I'm an advocate of Free software and community contribution based development models — as with this model, the whole benefits more when everyone works together than when everyone works in their own silos. And it's because of this that crowdsourced funding sites like Kickstarter appealed to me - for those who have not seen Kickstarter, it is a website which permits third parties to upload project plans, and to ask anyone in the world to contribute towards completion of the project. Do take a look at the site to get a better idea of what goes on — see, for example, the now-completed MusOpen project.
In essence, the project is advertised on the site, asking for contributions. Contributors — registered users of the site — can "pledge" whatever they like to a project (or nothing at all), and, usually, they are offered "rewards" for their pledges. Perhaps a note of thanks from the project owner, an advance copy of a book, a prototype of the product and so on. If a project reaches (or exceeds) its funding target within the funding period, the contributors are billed (via Amazon Payments), and the money goes to the project team.
This struck me as a great idea, to help projects get funding from people who thought that they were interesting but which might struggle to get funded by more traditional routes (such as bank loans, venture capital / angel investors and so on), or else might not want that approach. I've invested — as I see it — in a number of projects, including MusOpen linked above.
From an eCommerce point of view, the issue which interests me the most is the legal status of someone who pledges to a project — are they are customer/purchaser? An investor? Merely a gambler?
This is important, because, as is perhaps inevitable with such things, projects which are funded, and thus for which contributors have parted with money, do not always succeed — there is a discussion on the BBC at the moment about a game funded via Kickstarter which is unlikely to be finished. The Hanfree iPad stand has resulted in the project team (one man) filing for bankruptcy and, despite raising many times more money than they had initially requested, with some participants contributing well over $100, the ZionEyez video recording glasses project has failed to deliver.
What recourse do individual contributors have?
Kickstarter has recently updated its FAQs, now making very clear that it is the responsibility of each project to deliver:
Is a creator legally obligated to fulfill the promises of their project?However, the FAQ goes on to state that:
Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. (This is what creators see before they launch.) We crafted these terms to create a legal requirement for creators to follow through on their projects, and to give backers a recourse if they don't. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill.
On Kickstarter, backers ultimately decide the validity and worthiness of a project by whether they decide to fund it.
An uncharitable view might be that Kickstarter is washing its hands of all responsibility, although perhaps that's not unlike other online intermediaries. Others — like this author on Forbes — have argued that it's purely an investment relationship, and that investments fail.
It might be possible for an individual to take legal action against a project, but the likelihood of success — and, perhaps, more importantly, of successful recovery even if a judgment is awarded — will depend hugely on where the project is based. With Kickstarter accepting contributions from all over the world, and with these being individuals and not professional investors in many cases, do many individuals have any recourse at all?
Some have explored options such as that offered under the Consumer Credit Act in the UK, seeking a remedy from their credit provider, but that is not open to everyone.
For some, this is a non-issue; speaking for myself (as I have done on the ZionEyez comments board), I did not feel like a consumer when I pledged, but rather like someone who appreciated the vision which the project team had, and that my pledge was support to help them achieve that vision. In other words, I was aware of a risk, and accepted it. Others see it far more like a conventional distance sale, that the pledge was an order, and that not delivering is a simple breach of contract, just as if Amazon did not ship a book for which you had paid — see, for example, the comments of user "Neil Singh," who claims to be an attorney in Arizona, and his attempt at legal action to enforce a breach of contract, on the Hanfree project.
Whatever the legal position, there appears to be a disjunct between what some contributors expect and the reality of the situation, with relatively low chances of recovering contributions made to a project which fails, especially one which goes bankrupt.
What, if anything, should be done? Do contributors, who are, in effect, consumers and not professionals, need greater protection? Should Kickstarter do more — and how should this be encouraged? (is good reputation / competitive forces enough, or is a legal stick needed?) Is it a matter of educating users as to the risks, and relying on people to make informed risk-aware decisions, asking more probing questions of projects, to make sure that they are comfortable before investing? Will it be self-solving, if contributors do not pledge to projects which do not meet "community norms" of behaviour?
I may never see those video recording glasses, but, if crowdsourcing is to really succeed, the risks need to be clearer to all contributors, or else the platforms safer.
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