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Kickstarter Lays Down New Rules For When a Project Fails
An anonymous reader writes "In a blog post, Kickstarter announced several updates to its terms of use for projects. From the article: "Kickstarter has iterated on its policies several times since it launched in 2009, with the most recent wave of revisions surrounding the site's transition from only posting projects cleared by the staff to clearing all projects that meet a basic set of criteria. Even still, some projects lack clear goals, encounter setbacks, or fail to deliver, like the myIDkey project that has burned through $3.5 million without yet to distributing a finished product. The most recent terms revision is timely: on Thursday, science fiction author Neal Stephenson announced that a game he Kickstarted in 2012 with $526,000 in funding was officially canceled."
It's not in the linked article, but here is the interesting part of the new rules: creators have to refund remaining money, and have to post status updates.
Read it here:
If a creator is unable to complete their project and fulfill rewards, theyâ(TM)ve failed to live up to the basic obligations of this agreement. To right this, they 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 thatâ(TM)s communicated to backers;
theyâ(TM)re able to demonstrate that theyâ(TM)ve used funds appropriately and made every reasonable effort to complete the project as promised;
theyâ(TM)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.
stock exchange ... investors
I think you really need to reconsider your idea of what service Kickstarter provides.
Hint: There is no investment going on.
More than that - it *can't* be.
Kickstarter has structured things such that backers are technically giving a donation to the project. The rewards are technically pledge gifts - like PBS tote bags. The reason for doing this is that the SEC has very stringent rules for investors and the companies they are investing in, which would mean that if Kickstarter backers were to be classified as "investors", most of the projects (and backers) on Kickstarter would be disallowed from contributing.
By classifying things as a "donation", however, Kickstarter gets around most of the SEC investing rules. But the flip side of this is that backers can't really have any financial incentive for the thing they're backing - because if they did, they're no longer "donors", they're "investors". Technically, all the things Kickstarter is doing to incentivize project complement are being done from the contractual-obligation-to-Kickstarter end of things, rather than a legal-duty-to-backers point of view. As long as they send you your tote bag (and possibly even before that point), projects have zero legal obligation to backers.
If you don't realize that - if you go in to Kickstarter thinking that projects have some (legal) obligation to fulfill their project goals - then you shouldn't be "investing" in Kickstarter projects. Any money you give on Kickstarter should truly be thought of as a donation - you think the project is cool, and you want to (possibly) help make it happen. But if it doesn't, you should be alright with waving bye-bye to your money.
Because not everything in the world is done in expectation of cash ROI? A good indie film will end up being shown at local and regional film festivals (and now, distributed as a DVD to Kickstarter backers). A _really_ good indie film will be invited to national and international film festivals - which will cost the producers money to attend (successful project with negative ROI). How does one obtain a bank loan or VC investment for such an endeavor?
People apparently think Kickstarter and the like are mini Sand Hill Roads, whereas they are much closer to you kicking in $50 to your local community art collective.
sPh
I would go even farther than that. I think the money should be held in escrow by Kickstarter until the project actually DELIVERS. The business in question could still borrow from a third-party bank against that money, but it would also give Kickstarter the ability to refund it all if the project failed to actually deliver on its promises (instead of counting on the business to refund it).
If you're going to refund the escrow in the event of project failure, you can't expect a bank to accept those same funds as collateral.