Kickstarter is a hotbed for scams and the management don’t care

Kickstarter seem like the perfect tool for small to medium projects that need a little help to get over the first hurdle of entrepreneurship, being able to gather enough money to have; a first proper assembly run of a new hardware gadget, be able to hire a couple of good artists to finish off that great game-idea or hire studio-time in a professional studio to be able to record that new album the world deserves.
So why is it such a hotbed for scams and project failures?

First it is important to point out that there is a big difference between outright scams and project failures. The actions needed to counter both of them also drastically differ.

Not all project failures are scams, just because the pledge’s didn’t see any updates. Nor does the presence of a lot of ‘updates’ from a campaigner mean it wasn’t a scam.

As a backer of a few projects I have seen some different ways a project can be handled. I have seen some succeed and manage everything on time – and others linger on for years with little to no information of their progress.

What is the superpower of Captain Hindsight is to be able to go back and look at the projects and afterwards dissect out clues from the carcass of the failed project and pin-point exactly what every pledger should have picked up on not only during the ‘after gather pledges’-segment of the Kickstarter campaign but, perhaps more crucially, during the actual ‘pledge drive’ – when a fair amount of warnings (or being able to detect them) could have warned more off pledging.

The clues are many. I could list such things as making outrages claims and predictions (no, finishing a big God game doesn’t take only 9 months to finish), to unrealistic add-ons if only a little bit more money is gathered for a stretch goal (suddenly offer to include multi-player support in a game not built for it while claiming game is already in beta-phase) to claiming the shape and functionality has been tested and perfected (while only making 3D renders and never having built any prototypes). The list goes on.

The problem isn’t even perhaps that not more backers don’t see these clues. It is that even if we saw them, had them explained to us – we would still like to believe the dream, the magical showing the conjurer is painting for us using vivid imagery of great promises. No prototypes created? Of course not, that is expensive. But surely a nice 3D rendering is equally good at prototyping the hardware? Until it isn’t.

The last project above, Ring by Logbar – with the promise to control everything – was such a disappointment that there is a article and Youtube video out titled ‘Worst Product Ever Made: Ring by Logbar‘. And the product is sold for $269 for anyone that would like to test it. The manufacturers sure didn’t.

But at least they delivered their products. Some of the other linked haven’t. One of them (such as Ringbow) most likely never will, as even those involved with the project has walked away from everything. Well, everything, but the cash. They took that with them.

And therein lies the problem.

These projects succeed and fail not only with a lot of enthusiastic backers that put love and interest into the projects – but with a big helping of money.

And for many that is money they cannot truly afford to lose. The pledges is for rewards that will be used as birthday-presents, Christmas presents or instead of other purchases for items of same type (see: all the different 3D printers popping up at the same time, some less successful at delivering than others). And when backers lose their pledged money, even if a project-creator may have tried their best, a backer will talk about a scam taking place.

Now, if a Kickstarter campaign have been fully financed (was ‘Kickstarted’), the funds have been transferred and for one reason or the other the rewards does not show up – or at least haven’t many years later – what is the recourse for the backers? This is where a user might turn to the Terms of Use and rightfully think it comes into play.  Section 4 covers the projects and Section 5 covers finances. And if you ever have any email-conversation with Kickstarter they will often merely copy-paste these sections to you.

The problem is that their Terms of Use is completely useless and without power. They will use it to cover their behind in times of need, but will never actually hold an offending finished campaign to it. It is only ever used against those still in pledge-phase – as not acting before the actual charges on thousands of credit cards goes through could be criminal negligence. But in Section 4 they write:

When a project is successfully funded, the creator must complete the project and fulfill each reward.

The original text even puts the second part of that sentence in bold. That is how important it is for Kickstarter that project owners delivers on their promises. Besides the fact that it isn’t. Because when a backer run into problems with a project having their owners walking away, failing or just being delayed for several years, Kickstarter’s only response is ‘talk to the project owners‘:

“Here at Kickstarter HQ, we expect creators to fulfill rewards, offer refunds if they’re unable to complete their project, and communicate with backers at every step along the way. While Kickstarter is the platform for this agreement, we are not a part of it. We do not investigate a project creator’s ability to complete their project, nor do we facilitate refunds or the fulfillment of rewards.

In other words, if a project owner does not follow the ToU as set forth by Kickstarter and the project owners does not communicate with the backers about resolving the issue, then nothing will be done from Kickstarters side. They will not even block the project-owners from setting up additional campaigns. And why should they? They have taken their 5% of the total pledge amount. Which is Kickstarter’s end-goal.

There is nothing in the actions from the past 4+ years that indicate that they are about more than getting a huge chunk of money via ability of people to now want to crowd-source projects. This is also one of the reasons they have no upper bounds on project-sizes, project-owners or even project-scope.

Perhaps the best example of the failure of Kickstarter to protect their customers is not only how they will leave backers without any help but how they also sell out their project owners if there is any issues. Towards the end of 2013 a lot of project owners (a total of over 150) each received very large pledges (often over $1000) from a single individual. Once the campaign had reached the end-date and the project owners started working on sending out the pledge-rewards, or as soon as they did the following months, they got hit by charge-backs via Amazon Payments. In several cases this lead project owners to having sent physical rewards to the value of several hundred dollars and still having to give back the full pledge amount that was pledged, leaving many in severe financial deficit. Far from few of these projects was smaller in scope, where a large pledge such as this would make up a large portion of the total amount pledged.

The charge-back actions was reported on the stand-alone site kickstarterforum naming a single user that had hit several campaigns. Other project owners came forward during the coming days of them being hit recently – or just then. So what had happened? What we know is that the user had set up a profile with a faked location (as living in Iceland) but responded to all surveys as living in Malaysia. In addition, the name on the credit card(s) used did not match the shipping address – nor where they the same for more than a few campaigns. So evidence suggest that the user was sitting on a pile of stolen credit cards (names used indicate American, but I haven’t been able to verify this), pledged up thousands upon thousands of dollars per card. In several cases the card had stopped working once the campaign was ending, so a new card was then used. With a different name. A few months later these cards would be hit with charge-backs, presumably because the real owners found ‘odd charges’ on their cards. So Kickstarter and Amazon Payments allowed a single user to use multiple cards, several of them hit by multiple charge-backs, over such a long time that he could run up a total amount of over 150 projects scammed with many-many physical pledge rewards being shipped to an address that didn’t match any of the addresses on any of the credit cards.

Am I the only one that think that this should have raised some warning-flags in some system somewhere? The Kickstarter user profile was only removed once the news was finally published in large online-publications, not after project-owners approached Kickstarter about the scam going on. And Kickstarter first refused to return their share of the money to cover the charge-back. Remember the 5% Kickstarter charges? This is taken from the total pledge amount listed for a project by the end of the campaign. And any owners of eBusiness knows, there is always cards that end up being declined, due to not having enough credit, having expired, or some card information entered was accidentally wrong – so the actual total amount given to the projects are always less than quoted on the page. Kickstarter still takes their share. Charge-backs, on purpose or because the card was misused, happen. Kickstarter still take their charge. Leaving project-owners with less to navigate with. Or worse, counting the expensive physical pledges being shipped. But Kickstarter cared little, it was not their fault the scam happened, they told project owners. Not until this was also publicized did Kickstarter suddenly make a turnaround and started returning their part of the money demanded by Amazon Payments for the charge-backs.

Kickstarter is a great idea, could be a great platform. If they where willing to counter scammers, protect their customers (both backers and project owners) and realize that their position as owner of the platform also leads them to be responsible for it. Will it happen?

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