If you gave me $20 and asked me to go to Krispy Kreme and pick you up a dozen donuts, but I came back an hour later and said I spent it all on hookers and have no donuts for you, you would likely be a little upset. Of course, some of the blame lies with you for spending $20 for a dozen donuts, but did you really do your research before you committed to this investment in donutty goodness? What’s my track record for successfully purchasing donuts? How often do I instead spend money given to me on hookers? Could you get those donuts cheaper some other way–say, hopping in your soccer mom minivan and driving three minutes to the Krispy Kreme yourself?
Scenarios like this are going to be more and more likely to play out now on Kickstarter, thanks their latest Terms of Service update. In a further effort to remove themselves from any sort of responsibility role for their wreckless marketplace of mostly garbage ideas and products, Kickstarter now clearly spells out that it’s A-OK if project creators screw up royally and leave backers completely empty-handed. From the new terms:
[Backers] must make every reasonable effort to find another way of bringing the project to the best possible conclusion for backers. A creator in this position has only remedied the situation and met their obligations to backers if:
- they post an update that explains what work has been done, how funds were used, and what prevents them from finishing the project as planned;
- they work diligently and in good faith to bring the project to the best possible conclusion in a timeframe that’s communicated to backers;
- they’re able to demonstrate that they’ve used funds appropriately and made every reasonable effort to complete the project as promised;
- they’ve been honest, and have made no material misrepresentations in their communication to backers; and
- they offer to return any remaining funds to backers who have not received their reward (in proportion to the amounts pledged), or else explain how those funds will be used to complete the project in some alternate form.
And while Kickstarter claims that this update “simplified the language” and “subtracted lots of legal jargon”, all it really did was remove any obligation from project runners (and from Kickstarter itself) to ensure project completion (or refunds for backers). Let’s break down each of those bullet points using our hooker-donuts example to show just how ridiculous the new terms are.
Post an update that explains what work has been done, how funds were used, and what prevents them from finishing the project as planned
Well, I walked into the Krispy Kreme and picked out the dozen donuts. But then Maria the Town Prostitute (you know, the one who always hangs out in the Krispy Kreme) offered to glaze my donuts, if you know what I mean. She has your $20 now.
Work diligently and in good faith to bring the project to the best possible conclusion in a timeframe that’s communicated to backers
Hey, I made it all the way to the Krispy Kreme and ordered in 15 minutes, and I was back here to report my status to you just 20 minutes after that! (Yeah, Maria’s efficient.)
Able to demonstrate that they’ve used funds appropriately and made every reasonable effort to complete the project as promised
I spent that $20 in Krispy Kreme as I said I would. And have you seen Maria? It’s entirely unreasonable to expect a man to be able to say no to her.
Been honest, and have made no material misrepresentations in their communication to backers
I considered making up a story about being mugged by Tony the Town Mugger, but instead I told you the whole and complete truth.
Offer to return any remaining funds to backers who have not received their reward (in proportion to the amounts pledged), or else explain how those funds will be used to complete the project in some alternate form
Well, I don’t have anything left of the $20 you gave me, but Maria had half a Bostom Kreme donut left. It’s yours if you want it! (Try to eat around the lipstick marks.)
And there you have it! Despite blowing the entirety of your pledge on a 15-minute romp in the Krispy Kreme restroom, I’ve fulfilled the terms of service as outlined by Kickstarter, so they’re not going to do anything to me. You want your $20 back? Kickstarter does say I “may be subject to legal action by backers,” but are you really going to come after me for $20? And even if 300 other folks asked me to pick up their donuts and lost $20 too, are you all really going to be able to organize some sort of class-action effort to get it back? Go right ahead, but I can just point to Kickstarter’s new and improved terms to demonstrate that I’ve fulfilled the obligations they outlined for me, so you’re going to need one helluvan expensive attorney to get back your 20 bucks.
Obviously this donut-hooker scheme is far from realistic, but in a more likely scenario where a project creator mismanages (or “mismanages,” as Enron executives might call it) campaign funds, it would be even easier to come up with plausible explanations for why all the cash is gone and you’re getting nothing for it.
So as a backer, what can you do to protect yourself?
How Backers Can Prevent Non-Delivery and No-Refund Situations
Kickstarter does get one thing right with its terms: it reminds backers that they have an obligation not to be a moron with their Kickstarter backering. So how can you avoid being a moron as a backer?
- Don’t back new project creators. You see a project you want to back, but the creator’s profile shows “0 created, 0 backed.” If you back this project, not only are you giving someone $20 to pick up donuts for you, you’re giving that $20 to someone you just met and know nothing about. Just like eBay feedback of olden days, let the project creator show they’re worth your money by first investing in other projects.
- Research a project’s plausibility. Can this project deliver a 200-component game for $15 in 3 months as they claim? The less likely a project is to make its financial or schedule obligations, the more likely backers will never see anything at all from the project. Projects should come with realistic delivery dates and demonstrate they’ve done signficiant work soliciting bids for project fulfillment. If a project seems like too good of a bargain, likely its creator doesn’t know how much it’ll really cost to complete the project, and they’ll blow all your money finding out the hard way they can’t deliver.
- Pay attention to the risks and challenges section. The bottom section of every Kickstarter campaign page requires project creators to enumerate all risks and challenges associated with the project. Many Kickstarter projects will fill out this section with statements akin to “there are no risks” or “everything is done, so risks are minimal.” Never back these projects. Even many-time successful project creators should know there are always risks, and just because they don’t anticipate hitting them doesn’t mean they couldn’t. Point me to any Kickstarter campaign and I’ll be able to name one to a hundred risks and challenges it doesn’t list but should. If a project claims to be risk-free, it’s almost certainly riskier than most.
How Kickstarter Can Prevent Non-Delivery and No-Refund Situations
Kickstarter Omni-Global Corporation knows what it’s doing. It shifts all risk associated with projects away from itself and creators and onto backers. This ensures Kickstarter gets paid (it keeps its percentage even on totally failed or clearly fraudulent funded projects). Kickstarter’s obligation to a project ends as soon as it takes its cut and gives the rest to the project creator. Any backer with a grievance at this point has zero recourse with Kickstarter–even to get back the chunk Kickstarter took for themselves if the project falls through. This will ultimately get Kickstarter into a ton of trouble down the road: that they profit from felonious transactions. Kickstarter must immediately implement some morally-necessary changes so that it isn’t just a middleman to fraud and utter business incompetence.
- Kickstarter must put more effort into vetting project creators. If someone was using your front lawn to ask strangers for $100,000, you’d probably want to know a bit about this person. Kickstarter allows exactly this, but the only thing it looks at for its project creators is that they have a bank account. You know who else has bank accounts? Criminals. And regular honest people, sure. But when Kickstarter allows a project to go live, it’s doing so knowing nothing about the person launching the project. Just what is Kickstarter doing with its cut of a funded project? Certainly not running simple background checks on its creators to weed out known thieves and con men like it should.
- Kickstarter must dramatically increase its standards for projects. If you went to a bank and asked to borrow a large sum of money, you’re going to have a novel’s worth of forms to fill out. The bank will end up knowing you better than you know yourself after you’re done giving them all the information they seek to protect their financial investment. They’re going to want an incredibly detailed report of what you’re doing with their cash. Yet Kickstarter projects go live and fund daily with a paragraph or less about their plan to create the product being pitched. A project with lots of information is more likely to be a genuine, well-planned project with a higher likelihood of succeeding. Kickstarter should require just as much of a written plan from project creators as the government does from defense contractors responding to Requests for Proposals. If you can’t print out a Kickstarter campaign’s project proposal and use it to beat its creator bloody should they squander your money, then it shouldn’t have made it to the public eye in the first place.
- Kickstarter (and Amazon) must refund their fees for failed projects. Whether a project fails due to incompetence or clear fraud, Kickstarter always gets its buck. This is morally and ethically wrong, and possibly illegal. When a project fails, the 5-10% Kickstarter and Amazon take should be refunded to backers. This alone would help ensure that Kickstarter does a little more due diligence before letting just anyone panhandle on its pages.
So whether you’re investing your life savings into potato salad or just hoping to pick up a fun new boardgame, Kickstarter has now made it far easier for you to get screwed out of your money. Proceed with extreme caution because all of the risk is now explicitly on you, backers.