You have created a startup. Of course, it is cool, exciting, and solves a significant problem. Maybe there is even a working prototype. However, it remains to find investment to enter the market. One solution is to launch a campaign on the Kickstarter crowdfunding platform. But it is risky. You can raise more than a million dollars or lose money and time on a failed drive.
Vector Media and Juscutum Chief Innovation Officer Peter Bilyk learned the ins and outs of Kickstarter policy and who is accountable to backers if the campaign fails.
Why working with Kickstarter is a risk
Recently, Vector Media published the founder’s story of the Neoven startup Maxim Nakonechny, inventor of the portable induction furnace, spoke about the rigid policy of the platform, which is drowning projects. Maxim expected the Kickstarter campaign to bring in more than $ 1 million. As a result, he managed to raise only $ 89,665.
It is not the first time that the founders have invested money and effort in promoting the campaign on Kickstarter but have not achieved the expected success. For example, we previously described the history of a startup for the production of reusable IOON sanitizers. The developers planned to raise $15,000 (minimum amount), but in 10 days, the collection stopped at 23% of the target amount.
However, there are also positive stories. This year, the Ukrainian company NIXOID Lab (tube wristwatch) raised $ 364,207 on Kickstarter for a minimum of $ 10,000.
Given these stories, Juscutum Law Firm Chief Innovation Officer Peter Bilyk believes that the platform needs to be viewed from two sides. On the one hand, it is a high-risk investment. But, on the other hand, the opportunity to find like-minded people to implement creative ideas.
There are 540 762 projects on Kickstarter in total. Of these, 210,901 were able to raise the required amount of money. Only 603 startups managed to get more than $ 1 million. Most projects raise from $ 1,000 to $ 9,999.
"Kickstarter does not guarantee that project creators will have the necessary funding. Therefore, in the future, the platform abdicates any responsibility to both creators and backers."
How to post a project on KickstarterKickstarter is responsible for the security and reliability of projects. You can read more about the rules of the funding platform here.
The creation of the project is governed by rules, among which the main:
- Rules for project submission - here.
- DMCA Copyright and Policy - here.
According to these rules:
- Project creators must show backers a product prototype.
- It is forbidden to use misleading images.
- The prototype demonstration should reflect the current state of the product and not contain any generated images. No special effects are allowed for the presentation of potential functionality.
Under the terms of the platform, creators must provide backers with:
- final developed product;
- reimbursement in the promised amount if the goods do not come out;
- an explanation of why backers will not receive their product;
- information on any changes in plans and deadlines.
The project creators are responsible for following the platform’s rules and fulfilling their promises to backers.
"In turn, the backers of the projects, transferring money, agree with this proposal. Thus, a contractual relationship arises between the creator of the project and the backer. They are committed to following the Kickstarter rules.”
Okay, the project is up and running. Kickstarter asks to make changes to the application. Is it legal?
Kickstarter has the right to reject, cancel, interrupt, remove, or suspend any project at any time and for any reason. It is a part of the rules that the creators agree with.
"Kickstarter does not oversee the performance or punctuality of creators' project, does not track how they use the money, and does not reimburse backers for the money invested," - said Bilyk.
Kickstarter may request the removal of videos and photos that:
- do not reflect the current state of the product;
- have misleading visual effects;
- It applies even to projects that have been validated.
Can Kickstarter require technical documentation for my project?
Kickstarter has no right to access technical documentation, schemes.
"It is protected by copyright. All rights to technical documentation belong only to the creators," Peter Bilyk emphasises.
Kickstarter can only ask for confirmation that you have production in place and deliver your product on time.
If the creators believe that Kickstarter has infringed intellectual property rights, they can complain through a particular form:
- to firstname.lastname@example.org.
The project failed. I did not raise the necessary funds for production. So who is to blame for the backers?
The Kickstarter rules clearly state that the project’s creator is responsible to the backers. Kickstarter is not part of the agreement between the creators and the backers. Therefore, he is not responsible for the goods or fulfilling obligations.
"However, the essence of crowdfunding platforms is that an idea or a prototype is funded. Unlike online stores, where you can buy mass-produced goods, backers must understand that this is not a 100% guarantee of receiving the product. That's why Kickstarter creators don't automatically break their agreements with backers if they don't keep their promises and deliver the product on time,” comments Peter Bilyk.
At the same time, creators must strictly adhere to the terms of Kickstarter:
- explain the updates, how creators used the funds, and which prevents the project from being completed according to plan;
- provide the developed product;
- work diligently and diligently to complete the project within the deadlines announced to the backers;
- show that the funds were used correctly and that creator made every effort to complete the project as promised;
- be honest and do not embellish reality in your messages to backers;
- оffer to return funds to backers if it is impossible to complete the project or explain how they are used to meeting it in an alternative form.
What rights do backers have?
Let’s see what to do to backers if the project’s creator violates the obligations. For example, the backer does not report updates, progress, or delays, respond to questions or concerns, or otherwise violate a Kickstarter agreement or policy. In this case, backers can:
- file a complaint with the Center for Effective Dispute Resolution (CEDR);
- file a complaint with IPOS;
- file a class-action lawsuit in a state or federal court in New York County, New York.
"The worst thing a product creator can do is keep quiet or disappear and not communicate at all. If you are sure that the product will not get to the backers, it is better to offer a refund. This will allow re-placing the project on the platform in the future," says Bilyk.
Can Kickstarter be biased towards projects, as suggested by the author of Neoven?
"If you look at the situation with Neoven, there was a feeling that this is a ready-made product. "In the “Risks of the project” section, noted that it will be manufactured and delivered on time," Bilyk said.
In his opinion, these statements aroused reasonable suspicions in Kickstarter and additional attention to the project. Kickstarter checked Neoven for compliance with its rules and tried to reduce possible funding risks for backers.
For comparison: a competitor of Neoven Foldeat described in detail the possible reasons for the delay and their difficulties in the process.
"Kickstarter's goal is to minimise platform fraud. No one guarantees that you will shoot and collect the required amount. However, the platform has its community and its own rules. Those who know them can improve their chances of obtaining the necessary funding," Peter Bilyk concluded.
Peter Bilyk, Juscutum Chief Innovation Officer
Especially for Vector Media