To Support or Not Support – The Risks of Crowdfunding

Crowdfunding is a great tool for entrepreneurs to get their product to market, but there are many financial risks to crowdfunding. Indiegogo, Kickstarter and GoFundMe are examples of popular crowd funding websites. Perspective investors have to decide to support or not support a project on these sites.

My History with Crowdfunding

I started to participate with crowdfunding efforts in 2012. Along with the crowd, I have seen a lot of great projects come to life. I’ve also been ripped off, like the rest of the supporters on some projects.

I backed over 100 projects in crowdfunding to date, including bed sheets, headphones and robotics. Most of the campaigns were completed successfully, and some I am still waiting for delivery of my rewards.

Measure the Risks of Crowdfunding

Based on my experience with crowdfunding, I offer the following information to hopefully help reduce the risks of evaluating a crowdfunding project.

Not a Marketplace

Although a number of entrepreneurs consider crowdfunding a great way to sell their products, these platforms are not intended to be a marketplace. Supporters are investing in the project, with the potential of receiving the product or other goods and services as a return on their investment.

Experience and Promise

The risks of crowdfunding can be reduced by understanding the creator’s previous campaigns and what they are promising to deliver.

What is the project creator’s history?

Look at the project creators previous projects and projects they have supported. The comments on those projects may tell you a lot about this creator. Someone with other successfully completed projects is more likely to be reliable than someone with unfulfilled previous projects.

If this is the creators first project, this is the first flag of concern. This does not mean there is going to be a problem, but without a history of successful projects to prove experience you might find this creator is going to make a series of mistakes or worse yet, they could be a scam artist.

Inexperienced creators tend to underestimate production and delivery time frames. They may become overwhelmed in the fulfillment process, or thy do not have adequate knowledge to see the project through the finish line.

I have seen a number of scam artists, that have run with my money, who keep creating new accounts and launching new programs with no intention of delivering. My oldest, unsatisfied project was due to be delivered over six years ago and there is no information from or about the creator.

You see – these crowdfunding sites do not hold the creator accountable. The site got their money out of the project. They have no further interest in making sure the creator remains in communication with the supporters and they definitely don’t help deliver any promised rewards.

Is this too good to be true?

When you read the project, and watch any videos they have posted with it, it is important to compare the claims with reality. If current technology doesn’t even come close to what is being promised, then it might not be possible yet. Seemingly impossible projects may fail.

Crowdfunding Investment Risk

Spending one’s hard-earned money can be difficult, when there is a limited or no return. Supporting a project can be a gamble.

Is it ‘Okay’ to lose the money?

As already stated, the crowdfunding sites do not hold the project creators accountable. This is an investment in what could be a failed project or fraud. The money may be lost on a return that will never occur.

Are the rewards worth the investment?

It is difficult to get behind a project if the benefit or return isn’t worth the cost of investment. This is difficult to measure fairly, because each project and each person’s financial standpoint are different.

If a project is to raise money to help a group of kids travel to somewhere special, and it is a good cause to get behind for a once-in-a-lifetime opportunity, then a photograph of the kids at the destination could be a great reward for the cost of support. The hopes of such a great program being real makes a person feel better about the risks of crowdfunding.

When a project is for the development and production of some new gadget, then it is fair to expect a functioning copy of that gadget. Then it’s a matter of if that special wireless paper clip is worth $150.

The Best Projects I have Supported

I got into supporting projects before I realized the risks of crowdfunding investments. Fortunately, I have had many more good experienced than bad.

I primarily enjoy supporting musical artists and photographers, but I have supported a large number of other products. Obviously, my favorites have actually been fulfilled. I’ll give you a little information on the programs I supported and a link to the creator’s web-site, just in case you’re interested in their product.

Witchcraft Video

We found the campaign for a video being created by a well-known magickal scholar with his wife. Ordinarily, I would only support a program at a typical reward level, but this campaign gave us a once-in-a-lifetime opportunity to spend the day with them. The video turned out very informative and the in-person meetup was wonderful!

Air Cleaner

Mila Air Purifier

The Mila air purifier, which is sitting next to me as I type this, was supposed to be delivered in March 2020. They missed the mark by a few months, partly due to COVID-19, and the rest due to other circumstances.

The creator remained transparent and kept communicating with the supporters. The resulting product is great and I am very happy with it. In fact, I ordered a second unit for another part of my house.

Tarot Cards and Books

I have supported several programs for Lo Scarabeo. They are transparent in their communications and provide a quality product. Every project I backed was delivered on, or near, the expected delivery deadline.

Chocolates

There are actually a couple chocolate programs that were supported. Both unique compared to other products on the market.

Endorfin Foods Coconut-based Chocolate - I experienced no risk in crowdfunding

Endorfin Foods developed a non-dairy chocolate bar, using coconut sugar and coconut milk. These chocolate bars are delicious. My favorite is the Golden Mylk bar, which includes Turmeric and Cardamom. They observe ethical sourcing and encourage sustainable practices.

Love of Honey came up with a way to cover their ethically harvested raw honey with chocolate. Based in Virginia, they may acquire honey from friend’s farms, but none of the honey is imported from other countries. I like the creator so much, that I have joined their subscription service. The Blueberry and Cranberry Honeys are my favorite.

The Worst Projects I have Supported

You’d expect that the worst projects which I have supported to be all unfulfilled. Although most have never been fulfilled, some were poorly handled through the finish line.

Talent Singer

A big hit on one of the “Talent” shows on television ran a project to release an album. The project raised over $30K and the album and other rewards were never received. That was several years ago. Attempts to contact the project creator have gone unanswered, and their facebook page silent.

This person’s video from the talent show went viral. Lots of people were talking about them. For this being a higher profile project, with plenty of exposure, I hadn’t expected it to be fraud.

Country Singer

I supported another singer’s campaign to release their second country album. Just about as much cash as that “Talent” singer, but this one kept contact and strung it on for about a year passed the promised delivery date. In that last update, she wrote about how the album was turning out “amazing” and that she was very happy with it. Then silence.

A year later I sent her a message, which she actually replied stating that the album did not turn out well and that she couldn’t stand behind it. Rather than fixing it, she ran away and didn’t follow-up.

Ergonomic Pillow

One project creator developed a pillow to support and help correct posture for back and side sleepers. The product was well described and quite feasible. The creator communicated a lot in the first few months of the campaign, seemingly diligent and transparent. Then the communications waned and the delivery date passed. Every once in a while the creator would send a post promising some sort of progress or giving a bizarre excuse for delay.

Eventually, some of the other supporters tracked down the creator and found soon after the creator got the campaign funds, they posted about a new car and a condo they bought. Still no pillow. This campaign was run on Kickstarter and Indiegogo simultaneously, resulting in a substantial prize.

Soon after the car and condo discovery, someone found the pillows for sale on Amazon and another web-site. When this was publicly called out, the website and Amazon listing were removed. Eventually, the creator re-engaged and claimed that the shipping costs were higher than estimated and demanded everyone pay additional money for shipping the pillows – over half the cost of the pillow’s “retail” price.

I eventually gave in and paid the astronomical shipping. A few months later – nearly two years after the promised delivery date – I received the pillow. It stunk of mildew and its design resulted in nerve damage in my neck due to a misalignment of C6. That was a couple years ago. The nerve damage still has not healed completely.

Alarm System

Two years ago, I should have received a new wireless alarm system which claimed to have main sensors featuring motion detection, glass break (audio) and had temperature sensing also. All while being smaller than the typical alarm system motion detector. In app monitoring, plus reasonably priced professional monitoring.

Even 18 months after the system should have shipped, the creator was communicating with us supporters, including video demonstrations and system details as they passed through underwriting and manufacturing. Their last update showed a picture of the building they were occupying, expressing their pride in the new sign that was just installed. That was several months ago.

Disclaimer

This article is based on my experiences in crowdfunding programs. I have not and will not be compensated for any portion of my content herein. Any advertisements inserted into this article are not part of the article’s content, but just advertisements to help support my hosting costs.

The links I provided to project creators which I was happy with the project results are provided in case others are interested in the product. Since these sites are owned and operated by a third party, I cannot guarantee your results or satisfaction.

The risks of crowdfunding investments are your own. It is important that you thoroughly research the project creator and the campaign to help protect yourself.

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