Crowdfunding failures: Who protects backers?

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A 2017 study concluded that nearly 1 in 10 crowdfunding campaigns will leave people disappointed or even angry. 

Let’s take a look at the latest blow, Ossic, the 3D audio headphones startup funded on Kickstarter that announced this weekend that it shuts down. They managed to get 22,000 pre-orders and over $6 million raised in fundings (crowdfunding and seed funding), delivering the first product version only to 1% of its backers.

OSSIC crowdfunding campaign
Image courtesy OSSIC

Crowdfunding failure: The Ossic story

Of course, Ossic is just one of the names that will make history in crowdfunding’s Hall of Shame (read some details here), but the real issue here is the regulatory environment around these businesses. 

These guys had a great product idea, an army of credulous backers, a cool name, a pot of gold and they still failed miserably. In the end, the project owners lost some money (I assume none of theirs), time and (maybe) fame. But backers have lost their investments and all they can do now is to address this issue in court.

What if backers/sponsors can veto?

Maybe the game should change in order to avoid fraud or huge failures. What if new regulations would include a Backers’ Representative in any new crowdfunded project that reaches a minimum of 100 backers or $1000? Shouldn’t this person be entitled to veto on strategic decisions? I would definitely support such an approach.

Crowdfunding can learn from football clubs

Let’s take for example fan-owned football clubs, which perform although they are owned by thousands of shareholders. Why shouldn’t this work for crowdfunded projects? Backers surely have the vision (since they are early adopters), are involved emotionally and financially (seeking only the project’s success) and are experienced in startup management.

Crowdfunding on Kickstarter: Info for sponsors

However, Kickstarter’s current terms of use state show us that reality bites: “We don’t oversee the performance or punctuality of projects, and we don’t endorse any content users submit to the Site”.

Last thoughts

Although most of us are charmed by new crowdfunding ideas and some are actually supporting financially the ones we truly like and believe in them, sponsors lack a strong voice in the development process.

With this in mind, isn’t there like a huge “Backers Protection Chapter” waiting to be included in these terms of use? If so, who should impose it?

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