Pre-eminent crowdfunding site Kickstarter responded on Tuesday to a report that aired on NPR’s Morning Edition. The online funding platform has come under scrutiny after a handful of entrepreneurs have raised millions of dollars more than expected by selling preorders for products they have yet to make. With creators of all types frequently missing delivery deadlines, I posed the question in the original story: when a Kickstarter campaign fails, does anyone get their money back?

Stephanie Pilick/AFP/GettyImages

In a blog post yesterday that summarizes Kickstarter policies, founders Perry Chen, Yancey Strickler and Charles Adler wrote, “we take accountability very seriously at Kickstarter.”

But the three said that while Kickstarter has taken steps to prevent fraud, it cannot refund money on unfulfilled projects. “A Kickstarter where every project is guaranteed would be the same safe bets and retreads we see everywhere else. The fact that Kickstarter allows creators to take risks and attempt to create something ambitious is a feature, not a bug,”

The founders’ responses to the report have been added to Kickstarter’s FAQ as well.

Several comments on the blog thank Kickstarter for the clarification. A few chastise the site for taking so long to state its policies clearly. This comment from Zac Shaw does both, and looks ahead:

“As incredible as it is that Kickstarter took this long to address with clarity what has to be the most FAQ of the service, this post is much appreciated. Could still be more transparent. Crowdfunding is about to be barraged by regulatory attacks, but we need to protect the Kickstarters and IndieGoGos of the world to protect our culture and ability to innovate.”

The evolving phenomenon of crowdfunding will take another leap forward later this year under the federal Jumpstart Our Business Start-Ups (JOBS) Act. Under the law, regulations are expected to be issued that will allow individuals to buy actual shares of a start-up, currently prohibited.Kickstarter co-founder Strickler told me in our interview that the company has no intention of changing  its model to allow purchasing of company shares when the practice becomes legal.

Securities attorney William Carleton says Kickstarter is adopting language an experienced angel investor might use when mentoring entrepreneurs on how to deal with  investor expectations. In an email, he writes:

“The first thing that struck me about the [Kickstarter] post: for the first time, the FAQ’s start to sound like ‘Risk Factors’ from a prospectus or private placement memo. Folded into the ‘risk factor’ disclosure are disclaimers by Kickstarter of its own agency, and here Kickstarter tries to walk a fine line between being curator or gatekeeper of what is allowed to list (whoops – used a loaded verb there; ‘list’ suggests securities are being offered!) and responsibility for the integrity of the project.”

Carleton says Kickstarter is diverging from angel investors, however, by suggesting failure is the outlier rather than the norm for entrepreneurs. He advises: “Set the expectation [that] some people will fail to deliver.”

You can hear my original piece on Kickstarter and crowdfunding at The California Report.

Kickstarter Clarifies Refund Policy After News Report 5 September,2012Aarti Shahani

  • Leisa Kelly

    Don’t people know who owns Kickstarter?
    Kickstarter reportedly raised $10 million funding from backers including NYC-based venture firm Union Square Ventures and angel investors such as Jack Dorsey, Zach Klein and Caterina Fake
    Union Square Ventures: A New York Venture Capital Fund Focused on Early Stage & Startup Investing

    Jack Dorsey – Wikipedia, the free encyclopedia Twitter

    Zach Klein – Wikipedia, the free encyclopedia Vimeo

    Caterina Fake – Wikipedia, the free encyclopedia Flickr

    Of course none of these millionaires are going to guarantee projects or give money back.

  • JMag

    if you are looking for a case where Kickstarter was used to perpetrate fraud, look no further than the Cam Crate Project. Here’s a link to the ongoing blog:

    • Breno

      ^ This!

      I’m really disapointed with kickstarter.
      “Are creators legally obligated to fulfill the promises of their projects?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.”Project was funded February 10, 2012.Est. delivery was May 2012.Delays and last update was Jun. 20, 2012. since then theres no signal of the creator and he did show up Aug. 30, 2012 just to take off his facebook link from kickstarter page and thats it. he disapears again.i did contact kickstarter about this and the reply was: “Sorry to hear you’re having a bad experience. Obviously communicating with backers is a crucial part of running a Kickstarter. We emphasize the importance of this to creators every chance we get, but still it’s up to them to post Project Updates and respond to comments and messages.Kickstarter cannot issue refunds as all transactions are between creators and backers. If you wish, you can write the creator and request a refund. Creators aren’t obligated to issue refunds when a backer asks.The fulfillment of a project is the sole responsibility of its creator, but what happens in our community is important to us. Thanks for letting us know.”
      I did tried to contact the creator. not for refund, just asking updates and guess what? no response…
      Kickstarter is doing nothing about this fraud.
      What a joke. sadly =/

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