Kickstarter, the New York-based web company that has become nearly synonymous with “crowdfunding” — the trend of Web users posting project ideas online and soliciting donations from other users in exchange for small gifts or copies of the resulting work — has a message for all aspiring project creators: “Kickstarter Is Not a Store.”
In a striking effort to crack down on the ostentatious claims by an increasing number of Kickstarter projects focused on developing hardware — everything from smartphone-connecting watches to new LED lightbulbs to electric-powered skateboards — Kickstarter’s own co-founders took to the company’s official blog on Thursday to announce a series of stricter guidelines for posting on the website.
“It’s hard to know how many people feel like they’re shopping at a store when they’re backing projects on Kickstarter, but we want to make sure that it’s no one,” reads the post, written by Kickstarter co-founders Yancey Strickler, Perry Chen and Charles Adler.
Kickstarter, which launched in 2009, allows anyone in the U.S. to submit their idea for a creative works project to the website, accepting ideas in 13 categories: Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater.
Kickstarter then reviews (“quickly scans“) the submission and decides whether or not to approve the project. Once approved, Kickstarter posts the creator’s project description, the creator’s video promoting the project, and the creator’s rewards for users who donate certain amounts — often copies of the actual product itself.
Up until recently, creators have only had to meet a few loose guidelines — not being a charitable cause or a business, for example.
But now, Kickstarter is now requiring that project creators of any category of project also fill out a section on “Risks and Challenges,” providing an answer to the question: “What are the risks and challenges this project faces, and what qualifies you to overcome them?”
As Kickstarter’s blog post says:
We added the “Risks and Challenges” section to reinforce that creators’ projects are in development. Before backing a project, people can judge both the creator’s ability to complete their project as promised and whether they feel the creator is being open and honest about the risks and challenges they face.
The website is tightening the reins even more when it comes to projects that aim to produce physical goods, which Kickstarter categories as “hardware or product design.” Now creators looking to raise money to fund development of these types of goods are no longer allowed to post photos or videos of conceptual designs of what they want the products to look like down the line. Instead, the creators can only advertise the product in its current state.
In addition, Kickstarter is now prohibiting hardware and product design creators from offering sets of multiple copies of their goods as rewards to funders.
Sources close to the situation at Kickstarter told TPM that the new guidelines only impact new projects, not any that went up before the blog post.
Kickstarter’s co-founders didn’t provide any reasoning for the timing of the changes, but several recent hardware projects have elicited controversy over the boldness of their promises.
A new Kickstarter project known as the LIFX, which proposes to develop an LED lightbulb that can change brightness and hue when controlled by a user’s smartphone, was recently promoted by the popular blog Laughing Squid and quickly raised in excess of $1 million.
But the LIFX project was also heavily criticized by Reuters finance blogger Felix Salmon, who labeled it “vaporware,” a reference to a product that is advertised but never ends up seeing the light of day.
Salmon pointed out that while the idea itself was promising, the fact that other companies that with more experience in developing lighting technologies and far more resources, including stalwart GE and startup company Switch, had struggled to do the same exact thing, suggesting making such an LED bulb wasn’t nearly as easy as the LIFX project creators alluded.
As Salmon wrote:
Put it this way: either Lifx is a genuinely revolutionary new LED bulb, or it isn’t. If it is, then it’s going to run into huge fights just on the intellectual-property front alone: I’m pretty sure they don’t have any important patents, at least on the hardware. And if it isn’t, then lots of people would be out there making LED bulbs, and Lifx would just be coming along to try to add some wifi-enabled control-this-from-your-phone whizz-bangery….
All of which is to say that if the Lifx bulb ever ships, it’s going to be a gimmicky disappointment at best. The “white” light won’t be warm and rich, the illumination will come out in clumps rather than being even, the bulb will hum when it’s dimmed, the electronics will fail in the heat, etc.
And there’s a very real risk — I’d say it’s a probability — that the Lifx bulb will simply never ship at all.
But with the success of LIFX and other similar ongoing projects an open question, it’s worth pointing out that there’s already ample evidence of Kickstarter project creators becoming victims of their own, and the websites’, success. The New York Times recently chronicled the laments, regrets and struggles of several Kickstarter project creators whose ideas became overnight sensations.
The Times pointed to the following study of Kickstarter projects, by Ethan Mollick, a professor of management and entrepreneurship at the University of Pennsylvania Wharton School, in which Mollick concluded that although the “vast majority of [Kickstarter project] founders make serious efforts to fulfill their obligations to funders…over 75% deliver products later than expected, with the degree of delay predicted by the level and amount of funding a project receives.”
And as The Times summarized the problems caused by inflated funding and expectations: “This new model comes with a host of potential pitfalls that are often difficult for project creators to anticipate, and hard for the armchair philanthropists who back them to grasp. Backers are essentially putting their trust in the project creators, giving them cash in return for the promise of a future reward.”
Earlier reports of Kickstarter projects failing to either meet their promised delivery dates or provide products up the quality advertised (or both) have also been extensively detailed by the New York Observer’s Betabeat blog, which actually uncovered and put a stop to a videogame development project that turned out to be a deliberate swindling attempt.
Kickstarter earlier addressed the issue of projector creator accountability after NPR’s All Things Considered published a report that concluded “financial backers have no clear way of getting a refund if the young businesses fail to deliver.”
In a September 4 blog post, Kickstarter maintained that project guarantees were legally binding and that creators could be sued for failing to live up to them, but put the onus on backers to pursue any legal recourse:
Yes. Kickstarter’s Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. (This is what creators see before they launch.) We crafted these terms to create a legal requirement for creators to follow through on their projects, and to give backers a recourse if they don’t. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill.
However, as The Times starkly noted: “Kickstarter says it is not responsible for making sure a project is completed on time, or at all. It says project creators are legally obligated to fulfill their promises, but if they do not, Kickstarter has no mechanism for refunding the money that was pledged. The project creators can refund the money if they choose.”
But the issue of accountability concerning crowdfunding projects is only going to increase as the number of projects and dollars pledged increases. Crowdfunding, already a $128 million industry in 2011, is expected to top $500 million this year, according to a study by the blog Daily Crowdsource. Kickstarter alone has raised over $170 million for various projects this year and is poised to begin its international expansion in the U.K. in early 2013.
In April, President Obama signed into law the JOBS Act, a piece of legislation designed to amend Securities and Exchange Commission regulations to allow for so-called “equity crowdfunding,” or the ability for crowdfunding projects to offer stock in their startup ventures to backers instead of specific physical rewards. That law, which was expected to take effect in January 2013, has recently been opened up for public comment by the SEC, which was supposed to review the changes and issue recommendations in August, but instead was delayed due to concerns about potential fraud.
