Kickstarter Clarifies Refund Policy After News Report

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?

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.