Why Fraud Is a Real Threat to Crowdfunding
I’m reading the comments of a highly successful Kickstarter Campaign. “a half year later I still want my money back” says one. Another says “Taylor is a crook. I have requested several times for refund. He won’t even knowledge my emails.”.
Simply called “Learn iPhone App Development“, the campaign blew past its initial modest goal of $2,000, earning an eye-watering $54,626 from 656 backers, 437 of whom paid $99 for the most expensive rewards package. Fronting the campaign was Taylor Beck, an airbrushed, if not slightly awkward programmer in his early twenties who, in a promotional video. preached about the career benefits of learning iOS development over a backing track of anthemic stock music. The campaign closed on April 2nd 2014, and Beck was due to deliver the goods five months later on August 31st, 2014.
On August 29th, he posted an update. “Hello Everyone, This is the final update before the release of all of the content in just 2 days! … The next time you will hear from me will be on the 30th, which is in 2 days from now. Make sure to check for the update then!”.
There was no update then, or at any point after. Beck wiped his blog, deactivated his Twitter, closed his Facebook, and disappeared into the ether, taking $54,000 of contributors’s money with him. In the process, he exemplified the scant protections offered to those who support crowdfunding campaigns, and exposed a system in desperate need of reform.
A Good Idea, Corrupted
Crowdfunding, once novel and untested, has started to make its way into the mainstream consciousness. It’s moved past being a way to fund personal pet projects, and is slowly replacing traditional finance as a way to breathe life into large, ambitious, and expensive AAA video games and movies.
Using Kickstarter and a few well-executed promotional Reddit AMAs , Scrubs star Zach Braff was able to fund his self-produced (and largely panned) vanity project “Wish I Was Here”, while video game legend Tim Schaffer was able to raise over $3,000,000 to cover the development costs for Broken Age.
It is now utterly mainstream. But with its ubiquity, crowdfunding has attracted scammers, fraudsters and opportunists, many of whom been able to successfully exploit the system and walk away with millions of dollars.
The Worst of Crowdfunding
Crowdfunding scams come in various different shapes and sizes. Recently, there has been an epidemic of campaigns that promote products that are simply impossible, or are sufficiently impractical to be impossible.
These are routinely accompanied by flashy, highly polished campaign videos. The kind of campaign videos that gain headlines and column inches in the unquestioning technology press.
Perhaps the most prominent example of this was the Solar Roadways campaign, which raised almost $2.25 million dollars as of May 13th, 2015. Solar Roadways, as the name suggests, wants to replace the expansive US highway system with a honeycomb of photovoltaic tiles. In addition to generating electricity, these would also replace painted road signs with a mesh of color-changing LED lights. They would even melt snow that accumulates during the harsh winter months.
The Solar Roadways campaign video ultimately went viral , with almost 20 million views on Youtube, largely as a result of its catchy slogan. Solar. Freaking. Roadways.
But at the same time, the campaign has attracted a barrage of criticism from science bloggers, many of whom have expressed deeply concerns about the viability of the project .
Notable science vlogger and Cornell University academic Phil ‘Thunderf00t’ Mason has been particularly critical. In a number of Youtube videos, Mason raised concerns about the durability of the cells, which would need to withstand the weight of millions of cars on a daily. Mason also questions the ability of the cells to safely dissipate accumulated rainwater and how surplus energy would be stored.
Even if it was technically possible, it would be financially unfeasible to cover the United States’s highway system. This was explained by Joel Anderson writing for Equities.com:
“The Federal Government, for instance, currently spends over $50 billion a year taking care of our highway system…. The tab for removing the existing roads, installing solar panels, covering them in fancy glass, digging out large maintenance tunnels, and putting in the necessary electrical infrastructure is probably going to be in the trillions of dollar. Yes, trillions, with a ‘T.'”
There’s always a degree of risk when it comes to crowdfunding. By its very nature, it’s inherently speculative.
That’s why it’s important for campaigns to be utterly and brutally honest about what they’re trying to achieve. Which is why it’s utterly dishonest for the Solar Roadways campaign to even imply it’d be possible to cover the US highway system with solar cells. As Anderson put it:
“But the way that this campaign is attempting to appeal to the general public with visions of a grand, national system of high-tech roads is, to put it bluntly, disingenuous at best and fraudulent at worst.”
Another campaign that attracted criticism for being making implausible claims was the Healbe GoBe, which earned over $1,000,000 on IndieGoGo, and retails for $299.00 online. The Healbe GoBe is a wristband that can supposedly count the number of calories consumed in a meal, without requiring any user input. It does this by passively measuring blood glucose.
The way the device works was explained by Healbe CEO Anton Shipitsyn to Pando Daily’s James Robertson: “when you eat sugar, the insulin causes your cells to open up and release water, which Healbe measures through the GoBe’s impedance monitor”.
The problem is, there’s no independent, peer-reviewed research that suggests it’s even possible to use an impedance monitor to detect glucose levels in the bloodstream. Even if it was possible to detect the glucose levels in this way, there’s no evidence it’s possible to deduce ones caloric intake from those readings.
The science behind the Healbe GoBe is questionable at best. Independent, real-world tests have produced unconvincing results, as discovered by Engadget. But that didn’t stop them from securing a six figure sum from the second biggest crowdfunding sites in the world.
Then there are the campaigns that are simply scams, based upon lies, deceit and false promises.
When A Campaign Collapses
Julian Engel was one of the contributors to Taylor Beck’s “Learn iPhone App Development” course.
The Austrian-Cypriot web developer is a prolific backer of Kickstarter projects, and paid $99 to be first in line to get the course. At first glance, it looked like a serious, professional course that would be lead by someone with real-world experience. Something he could trust.
“I found it very promising. At the time I didn’t know programming in Objective-C yet and I wanted to learn it as it would benefit me at the Company I work at. It seemed pretty solid, with Taylor having a promo video and posting quite regular updates and keeping in touch over comments. After a thorough check I decided to back it for 49$, then adding an extra $50 onto the pledge to get new add on course modules.”
But first impressions can be deceiving, and after Beck changed the delivery date for the third time, Engel started to lose faith.
“I requested a refund and he said absolutely no problem. Then, he was gone. I asked him another two times, but I never got a reply.”
I asked Engel if he thinks he’ll ever get his money back.
“To be honest, I’ve lost faith. There’s this one gal that wants to fight, but there’s no way of winning this in court. I think they tried, but they’ve got no way of winning.”
Despite this, he remains philosophical.
“Scams happen. Shit happens. I’ll move on. Since I backed over 10 projects and invested a good 5 grand in different projects, I have to move on. Too bad, but what can I do?”
Don’t Get Stung
Taylor Beck did not respond to a request for comment. Messages sent to his personal LinkedIn page, and to his publicly listed email address were met with a deafening silence. Attempts to contact him over the phone were also unsuccessful.
While researching this piece, a member of the iOS App Developer Facebook group (a group set up by backers of the campaign to coordinate the efforts to get a refund) discovered Taylor had created a new personal Facebook profile. Again, I reached out to him for comment. This time through Facebook. A few days later, he had deleted his account.
I almost feel sorry for Taylor Beck.
In the midst of his hormonal, impulsive teenage years, he made a $55,000 error. It would be the biggest, most life altering mistake he’ll ever make.
Now, every move he makes online is scrutinized. There are Facebook groups, forums and blog posts that describe in lurid detail how he ripped off almost 600 people. He can’t have a social networking account, like other people of his age do. His name and reputation will forever be tarnished.
I wouldn’t wish that on my worst enemy.
But some of the blame surely should be left at the doors of Kickstarter and IndieGoGo.
These are companies who’ve structured their operations to fully absolve themselves of what happens on their sites. They do virtually no due-diligence, and make no efforts to ensure that the products that they’re promoting are even viable. Users of crowdfunding sites don’t have the same consumer protections you’d get when buying something online, or in the shops, and it’s virtually impossible to get your money back when things do go wrong.
That’s not to say that crowdfunding should be avoided. The majority of people who launch campaigns have nothing but the best intentions , and fully intend to deliver on their promises. It’s important to remember that crowdfunding isn’t online retail. It’s investing. If anything, it’s a gamble.
Did It Happen To You?
Have you ever fallen victim to a Kickstarter scam? I want to hear about it. Drop me a comment below, and we’ll chat.
Image Credits: angry protesters via Shutterstock