Crowd funders: investors, philanthropists or consumers?

kickstarter I was interested to see the article Collusion pen for iPad ‘unusable’ in the Sydney Morning Herald the other day. The article detailed the disappointment of backers of the Collusion pen app who’d pledged support for the project on Kickstarter, one of the most popular and successful crowd funding internet sites.

On Kickstarter, individuals pledge sums of money to projects they’d like to see developed. The pledge is essentially a donation, but many projects offer a reward to those pledging a certain amount of money. This reward is often the product of the project, in this case, the Collusion pen and app.

Kickstarter’s website says “Backing a project is more than just giving someone money, it’s supporting their dream to create something that they want to see exist in the world.” Crowd funding is often included in the social investment spectrum. It’s a way to enable innovative ideas and organisations to get off the ground. But like all start-ups, risks are high. These are people who by definition have not done this thing before. There are no guarantees that they’ll be able to make their vision a reality, and there is no recourse for their investors if they don’t.

The Sydney Morning Herald article portrays the Collusion pen as a product of purchase, with the backers featured coming across like angry consumers betrayed by false advertising. The article refers to an ‘investigation’ by CNN Money Why 84% of Kickstarter’s top projects shipped late that shows many Kickstarter projects are not completed within their deadlines. I’d be surprised if they were! If you add optimism bias to the development of a new product, many first-time project managers and the steep learning curve of new regulatory environments then it’s not surprising that those posting their projects on Kickstarter fail to underestimate the timescales and risks.

The article also refers to ASIC guidance on crowd funding. I’m pleased to see that this has been developed, but really disappointed that it only contains warnings for investors and details of custodial sanctions for people breaking the law. Likewise, the Australian Government’s Money Smart advice on Crowd Funding focusses only on protecting the investor/donor.

I’d like to see the Australian Government develop guidance for those seeking crowd funding for their projects too. Simple, reliable guidance on these pages would help legitimate projects to negotiate their legal requirements and promote best practice. Creating an environment in which innovation is supported and encouraged is vital to our economy. Kickstarter investors are supporting a vision, not simply buying a product. Although, as a quote in the CNN article reminds us “Kickstarter is not a store, but boy, it sure feels like a store to the people who back it.”

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