When crowdfunding doesn't work

By Kym McNicholas , written on December 22, 2012

From The News Desk

When I first saw the horrific images on television a week ago Friday... Twenty young kids shot and killed in their classroom, I froze. I was speechless. I felt helpless. All I wanted to do was to muster up a superpower and teleport over to that elementary school in Newtown, CT, and bring them back to life. As if that was possible. But I wanted to do something. I realized that all I could do was to figure out a way to help the other kids in that community heal.

So, I went on to and started a campaign to raise a mere $2,000 to buy toys for the kids in Newtown to simply bring a smile to their faces, even if just for a moment. A friend of mine knows Crowdtilt founder James Beshara, and made the suggestion, which is why I decided to go that route versus other crowdfunding sites.  Also, it has some reputable backers. Crowdtilt, which was founded in March 2011 raised a $2.1 million in financing last may from investors such as SV Angel, CrunchFund, and several Y Combinator partners.

Crowdtilt Campaign

But the campaign didn’t really take-off. I was surprised because a former student from that elementary school was able to raise $37 thousand dollars to donate to the Parents & Teachers Association, money that would likely get locked up for weeks, if not months. As you may know, in the case of a bureaucratic organization such as that one, members would need to create criteria for doling out the funds and even vote on it. Having been a part of non-profits, I know that although intentions are good, taking action on donations does sometimes take time. So, in the meantime, I  thought an individual campaign to raise money to buy toys that would be hand-delivered immediately by my former News Director Ron Wishna, and KTVU Fox News reporter John Sasaki, who are on the ground in Newtown, would be a great way to have an immediate impact.

A few great friends on Facebook and Twitter donated. I was able to raise $500 in the first few days.  But I couldn’t figure out why we couldn’t hit that $2,000 mark. So, we pivoted the campaign slightly as psychologists on the ground at Newtown were requesting art supplies they could use to help the kids express their feelings about the tragedy. That pivot attracted more donations. Then the campaign stalled out again at $900, a mere $1,100 short of our goal.

I went on to Twitter and asked my followers why. I got seven responses from folks telling me they were concerned someone hacked my account, and it was a scam. There is a lot of that happening on Twitter and Facebook. Turns out other well-intentioned crowdfunding campaigns don’t get funding because of that.

It bothers me that despite their growing popularity, some people don’t have faith in these crowdfunding sites. You wouldn’t know it though by the results on Crowdtilt. Beshara says that 88 percent of campaigns on its site have gotten fully funded and he has yet to receive any complaints of scams from his users. But he admits that even with multiple layers of fraud prevention and identification verification to verify the money goes to the right person, there is no way to prevent abuse of the system 100 percent.

Same goes for Kickstarter, the best known crowdfunding site for projects and products. It’s had a 43 percent success rate on its site. And although, out of the $380 million raised, there hasn’t been one complaint so far from backers participating in successful campaigns who were concerned about a scam, one was found on the site. It wasn’t a successful campaign. Employees found it and immediately suspended the campaign.

But it still raised concerns as to what protections backers have in terms of their investments. What if no one found the scam before it became a success and money was transferred? There really aren’t that many protections.

A Kickstarter spokesperson contends that the legitimate campaigns become a success, and the questionable ones don’t. They believe the crowd weeds out the bad seeds, if any. So, the greatest protection there is at this point for backers on Kickstarter is that if a campaign doesn’t reach its goal, the backers’ credit cards are never charged. Kickstarter does, however, have full-time staff always on the lookout for questionable campaigns, and as we saw with the Drone DMND Controller, Kickstarter did find it and suspended it immediately. But to their credit, every campaign is required to post their risks and challenges on the site. So, it’s up to the backer to read them.

Jamie Siminoff, CEO of Edison Jr., created a competing crowdfunding site, Christie Street, after his successful campaign for a Universal Charger, which Apple refused to license such that the product couldn’t be built. Instead of keeping the cash, he wanted to refund the money to backers. At present, Kickstarter doesn’t have a mechanism for that and puts a backers’ money even more at risk. Christie Street vets all projects and provides guarantees of progress along the way.  It also refunds backers' money if the project can't fulfill it's promise.

Crowdfunder is another popular crowdfunding site. COO Heather Lindsey agrees with Kickstarter that the crowd is the best protection against fraud. But even then, Crowdfunder has a strict structural process before a campaign even goes public on its site. Staff actually check out a company or person’s website, their social footprint, and contact information before they’re allowed to launch a campaign. The company also has an internal fraud montioring system once the campaign has launched. Plus, it uses Amazon as a payment mechanism, which requires a US taxpayer ID, a US street address, valid email credi card, and a US bank account, helps prevent scams.

Lindsey says, “The most successful campaign creators on their site are established organizations, with a big social footprint and functional website that have a big timeframe, from 30 to 45 days.”

In that case I had all the odds stacked against me. Here I am an individual, without a website to support the campaign, and I want the money by Christmas. But James Beshara, CEO of Crowdtilt, which once again was the platform I used for my campaign, actually believes I’ve done well in my raise, especially considering the short timeframe and the fact that there are multiple other campaigns on, which are trying to raise money for various projects in Newtown.

Ernestine Fu, Associate Venture Capitalist, Alsop Louie Partners, who’s writing a book about generation differences, says one commonality between Baby Boomers and GenY, is how people donate money. She says in both groups, even with the rise in social networking, it’s those in their networks that are most likely to give to their campaigns and support their causes, and even more successful efforts are still done via email – no matter how big your subscriber base is on Facebook or how many thousands of Twitter followers you have.

She was right. As soon as I sent the email to friends asking for support, my raise jumped to $1,300. I still haven't reached my goal of $2,000, but I do have a couple more days left in the campaign, and Beshara says that the last 48 hours of a Crowdtilt campaign are the most active, so here we go.

[Image courtesy Eric in DUB]