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."

Comments

All this because Clang went Clunk?

[Applehu Akbar]

More transparency will be a good policy for Kickstarter. It's developing what is essentially a new stock exchange, and in the process is finding out what kind of reporting investors will truly find useful.

Re:All this because Clang went Clunk?

[mysidia]

Regular finance account reporting of how the money is being used should be required. If you can't handle it, don't ask for money.

Such production of reporting and auditing of reports has costs and could consume significant amount of project funds.

It should be up to the backers and an agreement with the backers made in advance, regarding what will be required, not up to some random third party to decide what reporting will be imposed on them both.

Risk aversion

[i kan reed]

What kickstarter is afraid of, is something that can't be prevented: namely that people will need more money than they think to make something(or worse, that they happen to be scammers). Once the money is gone, no form of contract is going to get it back. And any scammer with their salt will run the money through a limited liability corporation, and pay themselves divdends/salary out of kickstarter funds. Then it can just go bankrupt.

There won't be anything to reclaim legally. So if you're going to back a kickstarter project, you have to do it in a risk-accepting mindset. Which for me, it means I only back projects that create things that I absolutely know wouldn't end up getting made otherwise. For you, that might just mean "no kickstarter ever"

Re:Risk aversion

[sphealey]

- - - - - why can't you get money from a bank or VC? - - - - -

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

Re:Risk aversion

[soft_guy]

What is so wrong with a project failing? I really don't get it. This is a site to donate money for people to do a cool project. If none of the projects are allowed to fail, it would only be really conservative projects. If you aren't willing to take that risk, don't fund a kickstarter. It is not a shopping site.

Re:Risk aversion

[gman003]

Often it's too little money for a loan.

I've backed several book printings. The content already existed. All they needed was to go through the proofing process and have enough cash to do a print run. The former, while time-consuming, is fairly low-risk. With Kickstarter's "no money taken until you meet the threshold" setup, the latter is also pretty guaranteed.

But despite it being a very low-risk proposition, banks don't really help with such a project. It's too little money - one had a minimum of $6000, and even the biggest was only $20K. Likewise, who wants to bring in VCs who will try to take over your business (if not just burn it for profit) for a small project?

Really, I think you're wrong in that you think VCs and banks are a good judge of whether a project will succeed. They really aren't, in many cases, particularly for niche fandoms. And they might also not be good for the business, since they inevitably take a large chunk of the profits for themselves. Some of the projects I've backed could easily have self-funded - but they used Kickstarter to make sure there was enough demand for it to be profitable.

I tend to treat Kickstarter as a sort of preorder system, with the caveat that I need some sort of proof that you actually know what you're doing before I will commit. Many of them have successfully done such things before. I kickstarted Exalted 3rd Edition, since the mere existence of two prior editions is a good indicator that they can make a third. I've kickstarted a few games from new creators that had fully playable prototypes (Superhot and Nothing To Hide). Those were riskier, but still a pretty acceptable risk.

I do, however, shy away from any Kickstarter project that will need additional funding - like Clang, which took all that money just to build something they could show to VCs. That's like paying an entrance fee to a casino - sure, you might still hit the jackpot but those are some pretty long odds.

Here is the text

[gnu-sucks]

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.

Kickstarter isn't about financial reward

[Overzeetop]

Financial reward isn't the goal of kickstarter backers. Never has been.

Re:Kickstarter isn't about financial reward

[Anonymous Coward]

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.

Re:think globally

[DNS-and-BIND]

I love how the default attitude is spite. Blame America for doing something wrong, instead of the obvious choice - make your own version of kickstarter. With blackjack, and hookers. Then you don't have to listen to what the Americans say at all. Better yet, you can exclude Americans from participating. You can even go so far as to redirect any American IP address to a landing page where you let them know all the problems you have with the US federal government.

Kickstarter doesn't do deals outside the USA for well-known legal reasons. Maybe you can discover what these are when you start your own - but you won't, so the question is moot. Still, I wish someone would. I just don't see it happening, though.

Contribute for fun; accept the risk

[sphealey]

People should identify Kickstarter projects out of interest, enjoyment, or just a sense of fun, and contribute no more money than they would be willing to use as kindling to start a campfire. If you contribute $25 in hopes of seeing an indie film completed - great if it does, sad if it doesn't. If you contribute $100 hoping to get a new piece of hardware, don't expect anything other than some p% chance that you will ever receive that hardware or if you do it will work as dreamed. If you don't have the money to lose, don't contribute.

One innovative and clearly risky hardware project I backed has people complaining that the base product shipped 2 months later than planned (hoped) and the premium product will be 5 months late. Um, guys: it was risky. There were commercial alternatives available at 10x the price. You knew that this was an attempt to create a mini-breakthrough, but you're griping because it was 2 months late and the associated app will need some point revisions? Get real.

sPh

Screening process

[MindPrison]

They should improve their screening process.

Also, it's important to consider that funding a kickstarter project, is kind of like investing money in the lottery or purchasing one of those scratch lottery tickets. You may or may not win, the likelihood of actually winning is bigger than the lottery, but in reality very small, it's like going to the casino and betting it all on one of 3 rows.
Kickstarter is a gold-mine right now for scammers as well. All you need, is a well thought out plan to CONvince a lot of people out there, and since most people aren't very technical...this isn't hard at all (thus, why we need a better screening process). Many of the funded projects gets WAY more than they asked for, and then GREED grabs them...they lack no skills when it comes to find a reason to use the extra money, and have you noticed how certain products doesn't get cheaper for the public even thought they receive MASSIVE support?

Money baby! It's the shit.

Re:Good. IndieGoGo should do it too

[OakDragon]

But other than that, what have the Romans done for us?

Re:Good. IndieGoGo should do it too

[Sperbels]

Given us a method for numbering Super Bowls.

Re:Good. IndieGoGo should do it too

[NotDrWho]

Mid 20th century: I think we should build flying cars and make the skies our roadways!
People of that era: That's dangerous and impractical.

Just because an idea is radical and the mainstream rejects it that doesn't make it a *good* idea. Lot's of really bad ideas have been poo-pooed by the mainstream too.

Re:Good. IndieGoGo should do it too

[Anonymous Coward]

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.