Thursday, 2 March 2017

Crowd-funding Remains An Unregulated Mess - Don't Get Caught Out

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Crowd funding isn't always a disaster, fraud or run in bad faith, but the lack of regulation and the number of projects which fail despite meeting their funding targets should be fair warning: don't put your hand in your pocket unless you're prepared to write off your money completely.

There are so many examples of fraudulently run projects which made their originators a tidy sum of money and left backers with nothing that you have to feel projects which deliver what they promise make up a tiny proportion of those that pitch.

With good reason too. A well thought out project that has a realistic funding goal, well-managed business case and project plans; and team members experienced in taking a prototype into full-scale manufacturing, will have no problems getting funding through regular channels.

A crowd-funding campaign generally says to me that the creators weren't able to satisfy the requirements for normal finding and are therefore relying on you, the potential backer, to fund the route to manufacture and assume all the risk.

Even high-profile tech bloggers aren't immune. Former tech journalist Robert X. Cringely - real name Mark Stephens is currently taking some heat on his blog after running an unsuccessful campaign to fund standalone Minecraft servers. 

Whoever runs the failed campaign gets away scot-free in almost all scenarios. Small wonder that fraudsters are drawn to the service. They're unlikely to even get a ban from the service, much less face prosecution.

The answer to all of this is simple: if it looks too good to be true it probably is too good to be true. Don't fund campaigns. By their very existence you know haven't been able to meet the requirements of traditional funding. If the pitch you're seeing is good enough to get your credit card out, why not the banks or VCs? Did the campaign fail the additional scrutiny?

At least VCs get rewarded with equity. You my friend get the same product that's destined for the shelves, with maybe a trinket to make you feel connected (best case) or nothing at all but the scorn and pity of others who were more intelligent with their cash.

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