Crowdfunding: Scam or Cash Cow?

There was a time when, if you had a good idea for a business, an invention or even a movie, you needed to find investors — money people who could buy into your venture and prosper when you succeed.

But that is no longer the sole path to bringing an idea to fruition.

Now, thousands of people vying for money make their case for your dollars through crowdfunding websites like Kickstarter and Indiegogo. Instead of offering the normal investment perks, donors can receive certain accommodations for their donation, depending on the amount they give.

Some donations afford you the product in question when released. Others get you a piece of the action. Some offer little more than a personalized thank you. But crowdfunding has thus far brought forth some impressive success stories.

Pebble Time, a smartwatch with an e-paper display and a “timeline” that collects past and future reminders, began crowdfunding on Kickstarter in May 2015. More than $1 million poured in within an hour. The watch would go on to become the highest funded project at the site, ending its fundraising efforts with more than $20 million. And for around $200, the watch is now available to purchase.

“The key benefit of crowdfunding is that the creators are accountable to the fan base, rather than to studio executives or publishers.”

Independent film has also found crowdfunding to be a new well of opportunity in a time where movies are required to be bigger and bigger to earn people’s money at the box office.

Filmmakers such as Adam Carolla and Zach Braff have used various crowdfunding sites to create films like “Road Hard” and “Wish I Was Here” — and both netted well over $1 million.

“The key benefit of crowdfunding is that the creators are accountable to the fan base, rather than to studio executives or publishers,” said producer Brett Murray.

Murray’s film “Shooting Clerks” is a retelling of the making of the 1994 independent movie “Clerks” and has run several crowdfunding campaigns to complete production.

For some, crowdfunding gets rid of that pesky need to pay investors with profit, a criticism often lobbed at various successful campaigns. They do, however, come with their own struggles.

Most backers of projects still expect perks like T-shirts and project updates. There’s also a little something that seems to come into play heavily when dealing with any transactions through the Internet: trust.

Ant Simulator was a proposed game that would allow players to build and manage an ant colony from the perspective of an ant. It had a couple of successful crowdfunding campaigns and looked to be a promising new venture from programmer Eric Tereshinski and his business partners. They even made a beta version of the game.

However, it wasn’t long before Tereshinski came to the realization that all the crowdfunding money was gone and had been spent on alcohol, dining out and strippers, courtesy of his two business partners.

“I made the mistake of trusting them,” Tereshinski said in a video announcing his resignation from the company and the cancellation of Ant Simulator. In the video, he also explained he’s not sure how or when backers of the projects will receive refunds.

Ant Simulator is not a one-off case, either. For every legitimate project vying for public attention and support through crowdfunding, there seems to be a fraudulent or untrustworthy one waiting in the wings.

Matias Shimada, a New York University film student, raised almost $2,000 to make a movie through Kickstarter. He then decided to merely plagiarize another film. He later publicly apologized. Other projects have had to be canceled after Kickstarter or backers raised questions about their viability or seriousness in using funds properly.

The Kickstarter website encourages donors to do their own research on projects and to ask questions of creators and project pages before handing over money. The company does not “evaluate a project’s claims, resolve disputes, or offer refunds.”

In the end, it is the backer’s ultimate responsibility to decide whether something is worth backing.

Indiegogo, another successful crowdfunding site, tries to use a fraud detection algorithm to find red flags in a project’s behavior or actions. It also encourages supporters to report any suspicious campaigns.

Crowdfunding can be used as a wonderful tool to help finance unique ventures that otherwise would never get noticed. It’s a platform that has helped people support new technologies and products, as well as given new monetary hope to independent artists and moviemakers everywhere.

Protection of money, however, is never a guarantee. Crowdfunding websites fully admit some projects may never come to fruition, and that everybody cannot be vetted thoroughly. While it always feels good to support someone who is raising money for a sick family member or supporting entrepreneurs and creatives on their paths to success, trust is in the eye of the beholder.