Crowdfunding has revolutionized the way companies are formed and products get made. An inventor submits a brilliant idea, total strangers give money to help him achieve his dream, and the next Oculus Rift virtual-reality headset or Pebble smartwatch is born.
But it has also made it easier for scammers to reach directly into the wallets of naive investors by posting campaigns for nonexistent companies or products. And while each crowdfunding platform claims to have antifraud mechanisms in place, they don’t always work as well as they should.
How easy is it to post a fictional fundraising campaign without being detected? To find out, we created a test campaign and attempted to get it past the barriers at three of the leading crowdfunding platforms for tech gadgets: Kickstarter, Indiegogo, and RocketHub.
In one case, it was impossible. With the two others, though, it was stupidly easy, though our test campaigns did eventually get flagged.
We didn’t want anyone confusing this campaign with a genuine one, so we asked for $500 to build “A Friggin’ Time Machine.”
We uploaded a YouTube video (the original trailer from Back to the Future), a photo of the famous DeLorean, links to a Space.com article on time travel, a Twitter account for Back to the Future’s Doc Brown, and a photograph of Eric Bana, star of The Time Traveler’s Wife. We also tossed in a few references to the The Terminator and The Time Machine.
Of course, we offered rewards (also called perks or goods). For $100 you could time-travel backward up to the year 1750; for $200 you could go forward up to the year 2065. We assumed no liability if you ran into your future self and obliterated the universe.
We even offered a refund, of sorts. If you were unsatisfied with your contribution, we offered to take you back in time to the moment right before you made it, so you could have a do-over.
Kickstarter’s vetting process was the most thorough of the three. Among other things, the site requires that campaign creators submit evidence of a working prototype of the device being funded.
Kickstarter is also strict about verifying identity. To create a Kickstarter account, we had to enter our full name, address, birth date, bank routing and account numbers, and the last four digits of our Social Security number.
When we entered incorrect information to see what would happen, the site prompted us to provide a form of legal identification by holding a driver’s license or a passport up to our webcam, then snapping a photo of it. The site uses a third-party application, Netverify, to compare your ID data to public records databases.
We submitted the campaign for approval on February 6. Three days later, we learned it had been rejected.
Contributors are also protected in other ways. Because Kickstarter is an all-or-nothing funding platform, when campaigns don’t meet or exceed their funding goals, their creators don’t get any of the money that was pledged. That also means campaign funders can cancel any pledge if they get cold feet, provided they do it before the campaign ends.
Indiegogo: Full steam ahead — at first
One of Indiegogo’s major selling points is that anyone can post a campaign for virtually any item. It also calls itself “the most trusted platform in the crowdfunding industry.” But the site does no upfront vetting of campaigns or any identity verification.
Instead, Indiegogo touts its fraud detection algorithm, community reporting, and its trust and safety team to keep the site free from bogus campaigns. It also verifies that you have a working PayPal or bank account to receive contributions.
We submitted a bare-bones version of our campaign on February 3 and fleshed it out with more details two days later. We opted for Flexible Funding, which meant that we could collect any money that was contributed, even if we didn’t meet our goal; it also meant that any funds contributed via PayPal would be available instantly. (Funds contributed via credit card would be dispensed after the end of the campaign.)
We then self-funded the campaign for $25. While our campaign was live, it was viewed more than 200 times and received five private comments — all advertising services that would boost its visibility.
On February 9, the site sent an email saying our campaign was “too risky to continue raising funds through Indiegogo,” suspended it, canceled our user account, and began refunding the money. In that six-day window, however, we could have withdrawn any contributions made via PayPal.
Ours was not the only time machine seeking funds on IndieGogo.
One, titled “DeLorean Time Machine Experiments,” was launched on January 3 and was still live as this story was being prepared. (Indiegogo later deleted it after being contacted by Yahoo Tech.) It is seeking $500,000, but also appears to be tongue-in-cheek, noting that, “We were thinking really hard of making a Death Start [sic] but that seemed to be too complicated because of the required building permit.”
The other, titled simply “time machine,” appears to be an effort to sell a $350 kit that will “turn wine even your urine into 100% pure water.” That campaign is seeking $350,000 and will close on March 9.
When asked to explain how these campaigns escaped its fraud-prevention systems, Indiegogo responded that it doesn’t comment on individual campaigns. Neither time machine has received a single contribution, however, which may be evidence that the site’s users are better at fraud detection than Indieogogo is.
RocketHub: A rocky landing
We submitted our campaign on February 6 and were told it would be approved or denied within 24 hours. The next day the campaign was live. We self-funded it to the tune of $1.
According to an email from RocketHub CEO Brian Meece, “Every campaign is reviewed by a live person on the RocketHub team to make sure the project is in good taste for our community.” The site also claims to use “social media footprints” and do a search on project leaders to verify their identities.
So how did our Friggin’ Time Machine and its fictional creator slip through?
“Your project was reviewed and correctly identified as a joke, flagged and hidden in the system,” said Meece. “It was basically only accessible to folks you shared it with via your project URL. Jokes are not forbidden on the site, unless they are disparaging or defamatory.”
Sure enough, searching RocketHub’s site for this campaign produces no results. But we could still find it via Google and contribute to the campaign. (At our request, RocketHub removed the campaign from its site.)
As with Indiegogo’s flexible funding, RocketHub campaigns can collect any money they raise even if the campaign doesn’t meet its goals; however, the money will only be dispensed after the campaign has ended. Meece said when RocketHub detects unethical behavior from a project leader, it will research the campaign, terminate it if necessary, and issue refunds. We could find no information on the site about whether it’s possible to cancel a contribution once made, and the company did not respond to questions on that topic.
We did not find any other obviously questionable campaigns when searching RocketHub (or Kickstarter).
Be careful out there
Bottom line: When you wade into the murky waters of crowdfunding, do not assume someone has cleared the riverbed of land mines. Proceed with caution, and do your own homework. Because there really isn’t a machine that lets you go back in time to reverse a hasty decision, no matter what you might find on a crowdfunding site.
Reach out and touch Dan Tynan at ModFamily1@yahoo.com.