Indiegogo is making a pair of changes today that are designed to compel crowdfunding campaigns to be clearer with backers about the state of their products. The first change is a requirement that tech campaigns disclose what state their product is in — be it just a concept or one ready to hit the manufacturing line. And the second is a requirement that all campaigns update their backers at least once a month about how the project is going.
If campaigns fail to do either, Indiegogo may remove them from the platform, offer refunds, and even attempt to acquire dispersed money through collections agencies. Combined, Indiegogo hopes these measures will give people more confidence when backing a project and then again later on while waiting for it to ship, which is when delays often hit and communication tends to break down.
“One of the things that we found is that in certain cases, either our backers didn't have all the information that they could use to help them make a decision to back a project, or after a campaign there was often not good communication between entrepreneurs and backers,” Indiegogo CEO Dave Mandelbrot tells The Verge. “So we've implemented a number of changes to improve the backer experience.”
Indiegogo may refund backers or call a collections agency to recover money
Indiegogo added the ability for campaigns to list what stage their product is in last year, but selecting a stage hasn’t been a requirement. And, in a cursory look through recent tech campaigns, it seems that most don’t use it. From here out, it’ll be a requirement that campaign creators select a product stage before going live, choosing between concept, prototype, production, and shipping.
Critically, Mandelbrot says that Indiegogo’s moderation team will look through every campaign and validate that the creators have accurately represented how far along they are in the process. This will happen after a campaign is already live, and there won’t be any way for visitors to see whether or not any given project has been verified. But if a live campaign is found to have misrepresented itself, Indiegogo will alert backers and offer them the chance to get a refund. “In more egregious cases,” says Mandelbrot, “we will automatically do the refund and give backers the opportunity to back again in light of the new information.”
The situation gets more complicated when it comes to enforcing Indiegogo’s new requirement for monthly backer updates. Mandelbrot says communications issues usually start after a campaign ends, and at that point, the project’s creator has taken hold of backers’ money — so there’s no easy way to grant refunds. Indiegogo plans to reach out to negligent campaigns as soon as 30 quiet days go by. Eventually, silent campaign creators will be given a deadline for posting some sort of update.
“Admittedly, that one is more challenging.”
If they don’t, Indiegogo’s options are limited. “Admittedly, that one is more challenging,” says Mandelbrot. The company’s strategy here will be to kick campaigns off the site. Indiegogo allows successful projects to continue raising money even after their campaign ends, but if they stop responding to backers before the product ships, Indiegogo can remove them so that it’s harder for the company to raise more funds. That doesn’t necessarily improve the situation for backers, but Mandelbrot says even removed campaigns should still have the necessary information to ship their products out to everyone who paid, if they ever get to that point.
That isn’t the strongest action Indiegogo can take, however. In some cases, where a campaign owner “has basically disappeared,” Indiegogo will call a collection agency and try to recover backers’ money. Mandelbrot says the company has already done this in a small number of instances and has had some success.
In most cases, Mandelbrot thinks it won’t come to that. “What happens more often is that an entrepreneur may tell us they're a little behind in manufacturing and are nervous about telling users,” he says. “We have data. Our backers understand there will be challenges but want to be communicated with.”
Ultimately, neither of these measures do much to really guarantee that backers will get their products. They’re mostly just meant to keep backers more comfortable and more informed. If a product doesn’t ship, there’s nothing in these changes that would help backers, so long as the creator is clear about the fact that production failed. “Our goal really is to ensure that the backer is making a conscious decision to back a project with an awareness of the risks involved,” Mandelbrot says.
“If we got to 100 percent [delivery], it wouldn't be crowdfunding anymore.”
Indiegogo declined to share figures on how often campaigns fail to deliver products. But a 2015 analysis of Kickstarter data found that 9 percent of that platform’s crowdfunding projects failed to deliver rewards, and only 65 percent of backers said their rewards were delivered on time. “Project backers should expect a failure rate of around 1-in-10 projects, and to receive a refund 13 percent of the time,” wrote Ethan Mollick, an associate professor at the Wharton School of the University of Pennsylvania, who authored the study.
If the numbers are at all similar on Indiegogo, it means that backing any project remains a real gamble. While Indiegogo says it’s taking steps to help technology campaigns get to market — it has partnerships to connect campaign creators with IBM and Arrow Electronics to help them develop and produce their products — that still doesn’t provide any sort of guarantee to backers. It just ups the odds that they might eventually get something.
From Mandelbrot’s perspective, that may be the best Indiegogo can offer: the company’s CEO doesn’t think his platform should remove all the risk from crowdfunding. “If we got to 100 percent [delivery], it wouldn't be crowdfunding anymore,” he says. “In some ways, those risks are always gonna exist. Otherwise people are just preordering or buying, essentially. Participating in a crowdfunding campaign on Indiegogo is something quite different.”