5 ms·

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,

by kijin 14y ago

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.

underwater 14y ago
Kickstarter projects are different from traditional investments because the absolute best case for consumers is that they get the product they were promised. If the project succeeds in a big way and spawns a successful company the project creators who reap 100% of the benefit. Whereas for investors failures are balanced out by the successes.
- sillysaurus 14y ago
  If [a Kickstarter] project succeeds in a big way and spawns a successful company, it's the project creators who reap 100% of the benefit. I'm completely fine with that. Could it be any different? Maybe, but changing the Kickstarter equation may also have the consequence of killing the magic that makes it currently work.
- bigiain 14y ago
  That's not totally true. I've personally reaped the benefit of knowing I've helped launch projects for people who might not have been able to accomplish it themselves. There's a bunch of music projects, a documentary, a short film, and an Arduino Shield that wouldn't have existed without my (and a bunch of likeminded people's) help. There's a few things that clearly _would_ have existed without my help (Amanda Palmers current project, for example), things that clearly didn't need my tiny bit of help, but that I feel good about being part of anyway. The hundred or two dollars that those Kickstarter projects cost me was worth every single cent, and would have been even if a few or even all of them had failed. At least we tried… And more power too all the project creators - I hope they all get corruption-inducingly-rich out of the things my $5 or $50 or $300 helps get started. Anybody who thinks "investing" to the tune of a couple of hundred bucks entitles them too, or even stands any chance of that resulting in a significant equity stake in something - probably hasn't thought that through very hard... big
  - sirclueless 14y ago
    The warm fuzzies you get have very little to do with it. I'm sure the angel investors who front millions for medical research into a disease get the same rush from their cash as you do, but there is more different between your spending and theirs than magnitude. If you invest in a company you have a legal claim to own part of it, and it's pretty clear that Kickstarter backers own no part of the companies they support. Whether the cash is given in the spirit of altruism or profit-seeking isn't the real question; the question is whether equity is expected in return or not. Of course people don't expect "significant" equity for their contributions, but a good fraction may think they are really investing.
    - bigiain 14y ago
      You're right, but at least in my head there's a _big_ differences between $5 or $10, or even $300 Kickstarter pledges, and the amount of money required before "whether equity is expected in return or no". Unless otherwise stated, my personal expectation would be that amounts under about $1000 wouldn't possibly be expected to have equity in return. Other people may have different thresholds, but surely nobody really expects equity for sub $100 "investments"?
      - saraid216 14y ago
        > Unless otherwise stated, my personal expectation would be that amounts under about $1000 wouldn't possibly be expected to have equity in return. For me, I'd expect equity starting at the point where I'm providing something significant, rather than simply part of a mob. If I'm providing the equivalent of living expenses for a year or two, for instance, or enough money to purchase serious infrastructure, like an office. I think the floor for that amount starts at 20k as an extreme minimum. Naturally, this is what VCs are about.
        pdlancar 14y ago
        http://www.appdata.com/apps/facebook/2389801228-texas-holdem-poker http://www.appdata.com/apps/facebook/2389801228-texas-holdem...
- forgottenpaswrd 14y ago
  I contributed to a lot of projects. As an example I contributed to Tim Schafer. He is showing us how a real game is done, the ups and downs. This is very valuable information much more expensive to get any other way. I'm getting tens of times more value from my KS projects that what I paid for them, and I had paid A LOT of money. Not a single of them failed(Double digit number). It is easy to spot a professional(or someone that will become a pro) from a video.
Andrenid 14y ago
I've backed a fair few (over a dozen) KickStarter projects, and every single time I've seen it as a risky investment with the HOPE of getting an awesome product out of it. Some of my backings have been in the few-hundred-dollar range, and as much as I'd be upset if they didn't success and send me my product, I wouldn't expect a refund. The only point I could see myself actually BLAMING them, would be if they didn't put their best efforts into creating the product, and just bailed with everyones money. If they truly do try their hardest to create the product, and use up all the money trying, but still fail... I'm OK with that.
- bigiain 14y ago
  I've backed a bunch of small, and a couple of large Kickstarter projects. I viewed each and every one (including the high-value ZPM Espresso Machine and Pebble Watch ones) as a gift to someone with an exciting idea, with the understanding that if things went OK I'd probably get a Watch/CoffeeMachine/AduinoShield/Album in return - but if things went badly I'd get nothing. I'll be sad if the Pebble guys don't deliver, but sad because I want them to succeed, not because "I bought a watch and they never sent it". Even if they took off and spent all the money on hookers and blow, I'd mostly be sad that an apparently great product never made it to the market, rather than sad about my couple of hundred buck having gone. Surely this sentence "But financial backers have no clear way of getting a refund if the young businesses fail to deliver." represents a fundamental mis-understanding of what Kickstarter is? If you want "refunds", go buy things from a store with a unambiguous refund policy. If you want to be a "financial backer", work out what that means before claiming you're owed a refund…
Evbn 14y ago
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!).
- ar741 14y ago
  As far as I can see the original intent was to back artists and musicians - not necessarily to produce a product, but to create something. I am a first time backer for Planetary annihilation - http://www.kickstarter.com/projects/659943965/planetary-annihilation-a-next-generation-rts http://www.kickstarter.com/projects/659943965/planetary-anni... Decision process for me was. - Very cool - loved Total Annihilation. - 900K is not much of a budget for a game with this scope - it may be a stretch for the team to deliver this. - Team has experience with RTS. - The pay off in terms of what I get is great. - There have been no ground breaking RTS for the last 10 years. Ultimately what got me over the line was the reputation of the company and the team. I am fully aware that there may be nothing to show for it... I am sponsoring an opportunity for something great to be produced. Something not that far from music or art in my opinion.
- jmathai 14y ago
  I'm probably biased but I disagree. I initially funded The OpenPhoto Project on Kickstarter. There was a deliverable but it wasn't a physical good. The deliverable was completed as promised and we continued to build additional features and services above and beyond what the Kickstarter campaign allowed us to do. http://theopenphotoproject.org http://theopenphotoproject.org
  - lmm 14y ago
    Sure. It's great when it works. The worry is what happens when a hard-working project is unable to deliver, or when a con artist takes the money and runs.
firefoxman1 14y ago
Why doesn't Kickstarter follow the original Groupon (thepoint.com) model, where if it doesn't meet its goal, nobody is charged?
- spullara 14y ago
  That is true for deals that don't get funded. This is talking about the case where the deal is funded but the service is never delivered. Like having a Groupon for a company that went out of business.
- NeutronBoy 14y ago
  That's exactly what happens. You commit to backing a project, but your card is only charged once the project meets it's finding goal.
  - firefoxman1 14y ago
    Ahh, see that's what I thought, but this article made me second-guess it.
- veyron 14y ago
  Because Kickstarter wouldn't make as much money ...
- AlexDanger 14y ago
  Nobody is charged if the KS project does not meet its funding goal. This article is about what happens when a project is funded, but fails to deliver. At that point the funders have lost their money.
- baddox 14y ago
  Because then where is the risk? It would be entirely with Kickstarter, since they would have to give their own money to the creators before taking any money from customers.
deleted 14y ago
[deleted]
twelvechairs 14y ago
Actually I think its more like donating money to a cause you agree with, with the proviso that if it works, you'll get something for it. Put it this way. Kickstarter just hands your money over. Of course its possible for somebody whos raised money to disappear with it without providing any product or refunds. Even if you threaten legal action and they are in the USA, its going to be quite a process (a lot of time and money) to recover your tiny investment.... And if they choose to move to another country or claim to be 'late but still providing it', even more complex...
- EternalLight 14y ago
  I guess the sane way of viewing a kickstarter that way. Personally though, the way kickstarter and (many) projects describe rewards as preorders, then I think they should be liable to fulfill the or return the proceeds. If the money is invested in this bast case scenario you describe, than kickstarter and the projects should clearly state that. If they don't than kickstarter or some of the projects facing some kind of legal action when the money just disappears would be a good thing, so that the descriptions start reflecting reality again. Edit: I've not donated on kickstarter, so I don't know if they clearly state this somewhere later in the process. But from what I've seen kickstarters "preorders" seem irresponsible to me.
  - chii 14y ago
    Its not in the users interest to pre-order, unless there are steep discounts. So if the pre-order is discounted, i'd say a user can weight his/her risk and then do it. However, if it was a full price preorder, then its definitely not worth it.

by kijin 14y ago

underwater 14y ago

Kickstarter projects are different from traditional investments because the absolute best case for consumers is that they get the product they were promised. If the project succeeds in a big way and spawns a successful company the project creators who reap 100% of the benefit. Whereas for investors failures are balanced out by the successes.

sillysaurus 14y ago
If [a Kickstarter] project succeeds in a big way and spawns a successful company, it's the project creators who reap 100% of the benefit. I'm completely fine with that. Could it be any different? Maybe, but changing the Kickstarter equation may also have the consequence of killing the magic that makes it currently work.
bigiain 14y ago
That's not totally true. I've personally reaped the benefit of knowing I've helped launch projects for people who might not have been able to accomplish it themselves. There's a bunch of music projects, a documentary, a short film, and an Arduino Shield that wouldn't have existed without my (and a bunch of likeminded people's) help. There's a few things that clearly _would_ have existed without my help (Amanda Palmers current project, for example), things that clearly didn't need my tiny bit of help, but that I feel good about being part of anyway. The hundred or two dollars that those Kickstarter projects cost me was worth every single cent, and would have been even if a few or even all of them had failed. At least we tried… And more power too all the project creators - I hope they all get corruption-inducingly-rich out of the things my $5 or $50 or $300 helps get started. Anybody who thinks "investing" to the tune of a couple of hundred bucks entitles them too, or even stands any chance of that resulting in a significant equity stake in something - probably hasn't thought that through very hard... big
- sirclueless 14y ago
  The warm fuzzies you get have very little to do with it. I'm sure the angel investors who front millions for medical research into a disease get the same rush from their cash as you do, but there is more different between your spending and theirs than magnitude. If you invest in a company you have a legal claim to own part of it, and it's pretty clear that Kickstarter backers own no part of the companies they support. Whether the cash is given in the spirit of altruism or profit-seeking isn't the real question; the question is whether equity is expected in return or not. Of course people don't expect "significant" equity for their contributions, but a good fraction may think they are really investing.
  - bigiain 14y ago
    You're right, but at least in my head there's a _big_ differences between $5 or $10, or even $300 Kickstarter pledges, and the amount of money required before "whether equity is expected in return or no". Unless otherwise stated, my personal expectation would be that amounts under about $1000 wouldn't possibly be expected to have equity in return. Other people may have different thresholds, but surely nobody really expects equity for sub $100 "investments"?
    - saraid216 14y ago
      > Unless otherwise stated, my personal expectation would be that amounts under about $1000 wouldn't possibly be expected to have equity in return. For me, I'd expect equity starting at the point where I'm providing something significant, rather than simply part of a mob. If I'm providing the equivalent of living expenses for a year or two, for instance, or enough money to purchase serious infrastructure, like an office. I think the floor for that amount starts at 20k as an extreme minimum. Naturally, this is what VCs are about.
      - pdlancar 14y ago
        http://www.appdata.com/apps/facebook/2389801228-texas-holdem-poker http://www.appdata.com/apps/facebook/2389801228-texas-holdem...
forgottenpaswrd 14y ago
I contributed to a lot of projects. As an example I contributed to Tim Schafer. He is showing us how a real game is done, the ups and downs. This is very valuable information much more expensive to get any other way. I'm getting tens of times more value from my KS projects that what I paid for them, and I had paid A LOT of money. Not a single of them failed(Double digit number). It is easy to spot a professional(or someone that will become a pro) from a video.

Andrenid 14y ago

I've backed a fair few (over a dozen) KickStarter projects, and every single time I've seen it as a risky investment with the HOPE of getting an awesome product out of it. Some of my backings have been in the few-hundred-dollar range, and as much as I'd be upset if they didn't success and send me my product, I wouldn't expect a refund. The only point I could see myself actually BLAMING them, would be if they didn't put their best efforts into creating the product, and just bailed with everyones money. If they truly do try their hardest to create the product, and use up all the money trying, but still fail... I'm OK with that.

bigiain 14y ago
I've backed a bunch of small, and a couple of large Kickstarter projects. I viewed each and every one (including the high-value ZPM Espresso Machine and Pebble Watch ones) as a gift to someone with an exciting idea, with the understanding that if things went OK I'd probably get a Watch/CoffeeMachine/AduinoShield/Album in return - but if things went badly I'd get nothing. I'll be sad if the Pebble guys don't deliver, but sad because I want them to succeed, not because "I bought a watch and they never sent it". Even if they took off and spent all the money on hookers and blow, I'd mostly be sad that an apparently great product never made it to the market, rather than sad about my couple of hundred buck having gone. Surely this sentence "But financial backers have no clear way of getting a refund if the young businesses fail to deliver." represents a fundamental mis-understanding of what Kickstarter is? If you want "refunds", go buy things from a store with a unambiguous refund policy. If you want to be a "financial backer", work out what that means before claiming you're owed a refund…

Evbn 14y ago

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!).

ar741 14y ago
As far as I can see the original intent was to back artists and musicians - not necessarily to produce a product, but to create something. I am a first time backer for Planetary annihilation - http://www.kickstarter.com/projects/659943965/planetary-annihilation-a-next-generation-rts http://www.kickstarter.com/projects/659943965/planetary-anni... Decision process for me was. - Very cool - loved Total Annihilation. - 900K is not much of a budget for a game with this scope - it may be a stretch for the team to deliver this. - Team has experience with RTS. - The pay off in terms of what I get is great. - There have been no ground breaking RTS for the last 10 years. Ultimately what got me over the line was the reputation of the company and the team. I am fully aware that there may be nothing to show for it... I am sponsoring an opportunity for something great to be produced. Something not that far from music or art in my opinion.
jmathai 14y ago
I'm probably biased but I disagree. I initially funded The OpenPhoto Project on Kickstarter. There was a deliverable but it wasn't a physical good. The deliverable was completed as promised and we continued to build additional features and services above and beyond what the Kickstarter campaign allowed us to do. http://theopenphotoproject.org http://theopenphotoproject.org
- lmm 14y ago
  Sure. It's great when it works. The worry is what happens when a hard-working project is unable to deliver, or when a con artist takes the money and runs.

firefoxman1 14y ago

Why doesn't Kickstarter follow the original Groupon (thepoint.com) model, where if it doesn't meet its goal, nobody is charged?

spullara 14y ago
That is true for deals that don't get funded. This is talking about the case where the deal is funded but the service is never delivered. Like having a Groupon for a company that went out of business.
NeutronBoy 14y ago
That's exactly what happens. You commit to backing a project, but your card is only charged once the project meets it's finding goal.
- firefoxman1 14y ago
  Ahh, see that's what I thought, but this article made me second-guess it.
veyron 14y ago
Because Kickstarter wouldn't make as much money ...
AlexDanger 14y ago
Nobody is charged if the KS project does not meet its funding goal. This article is about what happens when a project is funded, but fails to deliver. At that point the funders have lost their money.
baddox 14y ago
Because then where is the risk? It would be entirely with Kickstarter, since they would have to give their own money to the creators before taking any money from customers.

deleted 14y ago

[deleted]

twelvechairs 14y ago

Actually I think its more like donating money to a cause you agree with, with the proviso that if it works, you'll get something for it. Put it this way. Kickstarter just hands your money over. Of course its possible for somebody whos raised money to disappear with it without providing any product or refunds. Even if you threaten legal action and they are in the USA, its going to be quite a process (a lot of time and money) to recover your tiny investment.... And if they choose to move to another country or claim to be 'late but still providing it', even more complex...

EternalLight 14y ago
I guess the sane way of viewing a kickstarter that way. Personally though, the way kickstarter and (many) projects describe rewards as preorders, then I think they should be liable to fulfill the or return the proceeds. If the money is invested in this bast case scenario you describe, than kickstarter and the projects should clearly state that. If they don't than kickstarter or some of the projects facing some kind of legal action when the money just disappears would be a good thing, so that the descriptions start reflecting reality again. Edit: I've not donated on kickstarter, so I don't know if they clearly state this somewhere later in the process. But from what I've seen kickstarters "preorders" seem irresponsible to me.
- chii 14y ago
  Its not in the users interest to pre-order, unless there are steep discounts. So if the pre-order is discounted, i'd say a user can weight his/her risk and then do it. However, if it was a full price preorder, then its definitely not worth it.