Kickstarter to Backers: "We're Not a Store"

Introductory note from Bill: Jonathan Sandlund is a crowdfunding evangelist who blogs at TheCrowdCafe and is passionate about making investment crowdfunding work for communities. The two of us recently collaborated on a G+ hangout on progress toward implementation of equity crowdfunding. You can get in touch with him on Twitter at @jsandlund.

Kickstarter announced some seriously loaded changes to their fundraising rules Friday, candidly telling its users, "Kickstarter is Not a Store." Undoubtedly, this announcement was in response to growing coverage of the troubles befalling a number of high-profile Kickstarter projects post-investment. The rules largely fall into two buckets:

(1) Risk Disclosure: Project creators are now required to answer, “What are the risks and challenges this project faces, and what qualifies you to overcome them?” Their answer will be unavoidably placed directly below the project description section. 

(2) Crowd Control: To protect the crowd from itself, Kickstarter is also adding new restrictions to campaigns, notably only in the Hardware & Product Design category. Fundraisers can now only offer rewards in single quantities (or a "sensible set" if deemed appropriate); additionally - and this is where things get interesting - they are no longer permitted to use product simulations or product renderings in their campaigns. If it's not tangible, forget it.  

Summed up, Kickstarter is nailing a headboard to every campaign that reads: "Great ideas do not guarantee great execution. Caveat emptor."

StompyBut is this just caveat emptor? By disallowing simulations and renderings for products, the “crowd controls” don’t just inform my decision, they effectively make it for me. It’s a mechanism that systematically reduces risk in the equation, even if I want it, by emphasizing more mature products over ideas. Armed only with words, devoid the power of visualization, ideas will struggle to stay relevant.

Would Stompy, "An open-source, 18ft wide, 4,000 pound, 6-legged hydraulic robot that you can ride," have been funded with only representations of "what is" and not "what can be"? I doubt it. 

While certainly well-intentioned, I find these rules quite heavy handed, if not draconian. Even in the most regulated of markets, public securities, companies are permitted to provide illustrations of “what can be,” i.e. forward-looking guidance.

Shifting to investment-based crowdfunding and jumping on my soap box, Kickstarter's decision sets the stage for a debate that holds deep implications for the crowdfunding industry. What is the role of the platform and at what point is the burden of decision, and risk, passed to the individual? These questions will become increasingly important as crowdfunding matures to include investment securities. 

Personally, I'm worried. It seems as if we're over-optimizing for failure, at times even confusing it with fraud.

While adequate disclosure and risk-controls are critical, failure should not be shunned, and responsibility for it should not be placed on intermediaries. Platforms like CircleUp will draw from domain-expertise to provide curated, de-risked deal flow (to date they have only approved 2% of applications for their portal). This is awesome, and a huge value-add. Failure will be more controlled, likely drawing higher per-investment sizes. It’s a model that works, but not the only one. 

Regulations, and rhetoric, must also support platforms that want to facilitate investments in 18ft, 4000 pound, 6-legged rideable robots. Because its these kinds of risks, and the invariable failures that follow, that plot the map to innovation. 

It’s unfortunate to see Kickstarter respond to media scrutiny by limiting its users, opposed to seeking a solution that informs backers and empowers project creators to make better decisions. I hope investment crowdfunding platforms don’t follow suit. The burden of information should lie on the platform; the burden of risk should lie squarely on us.

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