpetual motion machines. Kickstarter are acting to some degree as a broker, so while I’m willing to take the risk, I expect them to do some due diligence. They could provide (and even require) a level of auditing before a project is approved.

  2. They could play a more active role in forcing project creators to provide timely, specific updates. The one thing I really do expect out of a project creator is a regular update. It doesn’t have to be comprehensive or well-produced: it just needs to be honest. Even if it just says “We’re still waiting on the injection molds, which were due last month.”. Kickstarter can remind, bully, and generally police that requirement, whereas backers often just go unanswered.

  3. They could prevent project creators who have failed to deliver, refund or make good on their obligations from starting new projects! In the example given above — Ringbow — apparently a project founder with majority share — Saar Shai — has gone on to found three more projects: two of which have been successful at 534% and 4589%, with a third due to fund with more than 235%. Who is holding Mr. Shai to account for his responsibilities to the backers of his earlier project? No-one. Who’s in a position to do so? Kickstarter. Instead, they’re happy to take at least $28,000 in fees from his new projects in addition to the $7,000 from Ringbow.

  4. When it’s clear that a failed project hasn’t met its obligations of full disclosure, timely updates and making a good effort to partially satisfy the backers — regardless of whether it’s a scam, mismanagement, or just bad luck — Kickstarter should take a more active role in resolving the issue, while not necessarily taking responsibility for it. They can do this by applying pressure on the creators on behalf of the backers; or by naming and shaming them; or by reporting them to the proper authorities, perhaps for an audit of some kind. A lot of this could be automated.

    Heck, at the very least they could refund their share of the pledged funds!

  5. They could provide a mechanism for projects to be continuously evaluated in terms of backer satisfaction: backers could update their confidence or satisfaction in the project with thumbs-up / thumbs-down. Once a project reaches an approval rating below 50%, it would trigger a more active investigation by Kickstarter.

  6. Projects over a certain level of funding could require an escrow facility, where funds are only released as and when they are needed, as controlled by a trustee. Alternatively, the backers could act as the trustee with funds being released at each stage only once a certain percentage of backers had approved it, making it the project creator’s burden to keep backers updated. Note, Kickstarter wouldn’t have to provide this escrow facility; they’d just require it.

  7. Establish a well-supported mentorship program, where Kickstarter could connect experienced managers and even successful creators with upcoming creators to help guide them through the creation process. Enrolling in such a program and committing to certain responsibilities within it would give backers (and creators) a better chance.

  8. Enforce their own T&Cs. Their Terms of Use state: “Kickstarter does not offer refunds. A Project Creator is not required to grant a Backer’s request for a refund unless the Project Creator is unable or unwilling to fulfill the reward. Project Creators are required to fulfill all rewards of their successful fundraising campaigns or refund any Backer whose reward they do not or cannot fulfill.. Clearly in the case of Ringbow above, that didn’t happen; the Creators went quiet, and Kickstarter didn’t apparently do anything to enforce that.

They don’t usually have any way to really enforce that clause in their T&Cs, but in the case of Saar Shai, they could’ve easily prevented him from launching any more projects until the Ringbow situation was fixed. Sure, he can claim that he and the other Creator had a falling-out, but that’s not my problem, any more than if the dog ate his homework. Ethically, he can’t just wash his hands of such an obligation, and the one thing Kickstarter did have the power to do about it, they didn’t do.

Thing is, if Kickstarter didn’t take any share of the funds, they could get away with this line about not being a party to the contract between backer and creator. They might want to model themselves as just a platform, but they’re a de-facto broker and agent for the project creators, and they make a profit from the project regardless. That gives them a moral duty of some kind, and right now they’ve just got a cushy win-win racket going. Yes, we know it’s an arrangement fee, but considering the size of the fee at times, it wouldn’t be unreasonable to expect them to kick the tyres a bit better.

Backers do need to be willing to risk their entire pledge for every project. I’ve got no respect for backers that just see Kickstarter as a shop with a pre-order facility. However, in the case of actual scams as well as projects that don’t fulfil their responsibilities to communicate, justify and competently manage – regardless of whether they fulfil rewards or not – I think Kickstarter has a moral responsibility to at least try to assist backers, rather than just washing their hands and running off with their commission.

To reiterate, I’m not expecting full liability here.

This update to their T&Cs is toothless: it just says what project creators should do, and then absolves themselves from any liability or responsibility. They’ve got their own very creative legal interpretation of their arrangement, and I’d love to see a class action rip out some of Kickstarter’s teeth here.

Updates and clarifications

In the case of a “successfully-funded” project that then goes quiet and/or fails:

  • The backers lose their pledge entirely. Fair enough, as that’s what they agreed to, but it’s still not a good outcome. They’ve also probably been strung along with sporadic messages, and almost never a straight-up mea culpa from the creator admitting failure, giving closure.

  • The creators have probably lost out, to one degree or another. Assuming it wasn’t a scam – which I don’t believe many projects are – they’ve probably invested their own money at some point, and certainly their time, blood, sweat and tears, along with that of their families. They may be to blame, either through mismanagement, lack of experience, interpersonal politics, and so forth. Or, they may be blameless, with the project just failing to work for some reason, or a production issue outside their control. Regardless, it’s unlikely they’ve done well out of it.

  • However, regardless of the outcome, Kickstarter still profits. It’s a win-win for them; their fee is totally independent of the success of the project.

About a third of all projects get funded, and two-thirds fail to reach their goals. Figures for actual delivery of “successful” projects is sketchier, but appear to be around 90% – one in ten projects just fails to deliver, and the backers (and probably the creators) are SOL.

While above I’ve outlined some ways to make the system more resilient and likely to minimise loss (and I believe to increase the chance of success through good mentorship and oversight)

I don’t think Kickstarter is a get-rich-quick scheme; it’s a public benefit corporation for a start. I’m not saying Kickstarter is dishonest or greedy, but just that their model is broken, and doesn’t do the things such a platform should do to get the best results for all involved.

It’s also worth noting that a project getting a crazy level of funding isn’t necessarily a windfall for the project creators. While there are economies-of-scale with more backers, making it possible to spread the capital costs of a manufacturing project, scaling up can make things much more difficult. If the rewards actually turn out to be priced at or lower than cost-price, it could be a big problem, even if at the time the creator legitimately felt they had factored that in. While Kickstarter insist it’s not a platform for preordering products, in some ways it clearly is, so with that obligation a long-delayed project that does manage to make it through has an even harder challenge to solve at the end.

And, can you imagine a project that did manage to get to the point of delivery but couldn’t afford to reward all backers, but only some? How would that even work? Imagine the lawsuits! It’d be better at that point to pull the plug anyway and not deliver a single unit.

Don’t even get me started on Indiegogo.

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