There is no guarantee that people that post projects on ButterStarter will deliver on their projects, use the money to implement their projects, or that the completed projects will meet backers’ expectations.

Sound familiar? It’s actually from “ButterStarter”, a tongue in cheek project shared on Kickstarter by Peter Serafinowicz’s alter ego “Brian Butterfield”. Whilst it might be for fun, and continues Butterfield’s trademark of being late to just about every business and technology idea ever, its description of how “ButterStarter” will work shines a pretty harsh light on Kickstarter itself and the risks inherent in backing a project.

Why do we gamble on Kickstarter projects?

Since I started blogging about crowdfunding and running my own experimental campaigns, I’ve come into contact with a lot of people who have complained about projects that they have backed that have never delivered. Perversely, the piece of feedback that I have received most often on my current campaign is that people “don’t get” why I am crowdfunding a finished project. It seems that peopleprefer to back projects that aren’t finished, even though there seem to be frequent examples of projects failing to deliver.

The Doom that Came to Atlantic City failed after raising $122,874 against a target of $35,000. One of the people involved has given a personal pledge to repay all the money, but on no fixed schedule. The comments section makes for interesting reading, with backers calling for details accounts of all expenditures and one backer even going so far as to track down the rental details of the company offices that the Kickstarter allegedly helped fund.

The failed Montrex Watches Kickstarter, which raised $61,504 against a $7,000 goal, takes a more antagonistic turn with the project spokesperson blaming the backers for derailing the project:

The plan at this point is to expect that backers will seek legal remedies and that we will take the position that the backers for the project were involved to help build the project but ultimately destroyed it and that since it was destroyed by backers, then we will not be the only parties damaged. The entire team including the backers will share the damage of the now completely destroyed brand.

Some backers have lost hundreds of dollars in these cases, and Reddit holds a growing list of Kickstarter failures that makes grim reading whether you are a regular backer of crowdfunded projects or thinking about starting your own.

Of course, there are lots and lots of projects that do deliver. This post isn’t about failure rates (even though they would be very interesting to calculate) but about what should happen when a project does fail.

Is it time for a KickStarter “Escrow” Mechanism?

Personally, I would like to see crowdfunding platforms start to take ownership of this issue. Holding back the money until the project has been delivered is clearly not possible – the whole point of the Kickstarter (and others) mechanism that the projects get the backing they need to get started (hence why people maybe don’t understand what I’m doing!).

Instead, I think the crowdfunding platforms should implement a “sliding scale” approach to how much money they retain for successful campaigns, with the scale ramping up if the original target amount is exceeded, and pledge some of this money into a fund to refund users directly on failed projects. It then becomes the job of the crowdfunding platform itself to chase down projects that fail to deliver and get the lost monies back from them themselves. The project never sees this money, even if it delivers – it is a cost of doing business on Kickstarter just like the existing fees, credit card transaction costs, etc.

It will never work

If you think this can’t work, take a look at eBay’s Resolution Centre. eBay underwrite every transaction on their platform. Even though they, like Kickstarter, “never touch the money” in a peer-to-peer PayPal transaction, they still underwrite every transaction. By doing this eBay succesfully took the risk out of eBay transactions for both the buyer and the seller by positioning themselves as guarantor on the transaction and the arbiter of fairness.

Doesn’t that punish people who do deliver?

Yes, it does. In the same way that the fees you pay for a credit card transaction have to take into account a certain amount of loss due to fraud and your some of your bank charges go to pay for locks on the windows and guards on the door. Doing business incurs costs.

And now, in the further interests of fairness…

I’ve talked about Kickstarter a lot in this post. Other forms of crowdfunding are available and, to my knowledge, all of those that I have looked at share the same flaws. Our accepted means for crowdfunding is at fault, not Kickstarter alone.

Kickstarter have a detailed post on their own website about “Accountability”.

If you don’t have time to read the whole thing, I’d direct you just to this salient point:

The fact that Kickstarter allows creators to take risks and attempt to create something ambitious is a feature, not a bug.

Understanding what Crowdfunding really is

Crowdfunding is not buying. Crowdfunding is investing. Like any investment, you may or may not get a return. Unlike real investing, most of us are making our decisions on whether or not to invest based on a single webpage of information that receives, at best, a quick inspection from the crowdfunding platform itself. No due diligence, no background or credit check. No accounts. No accountability.

The big “trick” being played in the crowdfunding space right now is that it being presented as a sort of “collabarative buying”, like throwing your money down in the middle of the table when the drinks bill arrives, but in truth it is anything but. It’s more like throwing your money into the middle of the table at the start of the night for drinks that may or may not ever arrive.

The problem is, whilst we still keep throwing our money in, the good times are just going to keep on rolling.