Kickstarter's #1 Problem

What happens if a project funds but never gets produced.  In the early days of Kickstarter,  projects were typically musicians seeking funding from fans so they could produce another album.  Today,  a Kickstarter project is much more likely a developer  seeking funding by preselling a product before producing it.   According to the terms of service on Kickstarter, if this happens , the creator is supposed to refund all money fund to the backers but the company provides no method for doing so on the website.  Since  Kickstarter never has the funds for a project, operating solely as a facilitator between creator and funder,  the company’s position is that it does not  give refunds and all negotiations must take place between creator and backer. 

According to a recent story on NPR, the designer of PopSockets, an iPod case and cord designed not to tangle while dancing, raised about $18,600 from 520 backers, last February.  Now, the money is gone, spent on legal and manufacturing fees, with no PopSockets to show for it, none likely to appear, and a host of unhappy backers.    Creator David Barnett eventually refunded about $1300 to 40 of them, which only made the 480 unpaid backers even unhappier.

The problem, really, is that Kickstarter is not set up to police itself, similar to eBay in its early days.  The side only does cursory investigation of projects before allowing them to post and, while the terms of use do constitute a legal requirement for the creator to produce or refund, there is no mechanism on the site for enforcement.  All legal disputes are between creator and backer and, given the size of many pledges, backers likely don’t feel it worthwhile to involve the law.

For the moment, Kickstarter is the premier source for crowdfunded projects.  However, unless the company develops better mechanisms for policing itself, it likely will lose that position to a similar website that provides stronger protections for funders.