Kickstarter Co-founders: “We Take Accountability Very Seriously”

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Yesterday, NPR’s All Things Considered produced a piece on accountability in crowdfunding. That is to say, if a business fails to produce or follow through with its goals, how do financial backers get their money back? The piece focuses its attention on Kickstarter, saying, “while the company’s policy says creators have to give refunds on failed projects, the website doesn’t have a mechanism to do it.”

Today, Kickstarter’s co-founders Perry Chen, Yancey Strickler, and Charles Adler responded in a blog post on the site, saying, “we take accountability very seriously at Kickstarter.” The post addresses NPR’s questions in a Q&A (which has been added to the site’s FAQ page as well), essentially re-stating Kickstarter’s approach to accountability, reviews and their legal involvement.

When the company reviews submissions, it does so to make sure that the project meets the company’s “Project Guidelines,” but it does not do an extensive background check into the creditworthiness of the project’s creators — or their ability to complete the project. Instead, that responsibility falls on those funding the project and the project creators themselves.

By agreeing to launch a campaign, creators are agreeing to follow through with the terms they lay out in their project page and Kickstarter takes no responsibility for the completion of the project. Instead, the company lays out “best practices” in its Project Guidelines (which we’ve talked about extensively) and advises project creators to maintain full transparency if projects should take longer than expected to complete.

In fact, as Kickstarter reiterates, creators are legally obligated (via the company’s Terms of Use) to meet the goals they establish at the beginning of the project:

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.

That being said, Kickstarter does not issue refunds if a creator is unable to meet those proposed goals. NPR implies that the company is not doing all that it can to create some sort of insurance process that protects project backers should project creators fail to follow through.

Just as when a project is successfully funded, money is transferred from backers’ credit cards and Amazon Payment accounts, it’s up to the creator to issue a refund through Amazon Payments. However, Amazon does not allow refunds after 60 days from the date of the charge, so creators have to set up a new transaction through Payments or PayPal, send them a check or some other method.

The co-founders go on to say in their blog post that the reason they have never offered a guarantee for projects (nor will they likely institute one in the future) is because the site was established on the mission that it allows project founders to take a risk, and that they are fully aware of the risk and should take appropriate steps to make good on backers’ trust:

The pursuit of these projects with a guarantee doesn’t work. 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.

Not making a guarantee is understandable, but what about a guarantee for fulfillment? The Kickstarter co-founders say that, since founding the site, they’ve begun requiring creators to list an “Estimated Delivery Date” for all rewards, to get creators thinking about whether or not they could meet demand and have added additional requirements for Design and Tech projects in which they now require more information about background, experience, manufacturing plans and even a functional prototype. This was a step taken in order to ensure that people have enough information when deciding whether or not to fund a given project.

Here’s my take, for what it’s worth: In a way, we went through this during the argument over Kickstarter’s “hiding” failed projects, but NPR’s article raises some important questions for crowdfunding as a whole. Crowdfunding sites need to pursue transparency to a fault and do what they can to protect the people who fund their startups, projects, or whatever they may be. Right now, there’s a lot of pressure on the SEC to institute regulations that will ensure some kind of base level of transparency and accountability, because, let’s be honest, the crowd is fickle, can be swayed easily, and tends to have a lower common denominator in terms of intelligence than the individual. But that’s really when there’s some kind of equity stake involved.

Kickstarter could do more when it approves projects to walk creators through how they could issue a refund if their project is successfully funded but eventually find themselves unable to make good. For Design and Tech related projects stalling is clearly an issue, but Kickstarter has taken to pushing projects in that category to give their backers more info and pile on with the updates and progress reports. What’s more, creators are legally obligated to make good on their rewards and to refund users if not. That’s been in the Terms of Use since the beginning, and really, Kickstarter just reiterated that in its post today.

Yes, there should probably be some limits on the amount of time Kickstarter projects have to follow through with rewards and easier ways to issue refunds. But, in the big picture, is it really too much to expect that the responsibility falls on the person doing the funding to do the necessary due diligence? Most funding on sites like Kickstarter happens in small chunks, but if you’re going to put a significant amount of money into a project, why wouldn’t you do the research to make sure it’s worthy of the investment?

Kickstarter, as John points out, isn’t really a marketplace, it’s more of a dog show. You’re investing in the company’s future — even if you do get a shiny watch or shirt at the end of the process.

Project creators need to be honest with themselves during the process and understand what’s at stake. They need to be ready to respond to customer inquiries — there are many that (like me) want to know what’s going on with the startup if they are going to put in something over $25. Plan as if you expect to raise $8 million, with the necessary contingencies, and scale back if you don’t. The more creators can manage the communication channel (hire a support person even), the better. And it behooves Kickstarter to help grease the wheels for better communication between creators and backers.

Some patience also helps.

Read more on NPR’s story here and what Kickstarter projects are doing to become successful during and after the process here.