Kickstarter covers accountability regarding refunds and failed projects

By on September 5, 2012, 11:03 AM

It seems that every other week we find ourselves chronicling yet another tech-related Kickstarter campaign that’s more compelling or has raised more money than the one before it. There’s little doubt that the site has played host to some amazing ideas like the Oculus Rift VR headset and the Android-based Ouya home console, but what would happen in the event that either of these products (or any other fully funded campaign) ultimately never made it to market? Is Kickstarter to blame, or would angry backers go after the creator to get their money back?

These are just a few of the questions that were recently raised in an article from NPR’s All Things Considered and have since been addressed on the Kickstarter blog in a question and answer format.

Before a campaign is even launched, Kickstarter performs a quick review to make sure the project meets their project guidelines but they do not perform an in-depth analysis to determine if the creator is actually capable of completing the work they’ve signed up for. Responsibility to finish a project falls solely on the project creator – Kickstarter is in no way involved in the development or completion of a project.

Kickstarter does require creators to agree to their terms of use which requires them to fulfill all rewards of a project or refund money to backers whose reward cannot be fulfilled. If a creator runs into an issue, they are expected to post a project update (which is emailed to all backers) explaining the situation.

They have made changes along the way to improve accountability and fulfillment such as requiring an estimated delivery date for all rewards and looking into projects that backers have reported as suspicious. These measures only focus on fraud and acceptable use of the site, not the creator’s ability to complete a project.

If a project is unable to be completed for whatever reason, Kickstarter isn’t responsible for issuing a refund to backers. One of the reasons for this is because they never have access to the money to begin with. When a project is funded, money is transferred directly from a backer’s credit card to the project creator’s Amazon Payments account. It’s up to the creator to issue a refund using Amazon Payments or another service like PayPal.

The co-founders say they aren’t able to issue a project guarantee simply because that model wouldn’t work. Kickstarter is all about taking a risk; the ability to attempt to create something new and ambitious is a feature, not a bug.

That said, it’s probably a wise idea to do some research of your own into a company or individual if you plan to invest a significant amount of money into any given project. Be proactive and ask a lot of questions just as you would with any other investment opportunity.

User Comments: 7

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wiyosaya said:

Personally, I think that anyone expecting any project to complete, much less to get their reward, is expecting too much.

Innovation and funding innovative projects is all about risk even if you are a venture capitalist. Even companies vetted by venture capitalists sometimes fail.

If investors get their rewards, great. If you don't hopefully it was for a good reason rather than a scam.

ikesmasher said:

Projects do fail, but there are ones that succeed wildly. I dont think kickstarter needs to change anything, people should donate knowing they are risking and should do research first.

howzz1854 said:

You would think doing your own fair share of research on the things you're putting money into should be a common sense. unfortunately, in today's world, investors in all kinds don't seem to get it. how many times do we see bubbles go up and burst and only to come back again. I know I wasn't the only one who spoke against the FB IPO back in summer 2010, when the majority of so called investors, and would be underwriters all praised it as the biggest next thing.

then again, these are the same underwriters and hedge fund managers who knew there was very little intrinsic value to the product, but rather was just riding the wave to make a quick big buck. and the common people are always the one left carrying the bag.

seriously. all I ask is that the next time anyone wants to go invest in some new tech, or new product, do the same kind of diligence you would at the supermarket isle. compare the product first, read the ingredient, and find out what's in there.

MilwaukeeMike said:

Wise advice Howzz, but no where in the story does it say anyone thought about suing kickstarter. Some dude on NPR asked a bunch of rhetorical questions and kickstarter put the common sense statement in their legal terms. You'd think this would all be covered in a simple FAQ on thier webpage. NPR's 'All Tech Considered' clearly includes the obvious stuff no one is even debating.

howzz1854 said:

I wasn't saying that anyone is suing anyone. it just frustrates me in general in the world of investment that so many are willing to give away their money without doing their fair share of common sense diligence.

Nzaweird said:

Obviously people need to realize they're not buying a product with Kickstarter, but funding the creation of a product, or idea, or whatever, and there are risks associated with that. This isn't ebay.

However one problem is, at least from what I can tell, Kickstarter projects tend to use the investor model but falls short of actually considering people who fund the project as real investors. You're not buying what effectively would be a share in the company/product like if you went through traditional startup investing means - you're prepaying (and then some if you want to) for something that may not end up existing.

That's fine, but I can see why people may feel a little cheated if it all goes pair shaped. Perhaps it won't make Kickstarter as trendy and unique if all projects post is one share price and people can choose how many they want instead of buying all these unique project tailored packages, but it would probably make it more of a real startup investment portal for the masses, along with a more obvious and apparent sense of risk.

howzz1854 said:

They're not products, but investors should still carries the same care and responsibility of diligence in investing their money like they would do shopping for a product at the supermarket.

dont' be so gullible when some joe schmo calls you on the phone and tells you how great XYZ is and, you're just so willingly give your money away. do some homework, find out what's behind the actual "product" that you're investing in, and what are the risk factors, who are running the projects, pull out those project managers' resumes, check their references, what are the competing products in the market place, what are their liability, do they have a solid business plan from for manufacturing to distribution, what will be the cash flow projection look like, how will the market react to this new "product". these are all common diligence that any investor should do before leveraging any money in anything. even when you buy a product from ebay, one should still check the seller's rating and feedback, and read the fine line and see the condition of the product and what exactly is being sold, and why is it being sold (if any reason). it's the same principle.

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