Crowdfunding Means Owning The Risk

 

PayPal's decision to remove its purchase protection scheme for payments made to crowdfunding services sounds like exactly the right thing to do for the company, but also should serve as a warning about what these services actually deliver.

 

First of all purchase protection. Backers putting their hard-earned cash into prospective products should be aware that there is a much higher element of risk in this kind of deal, compared to, say, ordering a product from a reseller online. That's because you're putting your trust in the ability of someone to get a prototype from an idea and possibly a prototype, into a mass production-ready solution that can be built to a price.

 

If you agree to take on the risk, passing it on to PayPal seems like the wrong thing to do. PayPal obviously agrees and has closed that loophole.

 

Kickstarter, by far the biggest and most successful crowdfunding site, makes much of the fact that 65% of its backers receive the product they backed.

 

65%? That's a one in three fail rate. And that's the best the industry has to offer...

 

Now I don't know about you, but I wouldn't fly an airline that boasts that it reaches its destination 65% of the time; and I would undergo surgery by a surgeon who happily tells me two-thirds of their patients die in surgery.

 

The reason why many of these projects end up on Kickstarter is that no sane venture capitalist would risk a brass farthing of their own on such a proposition. The entrepreneurs generally risk none of their own funds to get the product off the ground, and on the occasions where one actually not only ships but becomes a success they reap all the profit too. Zero riak, maximum reward And that should be all you need to know.