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Crowdfunding still has a trust problem

Crowdfunding still has a trust problem


How do you trust a platform that promotes mind-reading pet gadgets?

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The Danny DeVito to Kickstarter's Arnold Schwarzenegger, Indiegogo has been the perpetual second player in online crowdfunding. Second is no bad place to be in a rapidly expanding market, however, and Indiegogo has managed to attract a number of high-profile projects from the likes of ShaqUbuntu, and even the Jamaican bobsled team.

Though interest in and backing for crowdfunding have never been more plentiful, there remains a significant element of risk, which has been highlighted by a recent report from Pando Daily. Taking issue with the Healbe GoBe campaign — a wearable device that claims to automatically measure your calorie intake, level of hydration, and stress level — the reporter investigated the company behind the project and found frightfully little to reassure Indiegogo backers that their money would be safe. Healbe advertises itself as being based in San Francisco, but is operated out of Moscow, and its non-invasive glucose measurements have been questioned by professional clinicians. Both company and product invite a healthy dose of skepticism, yet the project's lofty aspirations have been appealing enough to entice over $930,000 in contributions.

The latest twist in the story has seen Indiegogo change its fraud FAQ page overnight, expunging a promise to catch "any and all cases of fraud." In a defensive move ostensibly prompted by being so closely scrutinized, the company has softened the assurance that "all claims and contributions go through a fraud review" to asserting that only those "flagged by our fraud detection system go through a thorough review." While that may sound like a regressive change, it actually brings Indiegogo’s public communications closer in line with the (few) legal responsibilities it accepts.

"Indiegogo has no fiduciary duty to you."

The key reason for the existence of centralized funding platforms like Indiegogo or Kickstarter is trust. Funders need to be assured that their money is going toward the stated goals, and project creators require some certainty of the promised income. But what is that trust actually based on? Peruse Kickstarter's Terms of Use and you'll find the following disquieting message:

The Company cannot guarantee the authenticity of any data or information that Users provide about themselves or their campaigns and projects.Further still, Kickstarter can't guarantee the identity of users you interact with, nor can it guarantee the receipt of pledged amounts. Indiegogo matches that language in its own documentation, asserting that "Indiegogo has no fiduciary duty to you." The legal responsibility for ensuring that a given project isn't fraudulent or otherwise illegal falls squarely on the funder's shoulders:

Indiegogo doesn't guarantee that Contributions will be used as promised, that Campaign Owners will deliver Perks, or that the Campaign will achieve its goals. Indiegogo does not endorse, guarantee, make representations, or provide warranties for or about the quality, safety, morality or legality of any Campaign, Perk or Contribution, or the truth or accuracy of content posted on the Service.Of course, legal language tends to be overreaching by default, and neither Indiegogo nor Kickstarter take the potential for malfeasance lightly. Kickstarter banned product renders in late 2012 — demanding instead that prototypes be photographed in their current form — in an effort to improve transparency and to ensure that there's something concrete underpinning a project pitch. Indiegogo identifies "trust" as one of its three central pillars for improving the user experience, and the company claims to have a "comprehensive fraud-prevention system to protect [its] users."

Familiarity breeds complacency

Whether the Healbe GoBe is a legitimate product or not is less important than the circumstances of its campaign. A company without any track record has accumulated close to a million dollars from people willing to believe its claims, and at least part of that trust has been built on the fact that it's advertised on a recognized platform. This is a case where familiarity may very well breed complacency, with Indiegogo users operating on the assumption that the website can protect their interests. That's what Indiegogo wants to do, but it's far from certain that it's what the company is capable of doing.

Indiegogo has a low threshold for listing projects for funding, as illustrated by the distinctly dubious No More Woof campaign built around a supposed mind-reading headset for dogs. Moreover, the platform’s flexible funding option — where a project collects all contributions whether it achieves its target funding or not — and the fact you’re charged before campaigns have run their course make it inherently more risky than supporting someone via Kickstarter. The latter service has already seen bad products vetted and debunked by the community during campaigns that would otherwise have been successful.

Making a million dollars shouldn't be this easy

At the same time, the all-or-nothing absolutism of Kickstarter funding also ensures that you only pay if production can realistically be achieved. In the case of the Healbe GoBe, you could spend $199 expecting to get one for yourself, but if the product isn’t popular enough, the company might take your money without delivering any tangible return. And that's not a rare occurrence, given that only 10 percent of Indiegogo projects are fully funded.

The great irony of crowdfunding is that it ultimately boils down to a direct one-to-one relationship between a project’s creator and individual backers. Indiegogo is the middleman in that relationship: it connects, it facilitates, but it doesn’t actually assume any of the legal responsibility. The full terms and conditions of using the service articulate that point repeatedly, however the warm and friendly presentation, plus highly visible crowdfunded successes like the Oculus Rift, may well lull potential backers into a false sense of security. In the end, Indiegogo’s greatest risk may be to itself — if it doesn’t evolve to provide better tools for assessing projects and real checks and balances to weed out the dubious ones, it may lose the one indispensable contribution from all of its users: their trust.