Modern Online Crowdfunding: Friend Or Foe?

10:03 November 08, 2016
By: Mike Perry

In 2001, New York native Perry Chen was living in New Orleans, looking to bring some of his favorite DJs down to perform during Jazz Fest. He had high hopes of securing a cool venue and producing a show, but the costs were beyond his means. He wondered, what if he could pre-sell tickets in advance, and if he got enough to secure the artist, the show would go on, but if he didn’t, everybody wouldn’t be charged and they’d get their money back? And thus the concept behind Kickstarter was conceived. However, it would take eight more years before those ideas took form in the online venture we know today. Since then, crowdfunding sites like Kickstarter, GoFundMe, IndieGoGo and others have raised billions of dollars for artists, businesspeople and other people looking for a leg up. But there’s also a darker side to this industry now.

The original premise of crowdfunding was to give people a chance to move up to the next level that was beyond their current means. Let’s rally and help this independent developer create something really cool. Let’s believe in a little guy with big dreams! Let’s take a really talented artist and help her capture her art and take it to a larger market. And this is still going on today, but somewhere along the line, things changed.

Modern Online Crowdfunding: Friend Or Foe?

Kickstarter’s concept was to allow regular people to buy into an idea and make it happen. Like NBC’s Shark Tank TV show, entrepreneurs walk in, ask for a specific amount, and explain why. If they don’t get the whole amount, they don’t get anything. This made the developers work hard, plan well, and provide more extensive information and justification for why we should believe in them. But then came GoFundMe and “flex-funding,” an option to still get paid even if you didn’t meet your goals. So you could, in effect, fail to get what you need, but still take money from people thinking you’re going to deliver on your promises.

As the success of crowdfunding grew, so did the array of sites being launched to take advantage of this industry and often with increasingly less strict rules. Whereas early projects were well-vetted, modern crowdfunding sites contain lots of dubious pitches, irrational claims and calculated emotional appeals that may or may not be real. The sites make money regardless of whether goals are met, and most take a percentage of the funds pledged.

While there are plenty of great things still going on in the sea of crowdfunding projects, there are also lots of “fishy” things here and there. The platforms have now become a staple for large corporate marketing projects and sales by those who really don’t need the money, but exploit the community to reduce their own operational expenses. There are now many successful software companies, which have more than enough money to develop products and secure licensing deals, that use crowdfunding as a marketing medium to augment their profitability. Yes, a developer could simply launch an expansion pack for a popular game or they could set up a Kickstarter and entice the community into subsidizing it first, then they use other people's money to create a product that they then profit from once they deliver. It’s like taking all the risk out of business and exploiting the public instead. I can’t help but find this troubling, but hey, it works. And people sometimes get special things and feel like they’re a part of the process. So it’s not that bad. It’s just an odd business model that, as we are seeing, can also turn bad.

One of the most obvious ways these projects backfire is through groups that make fancy presentations but can’t deliver what they promise. They pitch to the public with innovative and groundbreaking ideas, based on the premise that all they need is money to secure the manufacturing of a design they’ve loosely visualized. And time and time again, what we see is that, when it comes to design finalization and manufacturing, these people end up not being able to follow through—like “Lazor Razor” that promised a closer shave using the power of a laser beam: [LINK]

Modern Online Crowdfunding: Friend Or Foe?

Sometimes, even when things seem to go right, they go wrong. Case in point, Ouya [LINK]: one of Kickstarter’s most impressive fundraising projects raised more than $8 million for a portable gaming system, along with the creation of a huge development fund designed to encourage programmers to create exclusive software. Eventually, the entire project imploded under debt and bad management, even though it had raised impressive amounts of capital. These projects illustrate that there’s often a very fine line between incompetence and fraud. [LINK]. Unfortunately, the crowdsourcing platform panders to this dynamic—dreamers who, intentionally or not, come off as scammers. [LINK]. Many claimed the Ouya project was so flawed from the beginning, it constituted fraud. In any case, this was one of the early examples of using crowdsourcing to take people’s money and then leave them hanging, which is now quite common.

And therein lies one of the pitfalls of crowdfunding: bypassing the typical checks and balances that experienced investors use when determining if a project is worthy of funding. To consumers, a pen that can change into any color sounds really cool, but experienced investors would ask the key questions about whether the science and technology behind it are practical. In the case of the Scribble pen, which started on Kickstarter, when it couldn’t comply with Kickstarter’s vetting, it moved to other crowdsourcing platforms as skepticism grew. [LINK] Now when you visit their website years later, you magically find out there’s still “one day left” to get in on the pre-order! P.T. Barnum would have loved crowdfunding. [Additional Link]

At the opposite end of the crowdfunding continuum are the jokers—the cyber-panhandlers, as I like to call them. Sites are now littered with individuals who don’t even bother pretending there’s value in their claims. They just want to appear clever or cute, or to make you laugh while extracting the contents of your wallet.  

One of the most famous cyber-panhandlers is Zack Brown, whose infamous “Help me make potato salad” Kickstarter campaign [LINK] raised $55,000. Yes, that’s not a typo: fifty-five thousand “what the hell?” dollars for a guy who basically needed some money to make a decent potato salad, and the more money that rolled in, the more mundane achievement slots he posted for people to unlock. Yeah, we all wish we’d thought of that first.

Sure, those things are fun and relatively harmless. Nobody was really being taken advantage of for kicking a few bucks to a guy for potato salad, but others argued, “This reveals a privileged internet class with too much money and not a clue how to spend it,” which angered some. Hey, it’s their money, I’d say, but I’d be more concerned with the proliferation of these ridiculous campaigns tainting the overall integrity of crowdfunding in general. Mr. Brown’s next campaign, to take a Jet Ski, turn it into powder, and mail it to his benefactors, was, for some strange reason, rejected by Kickstarter. Go figure.

Modern Online Crowdfunding: Friend Or Foe?

This becomes more of a real problem when, in modern times, everybody and their dog is now crowdfunding/cyber-panhandling. I have no doubt there are many really worthy causes and people who really, truly need some extra cash to make ends meet. But it seems that within hours of people dying, their relatives now have GoFundMe pages up. After any disaster hits a city, there’s a barrage of related fundraising projects that are full of un-vetted emotional appeals and little to no accountability. I fear the noise level is increasing to the point where honest people who really need help are lost among a sea of charlatans whose insincerity is matched only by their video production and copywriting skills.

This brings us full circle. I’d like to announce my own crowdfunding project to help this struggling writer get a Kubota tractor. Now, you could ask what I want with a tractor, but that’s not really what’s important. It’s just that I want one, and you can help me get it. What do you say?

Seriously, crowdfunding is great, but now that this industry is maturing, it’s being invaded by every type of pretender, either well-intentioned or not, and we all need to be on guard. It’s absolutely wonderful when we humans help each other out. I can’t encourage that enough. But let’s also police each other and try not to be taken advantage of.

And yeah, I won’t turn down any support to help me get that tractor. I promise to use it only for good, like planting trees and making all kinds of cool-looking hills around my yard. Act now! Only one day left to pre-order!

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