Crowdfunding platforms have been around for ten years, now. Is it time for them to rebuild trust?

As both Kickstarter and Indiegogo approach teenagehood I thought I would reflect on my own experiences of backing 25 projects. Crowdfunding platforms aim to assist in the funding of projects by connecting creators with willing customers before the product has been made. Crowdfunding platforms help to drive innovation and creativity, as for many small and independent artists or manufacturers crowdfunding may be the only funding option!. From a financial and # projects point of view both platforms have been a great success. Kickstarter alone has raised over $4.5 billion pledges from over 17 million backers! Kickstarter has the larger audience but only supports creators in 18 countries. Indiegogo, on the other hand, is available in over 200 countries.

From a customer satisfaction point of view things are more mixed. Kickstarter has a rating of 1.3/5, and Indiegogo a rating of 1.1/5 on review site Trustpilot. Obviously online reviews are not always representative, but what is more worrying is crowdfunding scams are so common the Federal Trade Commission has a page dedicated to avoiding them.

A major concern for potential backers is being defrauded and scammed by a project that will never be delivered.

Techlicious has five tips on how to assess crowdfunding campaigns:

  1. Is the product too good to be true?
  2. What is the background of the creator team?
  3. How do the creators plan on spending your money?
  4. How complex is the product to manufacture?
  5. What are people saying in the comments?

In spite of me being diligent, two of my 25 projects never delivered. For those that were delivered, in general I would say the items are never as good as I had hoped, and the communication updates were not as frequent or worthwhile as I would have liked. Usually rewards are delivered late (up to a year or two), which would be fine if projects were better at explaining delays. The anxiety of “I’ve not heard from the project for a while, have they gone AWOL?” is always present. Part of the appeal of crowdfunding platforms to backers is to be included in, and part of, the cutting edge of product innovation, as well as having an inside view of the manufacturing process.

All is not bad; I did receive a few items I really liked:

  • Mu One: World’s Thinnest 45W International Charger – means I never run out of charge.
  • ULH: The Ultimate Lens Hood – changed the way I do photography.
  • MOGICS Donut & Bagel – a fantastic power strip device for people who travel.

In spite of these few gems I have drastically slowed on supporting new initiatives. The downside and risk are just too high. One of the few places backers have to go to vent their anger is on Facebook (until the project page turns off comments). When there is nowhere else to go, backers have switched to Facebook’s Crowdfunding Scams & Failures Awareness Group. To rub salt in the wound one of the projects I backed that never delivered still has it’s crowdfunding page up! This is what a fellow backer of the project has to say:

If a project starts to fail comments like this can be common.

Independent Analysis

In 2015 Kickstarter collaborated with Professor Mollick from the University of Pennsylvania in an independent analysis of project performance. The professor reported:

  • 9% of Kickstarter projects failed to deliver rewards
  • 8% of dollars pledged went to failed projects
  • 7% of backers failed to receive their chosen reward
  • 65% of backers agreed or strongly agreed with the statement: “The reward was delivered on time”
Professor Mollic research

The bad reviews are no surprise when only 65% of rewards are delivered on time!

Some Improvement Suggestions

I think it is possible for crowdfunding platforms to rebuild trust and for them to become even better at their mission of connecting the crowd to worthy projects. They could:

  1. Enhance the project vetting process – be clear and transparent on what reference checking has been done for each project. Kickstarter already does some initial investigation but Indiegogo does not.
  2. Put some type of insurance in place so if a backer doesn’t get delivery of the item within a year they get part of their money back. If a project fails, Indiegogo does try and recover monies but this is not always successful.
  3. Better training for campaign owners on how to provide updates to backers. Crowdfunding platforms do try and encourage campaigns to provide updates but often these are repetitive and not informative. There’s only so many times you can see a picture of the same prototype from a different angle. Better updates would go a long way to building trust.
  4. Actively monitor projects and actively update backers if they see a project has run into difficulties, and step in if there is an issue.
  5. Be more visible in “protecting” and ensuring backers get a good deal and are not scammed.
  6. Provide a clear and more visible complaints service.
  7. Reconduct independent research to dig deeper into the running of projects and customer satisfaction.

Some of these suggestions might be difficult to implement as they could change the fundamentals of the crowdfunding business model. Kickstarter describes itself only as a connector and once a project is funded they no longer have anything to do with the money or project delivery. In order to build trust this approach might need to be revisited. In the same way Uber has had to realize that they are more than just a connector between a driver and a passenger I think crowdfunding platforms need to admit that they have a greater responsibility in protecting backers as well as guiding creators.

Crowdfunding platforms perform an invaluable service and have allowed many small creative and innovative projects to come to market that would never otherwise been funded, but in order to grow and to remain relevant they need to find a way of building trust. As they have become larger they have become a victim of their own success as less competent campaigners, or scammers, have used the platform.

Links and References

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