Crowd-Funding Scams
“Fool me once, shame on you. Fool me twice, shame on me.”
Fool me more and you might be a crowd-funding site.
Crowd-funding sounds so great: Someone has a great idea and needs backers to get it off the ground. Rather than go to a bank and deal with that, lots of people invest a small amount through a site like Kickstarter and the investers get a perk (a discount on the product, a free product, etc.) when the product comes out.
The issue, however, is that scammers have figured out that people are basically good and want to help their fellow humans, so they create these fake products for people to invest in. And people do. Then the company misses their first shipping date. Then the next. Then the next. Then it’s, “This just isn’t feasible and we’ll give back the money we haven’t spent.” Of course, in the meantime, people have moved on, the company has spent a lot of the money, and they’ve almost surely made interest on the money.
A few years back a company had a drone that looked like a hot thing. Automatic launching, automatic follow, looked cute, great video showing how great it’d be. I think it raised something like $3,000,000. I’m guessing they raised some other capital, too. Never shipped.
So for a number of years they had all that money to invest, play with, spend, and at the end they refunded to the people they could still find — I wonder what percentage that was.
I’m guilty of it, too. Against my better judgment I gave to a crowd-funding product that has now missed 2 or 3 ship dates. So I asked for my money back — in the meantime I’ve found something else that satisfies the need anyway. Although I paid them with cash from my PayPal account, they’re refunding what I gave minus “processing fees” of 3% and the 5% that Kickstarter took.
Maybe. I have yet to see the refund.
The problem is that the crowd-funding sites like GoFundMe and Kickstarter have really no incentive to police the projects and guarantee that they’re legitimate products because they get their money whether they are or not.
I’m not against sites like Kickstarter making money — not at all. I just think they’re now in the place where to make more money they almost have to support shadier and shadier people and products.
They could police the products by not releasing the funds until the product actually ships and act as a guaranteed collateral against a loan from a bank. If they ship the bank gets paid, if they don’t ship the bank will go after them — just like they would with a traditional loan — and the people who invested get their money back. Or a portion.
Personally, I’m done with crowd-funding — fool me twice, ya know. I’ll watch from the sidelines. I’m sure I’ll be wrong a lot and miss out on some great things, but supporting anything gives legitimacy to the scammers, and I’m tired of enabling them.