Free Market PM Beware: When crowdfunding projects fail
In my last post, I talked about the crowdfunding model as an example of free market forces working in favor of the entrepreneurial project manager. A major glitch to this model has already reveled itself and it’s one of those major “oops” moments: If a project fails to meet it’s timelines and/or deliver the product or service agreed to by the crowd of funding backers, what’s the recourse? Can we get a refund?
As this NPR article highlights, the process to give back funding for failed projects does not seem to have been thought through:
One entrepreneur who raised $10 million to build a “smartwatch” that streams email and text messages just missed his first delivery deadline. One of his backers demanded a refund, to no avail.
Another entrepreneur, David Barnett, released a Kickstarter campaign video where he bounces and steps to raise money forPopSockets, a snazzy iPhone case with a headphone cord wrap.
“Did you see that?” he asks in the video. “My cord didn’t even get tangled. And with all that dancing.”
But a year later, there are still no PopSockets. And the money has reportedly gone in fees to prospective manufacturers and lawyers…
That’s the conflict at the heart of Kickstarter: While the company’s policy says creators have to give refunds on failed projects, the website doesn’t have a mechanism to do it. Barnett used PayPal.com to process $1,300 in refunds.
Ethan Mollick, a professor at the Wharton School of Business, says that while crowdfunding is a more democratic way to raise money than going to elite venture capitalists, it’s also a brave new world.
Though this gaping loop hole has been revealed, I will argue that in my previous post, I highlighted that Spacehive was the more better model since it incorporated a more rigorous governance structure and made sure to at least get a qualified project manager to ensure the project gets completed as promised.
I also found this excellent infographic on the “untold truths” behind Kickstarter stats from the Apps Blogger site which is related to the topic we are discussing and quite revealing: