Crowdfunding sites are a bit like the early days of the World Wide Web, where fraudsters can find easy pickings from investors not doing basic checks on the founder’s backgrounds or experience.
A couple of months ago KickStarter was minutes away from transferring $120k into a shell companies account that promised a new technique to produce cheap products from an expensive Japanese beef.
Armed only with an artist’s impression of a product, there appear to be a substantial amount of private ‘investors’ only too keen to help make these dreams a reality.
After a project has been funded, and monies processed, the onus is on the creators to produce the goods. That’s sometimes where some problems have come in because if it’s impossible (like LUCI, the advanced dream induction system) or too much trouble (like the Doom That Came To Atlantic City board game), then it just doesn’t happen and the project investors have nothing to show for their money.
Like many scams that are accelerated by social media, crowd-funding scams get fueled when someone believes the pitch and then shares it with friends and family, which adds to its credibility.
There are many examples where crowd funded products have made it successfully top market, so if you are tempted to pledge some hard earned cash to a project there are some basic rules that you should keep in mind:
Useful pointers to avoid vapourware:
- If it’s a crazy idea, then it’s most probably a scam
- Check out the founders background and claimed experience
- Check sites that offer endorsements to the project and make sure they aren’t related
- If there are a few large one off donations, find out who made them as these can simply be added to legitimise the offering
- Take your time; investments like these don’t often give returns based on order in which you bought in, so being first isn’t imperative.
With a conservative estimate of around 1000 crowdfunding sites now in operation, it would seem that the only way to get some control back into the situation would through some accreditation scheme, perhaps as a precursor to government legislation.
A simple framework for accreditation scheme members could involve something along the lines of:
- Ensure there is mandatory third party, platform independent group involved that holds the money in its bank account.
- Make a standard set of procedures to allow customers to compare service and security levels of each platform.
- Force platforms to undertake face to face meetings with founders to verify identification and trading documentation.
With the above small steps in place, it would be it less likely that giant frauds or large misappropriations of monies on the scale that took place in the early 2000′s.