• How to avoid crowdfunding fraud

    Just two days ago, Yahoo! reported that the second most successful campaign in Indiegogo history was plagued with a lawsuit and questionable claims. That is by no means the only such incident in the crowdfunding game. In 2013, the Kreyos Smartwatch raised $1.5 million with nothing to show for its supporters. Instacube, which raised more than $600,000 in August 2012 on Kickstarter did not deliver a single item past its May 2013 delivery date. The list goes on.

    Crowdfunding is based on trust. When you contribute to a crowdfunding project, you are trusting the people behind the project in at least three regards:

    1. They are genuinely interested in making it happen.
    2. They have the technology know-how to build it.
    3. They have the organizational and business skills to deliver it successfully.

    I’m sure real fraud does happen in crowdfunding. But in reality fraud is hard to prove since it’s almost impossible to judge people’s intentions. However, to a funder there’s no practical significance to distinguish between fraud and incompetency. In either case you lose your money.

    Without complete information, it’s not possible to make judgement on the three aspects listed above. But with some common sense, you can hopefully avoid some obvious mistakes. Here are some questions to ask:

    1. Does it sound too good to be true? It’s probably not true. If they claim that the product has every feature you can ever imagine, and all features can work together flawlessly, and they can deliver it to you on a fast schedule, you’d better wait till they go retail. Consider the extra price you pay for retail as insurance against the uncertainty. You might just have saved yourself a lot of agony down the road. Example? Look at ‚Äčthe $1.5 Million Indiegogo Smartwatch Horror Story.
    2. Are the founders completely honest? Did you suspect any lie or misrepresentation? Did the information sound vague? Did other people raise questions about honesty?
    3. Can you find a comparable product? How does it stack up to competition? Are the improvements or cost savings reasonable?
    4. Any existing information available about the project? Case in point: the Soap Router had a successful campaign on Kickstarter, with lots of complaints and one person blatantly calling it “scam“. Yet they went on to Indiegogo later and completed an even more successful campaign. If you were a supporter on Indiegogo, such a mistake can be avoided if you did some research.
    5. But, they have a lot of media coverage. Well then, ask yourself what the media know that you don’t. How much information do they have to answer the three points I laid out earlier?

    Happy crowdfunding! But be careful.

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