
When A Kickstarter Campaign Fails, Does Anyone Get Their Money Back? - jseliger
http://www.npr.org/blogs/alltechconsidered/2012/09/03/160505449/when-a-kickstarter-campaign-fails-does-anyone-get-their-money-back
======
kijin
If you invest in a company that has nothing more than a rough sketch of a
product on their roadmap, and the company folds 6 months later with no actual
product, do you get a refund for your worthless stock?

Usually not.

Investing is a risky business. Crowdsourced investing only distributes that
risk over a much larger group of investors.

An honest founder might do his best to return the remaining funds, and
Kickstarter might even decree (as the article suggests) that a refund be made,
but there's no guarantee that any funds will remain by the time the project is
declared a failure.

So the real question is: When you fund a project on Kickstarter, are you
making an investment with a certain amount of risk associated with it, or are
you simply pre-ordering a shiny new gadget? If any failed Kickstarter project
actually went to court, this might be the single most important question to be
raised.

~~~
Evbn
It is quite clear that Kickstarts are pre orders, because the SEC would shut
the whole thing down if it claimed to be an investment scheme.

Really, any Kickstart that isn't "we need $X to place a bulk order with our
raw materials supplier" is at best wishful thinking, and more commonly an
abuse of how Kickstarter presents itself. It should not be for paying
speculative salaries to the campaigners (Hi, LightTable!).

~~~
tibbon
I don't think that it is clear to many people what a Kickstarter is actually.
It is neither and investment, nor a pre-order. I personally view it more as a
gift, which perhaps has a reward at some point. The backer "rewards" are aptly
named- they aren't items for purchase, but something you might receive if the
project happens to be successful.

When I back Kickstarter projects, I personally have no expectation of getting
anything. I just want to see something cool happen.

While perhaps off topic, this is pretty much the model we take with the
Awesome Foundation. We give money to people with a cool idea, expect nothing
in return, and simply hope that they do something great with it. We take no
ownership, and if it fails then that's ok. It was up to our judgement if we
wanted to back them or not, and if we failed in that judgement then thats our
fault and just a lesson to learn from.

Whatever it is called, you should never gift, invest, etc more than you can
afford to write off and lose.

~~~
joelrunyon
I feel too, that's it's sort of a gift or a "vote" that this project/idea
should happen.

It's very much an "if, if, then" proposition. If you donate X amount and if
we're able to build Y, then you'll get Z.

I think the risk is entirely on the donors, but since it is crowdsourced and
the large majority of donations are so small, it seems like a fair trade most
of the time.

The big problem comes when you get people donating 1k, 5k, 10k, etc and not
seeing any return. I think those are the times where funds are seen more as
"investments."

------
kennywinker
Don't like how Kickstarter basically lies:

> So I call Kickstarter founder Yancey Strickler, and ask: What if Uhrman
> isn't able to deliver the consoles? Would Kickstarter get involved?

> "You know, that would be new ground," he says. "I don't know. I mean, no, I
> don't think that we would. But certainly, the kind of thing you're talking
> about is not a bridge that has been crossed yet. Someday it will. And you
> know, I think if something did go awry, it would be — it wouldn't be my
> favorite day."

And yet as far as I know there are a number of projects that have failed.
Can't find any names via casual googling, but I remember last time Kickstarter
came up on HN a few people were citing projects they had backed that had given
up. I'm a PopSockets backer, and even though he still says he'll deliver, I
have some serious doubts.

Coupled with this: [http://techcrunch.com/2012/07/16/allegation-kickstarter-
is-s...](http://techcrunch.com/2012/07/16/allegation-kickstarter-is-still-
hiding-data-about-failed-projects/) I'm really starting to think Kickstarter,
the company, is acting shady. Still believe in the idea of crowdfunding, but
my trust in Kickstarter is waining hard.

edit: here is the thread I was thinking of
<http://news.ycombinator.com/item?id=3473360>

~~~
azakai
That was definitely the shocking part of the story. Kickstarter seriously has
no idea what it would do in the case of a project failing..? Even if it hasn't
happened yet (and I don't believe that), they didn't think a little ahead?

~~~
kennywinker
I feel like they are counting on projects to fail in protracted collapses,
rather than a shocking sudden failure.

I would rather they get _much much_ more proactive about explaining to people
what they are signing up for.

------
jedberg
Here's the worst part -- as far as the IRS is concerned, that money is
considered income and anything you don't spend in the same calendar year is
considered profit and is taxed as such.

So after a year, assuming you spend no money at all, you'd still be in the
hole to pay back your backers.

I personally only use Kickstarter to play "patron of the arts". I fund art
projects with the assumption that I will get nothing in return. If I'm lucky,
I get some nice art to enjoy (so far one of the projects has come to fruition,
where I backed the recording and distribution of an a cappella album, and
recently got my CD).

~~~
mediascreen
I am pretty sure that you don't have to spend all income the year you receive
it to avoid paying taxes on it. One of the foundations of accounting is the
matching principle: "Expenses are recognized when obligations are (1) incurred
(usually when goods are transferred or services rendered, e.g. sold), and (2)
offset against recognized revenues, which were generated from those expenses
(related on the cause-and-effect basis), no matter when cash is paid out."
<http://en.wikipedia.org/wiki/Matching_principle>

There are multiple ways to match income and expenses that occur in different
years - at least if you have some sort of business entity.

~~~
jedberg
Most of the folks on Kickstarter don't have the necessary business entities
set up to take advantage of that.

~~~
BigTigger
I would agree with that for the most part, however, if you're receiving a
large sum of money (e.g. the $8 million dollars Ouya received as mentioned in
the article received) I think you owe it to your investors to take the time to
set up those business entities.

------
URSpider94
I've said this before, and I'll say it again. Funds collected by Kickstarter
aren't "investments." They aren't "pre-orders." They are _DONATIONS_. In many
cases, they are donations to for-profit companies, which I still can't really
wrap my head around.

Like all donations, Kickstarter pledges are freely given, with no promise of
anything in return. Yes, many projects pledge to provide you with a sample of
their finished product, or a DVD of their documentary, or your name tattooed
onto the creator's tush, or something like that, but there's zero legal
obligation for anyone to deliver on those promises.

~~~
scanr
I'm not sure this is accurate. The Kickstarter terms of service say:

"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."

<http://www.kickstarter.com/terms-of-use>

~~~
d0de
The problem is that if that provision were actually enforced, kickstarter
would be of much less use to those people it was originally conceived of to
help. If you are a small independent games company, film maker, or musician,
the threat of failing to complete your project (e.g. it was too ambitious, you
set your funding goal too low, you run into legal issues you hadn't
anticipated, etc.) and being required to pay back tens of thousands of dollars
you have already spent is enough disincentive to not use kickstarter in the
first place.

In other words, if kickstarter campaigns have to repay backers if they fail,
kickstarter becomes radically less useful and interesting as a proposition.

~~~
giulianob
They have to fulfill the rewards it says. Which really means that you
shouldn't promise a version of your product if you can't deliver it. Rather it
might be better to make the rewards things that are easy to deliver such as
shirts, stickers, etc... Definitely some projects like Ouya that have promised
a console will technically have to refund people potentially millions of
dollars if they can't ship the device.

~~~
pbhjpbhj
> _will technically have to refund people potentially millions of dollars_ //

Presumably OUYA is a company with some limitation of liability for the owners,
I don't know much about USA company formation but it seems that the company
would fold and there would no longer be a legal entity to hold to account. IFF
this is the case then "technically" they won't have to refund anyone beyond
what liquidation of the company requires.

This is where someone with knowledge of company law steps in and corrects me
...

------
ChuckMcM
Hmmm, I'm guessing no and no. Which is to say that if it fails to reach its
funding goal then there is 'money' transferred so you don't get back what you
didn't pay out. And no, since there isn't any contract involved with a
Kickstarter there is not compelling reason for the person who tried and failed
to return any money. Besides if they really did try they probably spent all
the money in the attempt anyway.

As for Oouya, if you know anything about the tech buisiness this should tell
you everything you need to know about this 'investment':

 _"I visit Uhrman in San Francisco, where she's meeting with a dozen designers
to hash out Ouya's boomerang-shaped controller."_

~~~
azakai
> no, since there isn't any contract involved with a Kickstarter there is not
> compelling reason for the person who tried and failed to return any money

The article says

> [Kickstarter]'s policy says creators have to give refunds on failed projects

~~~
ChuckMcM
From their Terms of Use, their entire section on refunds:

 _"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."_

Except there are two problems with that,

1) These people don't have the funds to begin with, that is why they are
running a Kickstarter campaign.

2) The actual contract language is that they "Backer" funds a "Project
Creator" to _attempt_ something rather than to _deliver_ something.

So when you go to sue the person who has your money you have to contend with
the fact that they have no money (and insufficient assets probably to get a
lien against, and if they do they will just do the personal bankruptcy thing)
and then you have to convince a court (or a jury) that they didn't try in good
faith to deliver the project.

They will argue the Backers knew there was a risk when they started and that
due to problems unforseen by the creators these risks actualized and there
project failed to materialize. They will argue the Project Creator is just as
harmed as the Backer. The only way you might get any money back is if you
managed to prove fraud.

Kickstarter has only been around for a short while, so we have time to watch
this unfold.

This is not 'new' (while Kickstarter is, crowd funding is not). I recommend
you look up previous cases where the product wasn't delivered. There were a
whole bunch in the 60's when a bunch of 'movie producers' were raising money
to make movies. I took a cinema class at USC (it was a fun elective) where the
professor claimed that a lot of the contract language that exists today for
production companies came out of the lawsuits of that time.

~~~
bigiain
Can I suggest that if you're spending money on Kickstarter where if things
didn't go according to plan you'd "go to sue the person who has your money",
then "you're doing it wrong".

(It's entirely possible that _I'm_ "doing it wrong", and that everybody who's
treating Kickstarter as a contractually binding pre-sale offer is somehow not
as insane as they appear to me. But I'll take quite a bit of convincing on
that point…)

~~~
ChuckMcM
Absolutely agree with you here. There are people who fall in love with the
dream, and when they wake up they are grouchy. I've wondered if folks can put
an upper limit on a Kickstarter.

------
michaelhoffman
Failing Kickstarter projects reminded me of a blog post by Matt Haughey:
"Lessons for Kickstarter creators from the worst project I ever funded on
Kickstarter"

[http://a.wholelottanothing.org/2012/01/lessons-for-
kickstart...](http://a.wholelottanothing.org/2012/01/lessons-for-kickstarter-
creators-from-the-worst-project-i-ever-funded-on-kickstarter.html)

------
JulianK
The article says "a year later, there are still no PopSockets." But the
PopSockets Kick Starter page says it was launched Jan 8, 2012 and funded on
Feb. 12, 2012. Am I crazy or was something not researched properly?

That being said, I am personally surprised that most people are willing to
fund many of the things that get funded and assume that people are treating it
as a purchase rather than funding.

It will be interesting to see how all the parties handle the first time
something goes horribly wrong.

~~~
cjbprime
It was funded -- which means that the project owner received the money -- but
the actual product wasn't created and delivered to the users who funded it.
So, it failed. The NPR article is telling you that things _are_ going horribly
wrong sometimes, and PopSockets is an example of that.

~~~
tene
The point of pointing out the dates is to demonstrate that it has been less
than a year, which contradicts the text of the article.

------
rocky1138
To be honest, I'm not sure why crowdsourcing and Kickstarter are so confusing
to so many. If you put money into anything on Kickstarter and it fails, you
have lost that money.

It is a gamble. End of story.

------
vacri
From the few kickstarter projects I've seen, it seems that there's a lot of
people who underestimate the costs of producing hardware and shipping it.

I'm reminded of the story of the guy contracted to write an iOS game. The game
itself was trivial to code and he had it up in no time. But then he had to add
the menu overlay, high score system, save system, so on and so forth. It's the
same with hardware - prototyping is expensive and takes a long time, and you
have to think of a ton of corner cases before you make a sample item.
Sometimes your plastics or metalworks subcontractor takes weeks or even months
to return samples. And if you didn't get it right first time, rinse, repeat.

------
goodcanadian
I am finding the discussion rather strange. It has always been quite clear to
me that Kickstarter was a modern patronage model--I give to the arts because I
like the arts--nothing more, nothing less. There is no investment, no sale; it
is a pure gift. The artist may show her appreciation by gifting me something
in return. I concede that a games console might stretch some people's
definition of art, but it is still a speculative and creative project which
may or may not succeed.

Clearly, I am in the minority on this subject. Most people seem to view it as
a pre-order website, or even an investment. This is quite different from my
understanding of the whole thing.

------
jiggy2011
I'm amazed this hasn't been exploited by an out-and-out scam yet, I guess
kickstarter must have some serious vetting process.

What's to stop somebody setting up a kickstarter for something highly
desirable but somewhat impractical (but not _totally_ out there) raising a few
million $ and just riding off into the sunset?

~~~
ohthanks
[http://www.kickstarter.com/projects/zioneyez/eyeztm-by-
zione...](http://www.kickstarter.com/projects/zioneyez/eyeztm-by-zioneyez-hd-
video-recording-glasses-for/) seems like a pretty clear example of this.
Backers are actually starting a separate forum to discuss legal action.
Doesn't seem to be any sort of recourse via kickstarter.

------
danso
> _During a break from the meetings, I ask her, "Would you have to give money
> back to your backers if you weren't able to deliver?"

She takes a deep breath and pauses before answering.

"Technically, from the Kickstarter perspective, I actually don't know the
answer to that," she says. "But from a doing-the-right-thing perspective, we
will treat our backers the best possible way."_

Um, _what_? She doesn't know how the Kickstarter system would or could
transfer money back to the funders? Or she doesn't know if there's
"technically" an obligation to make a refund? The answer to the second
question should have been well known to her and her lawyers. It's a little
troubling that she can't give a straight answer so early in the infancy of a
project that is ostensibly rooted in openness.

------
raesene2
Personally I think that there's a big risk of Kickstarter acquiring a bad
reputation here. Whilst a lot of the comments on this thread show that some
people look at Kickstarter contributions as donations or investments, I don't
think that that's the case for the large number of people putting money into
some of the kickstarters that get funded via the site, in particular
kickstarters focused on making a physical product, where the product features
heavily in the reward tiers

I'd also say that the site itself doesn't make it that clear, that the money
is an investment or gify. From the Kickstarter proposals I've read I don't see
them heavily mentioning the idea that the backer won't received the reward at
the tier that they donate to if the project doesn't succeed in creating the
product.

If you look at some kickstarters that have big delays on their delivery (e.g.
Zioneyes [http://www.kickstarter.com/projects/zioneyez/eyeztm-by-
zione...](http://www.kickstarter.com/projects/zioneyez/eyeztm-by-zioneyez-hd-
video-recording-glasses-for?ref=live) ) there seems to be a large percentage
of backers who were expecting a product and aren't very happy not to be
getting one after over 12 months)...

Definitely from a personal perspective I'm more careful now about what I back
and specifically the track record of the project creators (i.e. have they done
this before).

------
jdlshore
Kickstarter does not provide a way for projects to give refunds. (Or if they
do, they've hidden it well.)

My kick-started Test-Driven Javascript screencast [1] was very successful and
I'm actually delivering on my promises [2]. But I have had a few people
complain about the videos, and one person took me up on my offer of a refund.

I offered to write him a check, but he's in England (I'm in the US) and the
check-cashing and currency-conversion fees would be higher than the value of
the check. So I went looking for a refund option. I couldn't find a way to do
it in Kickstarter or Amazon Payments. I offered to send the backer the money
through Amazon Payments (he'd have to sign up for it, though) or to transfer
his account to someone else, but ultimately he decided he'd rather just keep
his subscription.

Kickstarter rules say you're supposed to provide a refund if you don't
deliver. But they don't provide a way to do so. It's my only disappointment
with them. If one of my customers is unhappy, I _want_ to provide a refund.

[1] [http://www.kickstarter.com/projects/188988365/lets-code-
test...](http://www.kickstarter.com/projects/188988365/lets-code-test-driven-
javascript)

[2] [http://www.kickstarter.com/projects/188988365/lets-code-
test...](http://www.kickstarter.com/projects/188988365/lets-code-test-driven-
javascript/posts/299166)

------
xfernandox
I think it's pretty clear through Kickstarter's use of the term "perks" for
the different reward levels project founders can create that you are donating
money to the cause.

The fact that a lot of project creators have changed some backer's perception
of the transaction doesn't change that Kickstarter is clearly a tool for
raising funds through donations, not as a product pre-order transaction or
investment into the company.

I think any sane person should be able to see the risks involved and consider
them carefully before donating.

Maybe there are clueless folks out there who think Kickstarter is basically
Amazon. But I think it's clear from the website that it's akin to demanding
money back from your local school's fundraiser because you didn't like the
gift basket they sent you.

------
danso
Out of curiosity, has anyone here invested in a Kickstarter project that
entailed physical goods that actually made its proposed deadline? Between the
three I've paid for so far, all of them have been at least two months late of
the deadlines they made _after funding_ was successful.

This includes the Elevation Dock, Kickstarter's first $1M+ project, which is
shamefully late. I doubt mine will get to me before the iPhone 5 comes out,
which is somewhat extra bitter to me since I just had my iPhone 4 stolen and
am waiting for the 5 to come out...so I probably won't be using the Elevation
Dock at all, if it ever actually comes.

~~~
replicatorblog
A board game called "Zombicide" published by a company called
CoolMiniOrNot.com - They've run three successful KS campaigns so far and seem
on track to deliver all of them on time. It also helps they've been in
business for a decade or more giving them a comfort level with design,
sourcing, shipping, etc.

------
jakeonthemove
Well, d'uh, you don't get your money back, period. That's the first thing I
learned when reading their FAQs and other pages.

It's like a donation towards something that you find great/interesting/useful,
with the added benefit of some kind of return. Or you could consider it an
investment, small loan, without security or guarantees of any kind.

I don't know, the article makes it seem like a negative thing for those who
first hear about Kickstarter...

Fund raisers should not do "the right thing" and return any money, either - it
sets a bad precedent, especially if you return the money only to some and not
everyone.

------
pge
Many of these comments treat "kickstarter" as a homogenous group of companies.
Each project on Kickstarter is different, and the resulting liabilities would
be different. In many of the most successful cases, the funding is tied to a
pre-order of a product. In that case, the company has an obligation to the
funder to deliver the product (or possibly refund the cash). Whether the
funder acts on that obligation is a separate question, but s/he is a creditor
to the company.

------
brackin
I hope people aren't put off from the Crowdfunding model thanks to
kickstarter. All they have to do is bolster up their accountability tools to
improve the current experience massively. Maybe show the likelihood of
complication based on past projects. This what I'm working on in the charity
sector, which isn't competing with Kickstarter at all apart from the fact that
we both start with crowdfunding.

------
nickm12
One of my pet peeves about Kickstarter is that they considered funded projects
successful projects and it's difficult to know what percentage of projects are
actually successful in the sense that they delivered the goods (or even see a
list of them).

That said, I did just buy my first batch of Stack Soap, which was a
Kickstarter-funded venture. nifty.

~~~
shardling
It really bothers you that they consider funded projects successfully funded?
The goal of a kickstarter project is to raise money for the attempt. Once the
money is raised, the kickstarter is successful. I think the site is pretty
upfront about this.

And any additional judgement is out of their hands. They could allow backers
to fill out a survey after the tentative delivery date has passed, and that
might be interesting to see. But it's hard to deal with the delays inevitable
in any project.

~~~
nickm12
If they said "successfully funded" that would be accurate. My pet peeve is
that everywhere on the site they say "successful" they mean "funded".

~~~
shardling
If you look at a project, it will say "Funded! This project successfully
raised its funding goal on MMMM DD."

And again, saying just 'successful' _is_ accurate, because a kickstarter is a
fundraiser for a project that has independent life outside of that website.
Some projects that take money through kickstarter will fail, but some that
fail to raise money will find other funding sources and succeed.

------
ommunist
The article ends up with a misleading statement. Kickstarter is not a
crowddonation, it is not a crowdpurchasing site. Its crowdfunding, which means
there are risks involved and there is mo money back guarantee. As a backer you
expect a product as return on your investment, but it is not 50% guaranteed.

------
Frencil
The number one rule for KickStarter is that it is NOT eCommerce. When a
campaign operates on the mindset that it's a platform to sell goods, and when
backers also operate on that same premise, both parties end up on the hook for
something they weren't expecting.

------
cdixon
It turns out startups are risky.

------
markmm
My question is, why isn't Kickstarter International in terms of startups? I am
based in the UK and we could do with a successful service like KS here!

------
mynameishere
Have no idea how this site hasn't been shut down by the SEC. Absolute
violation of regulations wrt accredited investors.

~~~
jordanthoms
Perhaps because that would be an absolutely horrific example of government
overreach. When you put money into a kickstarter project, you know the risks -
stop looking for big daddy to look after you.

~~~
mynameishere
The whole point of the status of an "accredited investor" was to separate
(typically) savvy/knowledgeable people from complete amateurs. This
designation was created specifically to prevent people from throwing money at
poorly-researched/fly-by-night/scammy/hopeless investments. An accredited
investor like PG has the knowledge and means to do due diligence before he
commits money. Some local loser...not so much. That's the point.

I'm not going to argue this so much as reaffirm my mystification that
regulatory bodies haven't interfered with this obvious conduit of fraud.

~~~
jordanthoms
"There are too many stupid people in the world. I'm not saying we should kill
them all or anything. Just take the warning labels off of everything and let
the problem solve itself." -- Unknown

