A major problem with many Kickstarters that hasn't really been touched on is that the money donated doesn't actually go towards capital costs. There are plenty of costs to projects that are legitimate costs which need to be paid upfront- staff salaries for those who don't have equity in the project, cost of equipment or tools needed to complete the project, first-run production costs, etc. However, there also seem to be plenty of projects where many of these costs are not present, or where the money being asked for far exceeds what these costs should be. Such Kickstarters essentially amount to "fund my life"- the money being donated is going to rent, food, and beer while the person behind it fiddles around on their pet project.

I have better things to do with my time here.

Yes, it's a matter of semantics. Attorneys love these semantic arguments because it allows them to crank up the billables over a difference that wouldn't matter to anybody else.

Except the Judge? The only one whose opinion matters?

Seems like a good site, when is it made?

You wanted to point out to a company associated with Amazon that it specifies a contract which shields it from indemnity? Do you think lawyers just use refrigerator magnets with clauses on them and hurl them at sheet metal to generate contracts?

Look, assuming you're not infringing any IP or other DMCA make believe crap, you've got a great platform for your SEO precedent. But that first paragraph I quoted pretty strongly suggests that you have no idea what you're putting money towards. It doesn't matter what you *want* Kickstarter to be; it *is* an investment platform. There *is* risk. The ToU are there to explain the difference between what people want KS to be, and what it is. And maybe there are a lot of people out there who need a site like yours to show them that Kickstarter is actually different than Best Buy or Walmart.

But those people are stupid.

Right...except the terms state that it isn't an investment platform and that there is no risk. So there's a legal precedent that doesn't agree with you. So while your opinion is an incredibly accurate depiction of what KS is currently, it's not accurate to what it legal states it is.

This post... ended up longer than I had expected. My apologies, and I've separated it into sections for easier reading. ^^;

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Funding the creator's life

Hmm... I see your point, but what about people who turn to crowdfunding to make it viable to work on their project as, essentially, a job, instead of in their spare time? If it's reasonable to use the crowdfunded money to pay the salaries or wages of people hired to work on the project, why not the creator of the project?

Put it this way: let's say that I start up a crowdfunding campaign (as I might actually do at some point). Some of the money goes to fulfilling rewards, some to legal fees, some to resources of various sorts (software licences or art materials, for example), and some to paying various contracted employees--hired artists, for example.

In this case, if I use some of the money to pay a salary to myself, I can spend less time and effort working another job in order to do so, and thus have more time in which to work on the project.

One might argue that the creator--who may very well receive profits from sales--will be paid after the release of the product, but the problem is that this doesn't help with actually making it in the first place. Freeing up the creator to work on the project can, however.

In short, I might agree with regards to projects along the lines of "I want to play more games, please give me money with which to do so", but strongly disagree with regards to projects along the lines of "I want to make this product; part of the funds will pay my salary as I work on it".

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Whether crowdfunding is investment

First of all, I am not a lawyer, so take my thoughts here with a grain of salt. Additionally, I had an opinion before looking into the Terms of Use as mentioned below, so it's possible that confirmation bias may be in effect in this post. It's also entirely possible that I simply missed something,

That all said, I took a quick look at the Terms of Use posted by Kickstarter (and those posted by IndieGogo, but more on that later). (All emphasis below is mine.)

Under "Summary of Service": Note that they say "fund"--not "buy"--and "rewards"--not "products". My interpretation of this is that, in backing a project, one is not buying anything but providing money for the running of that project.

Otherwise, what is one buying when one pledges for a "donation only" tier?

The problem seems to me to come in when projects offer copies/instances of their product as rewards, creating a conflict: the product has arguably become a reward, thus potentially running afoul of the provision regarding project creators providing all appropriate rewards.

(To my mind this is an issue with the terms, not the practice of using copies of the product as rewards; I'd be inclined--both as a potential backer and as a potential project creator--to want an exception to the "fulfil or reimburse rewards" clause.)

Finally, from a less... legalistic, I suppose, perspective, thinking about what Kickstarter does and how it works: Projects on Kickstarter generally (I gather) are for products that are not yet complete. That in and of itself incurs a degree of uncertainty, simply by virtue of the myriad issues that can affect a project during production. It seems unreasonable to me to expect those running a project to be able to accurately predict all potential issues that may befall a project, and so a degree of risk naturally falls to the person funding the project.

In other words, a description of a product in production--whether on Kickstarter or otherwise--is (presuming a lack of some sort of prescience, time travel, etc.) a description of what the writer intends, aims, expects, imagines, etc. it to be when it's done, which may very well be something quite different to what it actually turns out to be in the end.

As I said earlier, I also took a look at the IndieGogo terms, and I think that I prefer them: (Again, emphasis is mine.)

Equity. When a person is investing their own time (and possibly money) into a project then they should naturally have equity in the results of the project. Presumably most of the people being hired and paid a salary do not get equity in the results of the project- their contributions are a work for hire. The same principle should apply to the creator- if they're getting paid a salary then the project itself should be viewed as a work for hire with the owners being the people actually paying everyone's salaries (in other words the people who actually funded the Kickstarter). This is why if you're working a standard job being paid a wage or salary you typically don't get a cut of what the business makes, while if you're running your own business you get everything the business makes (whether that's lots of money or nothing), but no one's paying you any salary beyond that.

Additionally, on a more practical level, a big problem that goes hand in hand with all of this is the general lack of accountability surrounding Kickstarter projects. I'd personally like to see it be required that people running Kickstarters be required to include a proposed budget outlining how the money they're asking for will be spent. That would at least allow backers to better evaluate just what they'd be paying for, and decide whether that's a good use of their money (and whether the budget is anywhere near realistic). It would also likely cut down on people asking for too little money, meeting their goal, then finding out six months later that the money they raised is nowhere near enough to do what they wanted to do (unfortunately many people running Kickstarters have little in the way of project management experience, and consequently suck at it).

(Argh, I just lost my post in a silly copy-paste issue! >_<; I'm re-constructing it, but I may miss some points that I included previously... :/ )

What about people with resources too limited to allow themselves to work full-time on their project without a salary from it? Should they give up their IP to their backers, as though to traditional venture capitalists?

Isn't part of the point of crowdfunding the reduction or circumvention of the (surely somewhat unfair) requirement that one must "have money to make money"? To make it more viable for a wider range of people, and people of a wider range of means, to start projects?

As to equity, it doesn't help during production.

Actually, as I understand it--and as I recall from an entrepreneurship course that I took in university--when one starts up a business one usually draws a salary from whatever funds are allocated to the running of the business (whether bank loan, venture capital, savings, etc.): paying one's bills is one of the costs associated with running the business.

As to accountability, that seems to me to be a separate issue; I don't know what to suggest there. :/

As to the idea of including a proposed budget, as long as it doesn't require too much depth--which might potentially shut out those without years at business school--I think that it could be a good idea. It should help both the project creator and potential backers; the former by encouraging thought into where the money will go and by giving them something encouraging (one hopes) to show to potential backers, and the latter by providing them with more information with which to decide on whether to back a project.

I'm reminded of this TED talk, of which I'm quite fond, and that I think has an interesting perspective on crowdfunding; I think that the speaker has some good points regarding crowd-funding/-sourcing and being "allowed" to just ask for help, which seems to me to essentially be one of the forms that crowdfunding can take.

I suppose that what that speaker is saying is connected to how I view crowdfunding: the project creator says "I have this project that I want to create--here, let me show you..."; backers--those interested, at least--say "ah, I want to see that made! Here, let me help you!". It's not like traditional business models. At its core, it's about lots of small amounts of help adding up to allow something to be done, especially something that likely wouldn't have been favoured by or viable for traditional organisations.

First, I expect that of the people running Kickstarters, most of them wouldn't be looking at a significant change in employment situation depending on whether or not their Kickstarter gets funded. Either they're already employed, in which case most probably wouldn't be quitting their job to work on the project full-time, or they're not currently employed, in which case they're already likely working on their project full-time regardless of whether or not they get funded. This may be a bit different for larger projects, but these are probably the exception and not the rule.

As for Kickstarter being their to remove the requirement of having money to run one's own projects, this applies primarily to capital costs, not the time of the person running the project. Costs such as tools to complete the project, materials, production costs, etc can certainly pose a barrier, and this is where Kickstarter can really shine. On the other hand, a 40 hr/wk job still leaves plenty of time to work on a project if a person is serious about it; it may take a bit longer to get the project done, but it's not the kind of barrier that capital and production costs can be.

This is primarily a personal budgeting trick (as well as being relevant to taxes). If one fully owns a business then all the business's assets, including loans taken out to finance it, is in practice just money in the owner's pocket that they can use for whatever they want. Setting a salary for oneself serves to set a limit on personal expenses and keep one from inadvertently pissing away all the business's funds. For a business this is only a consideration as a tool for the owner, since ultimately all the business's funds are the owner's liability- it's money out of their pocket (or loans they need to pay back) regardless of what the money is used for. With a Kickstarter, though, the money being provided is not a liability for the person running the project, but on the other hand was donated with the expectation that it would be used towards a specific goal. And the people who donated it likely have a wide range of opinions on whether paying for a person's living costs fall under the umbrella of that goal. Submitting a budget would at least makes things clearer in this regard, by giving potential backers a better idea of what "supporting the project" actually means.

On this I do agree with you. ^_^

I'm not sure that I agree with you here, but even if you're correct in saying that such a change in approach is the exception rather than the rule, why should it be disallowed?

On this I very much disagree with you: to my mind there's no reason to limit it to capital costs. I see no reason that a Kickstarter project shouldn't in part enable the project creator to invest more time in the project by virtue of providing an alternative source of support during the development of the project.

While I agree that this is an aspect of it, I don't agree that this is the main of it: it seems perfectly reasonable to me that, when starting up a business, one draw a salary simply in order to support oneself while running the business.

In short, it seems to me that requiring that people not draw a salary from whatever funds were allocated to their startup/project, whether from venture capital, loan, Kickstarter or whatever, just places additional obstacles in the path of the person attempting to run that business/project.

I suppose that this is where we differ: from my perspective, money being used to support the project creator so that they can apply themselves to their project is being put to the goal of the project. It may not be as direct as in paying employees or buying supplies, but it's still going towards the goal by virtue of supporting the person who is attempting to achieve that goal.

Let me try putting it a different way- let's say the person running the Kickstarter decides that what's really needed is a month long, $20,000 vacation to the Caribbean to get the creative juices flowing. I think most people would agree that this is basically fraud on those who donated to the project by virtue of not being how they intended their money to be used. Obviously this is an extreme, but the difference between this and paying one's living expenses out of donated funds is only one of degree. The problem is ultimately that money people donated is being used in a way that a not insignificant number of people weren't intending when they donated the money. And when something like this happens a couple of times then the result will be that people simply stop donating money and there aren't enough supporters left to make Kickstarter viable.

Being clear up front about just what the money will be used for mostly removes this issue, as people are clearly told just what their money will be used for and can decide if they're all right with that when making the decision whether or not to donate. I personally believe that a reason this isn't made clear in most cases is that people running the Kickstarters know at some level that explicitly saying they plan to use some of the money for living expenses will result in fewer people donating, and thus they are intentionally deceiving people in order to get more money donated.

It does place some additional obstacles in their path, but that tends to happen with pretty much any measures that bring in accountability. And again, with a business started with a loan or one's own funds, the business's finances and one's personal finances are in practice one and the same. All the money is coming out of the owner's pocket, and segregating spending into business vs personal spending is just an artificial distinction done for the purpose of budgeting. A good analogy for how Kickstarter funds should be regarded are arts and science grants that are given out (either by the government or private foundations). A proposal is put together about a project a person wants to do, is submitted to the grant agency, and if they like the proposal the person is given the money. However, since that money is coming out of someone else's pocket there are some stipulations about just what it can be used for. These kinds of grants typically spell out what are considered legitimate uses of the grant, and depending on the particular grant it may or may not include a personal salary. But it's all spelled out ahead of time. You want the money you agree to how it can be spent, and if you then use it in a different way you can expect some legal repercussions.

Kickstarter funds should be viewed in a similar way- you're going to other people and asking for money to be used towards some purpose, and thus you should be held to actually using the funds towards that purpose. The problem currently is that what is a legitimate use of funds towards the overall purpose is not well defined, and when the views of the person running the Kickstarter differ from the views of backers on this you end up with angry backers who are less likely to donate to other Kickstarters. That's why, like grants, legitimate uses of the funds should be clearly defined upfront, although with Kickstarter there would be the extra freedom that the person running the project gets to define what legitimate uses are- they just need to be ready to accept that those who don't agree with them won't be donating money to their project.

It ultimately comes down to an issue of transparency, something that is severely lacking from many Kickstarters at the moment. Without this kind of transparency and backers being able to feel confident that their money is actually being used for things they approve of I believe the days of crowdfunding are very limited.

Unfortunately I don't have any solid data on this, other than the fact that you can definitely find people expressing their displeasure about it. Overall there actually seems to be a real dearth of aggregate data on Kickstarter projects beyond whether or not projects get funded and for how much. At the end of the day, though, what matters the most is whether a project is completed to the satisfaction of the backers. If this happens then most people don't really care about the specifics of how the money was spent. It's only when things go off the rails that people want to know more about what is going on, and often become indignant if further information shows the funds being used in a way they don't approve of. Unfortunately it seems that the majority of Kickstarter projects at the very least deliver late ([url=]this[/url] 2012 article says that at the time 75% of technology and design related projects on Kickstarter hadn't been completed on time), so you're already dealing with annoyed backers that can very easily become quite angry depending on the reason for the delays or failures.

Venture capital and loans behave quite different from each other, while also behaving quite differently from crowdfunding, so they shouldn't be conflated. With loans the bank doesn't care how the money is used- they're owed back the money plus interest regardless of what's done with it, and will quickly go to court to seize an individual's assets if they break the terms of the loan by missing any payments. With venture capital the money is provided in exchange for significant ownership and control of the venture. The venture capitalists are usually quite interested in what the money is being used for, and if they disagree with how it's being used (or how the business is being run in general) they don't hesitate to apply significant pressure to the founders, even going so far as to wrest control away from the founders and remove them from the project if the degree of ownership they have allows them to do so. With most crowdfunding the backers are not owed back the money they donated, nor do they receive any ownership of the project in exchange for their money (this is to avoid having crowdfunding fall under banking or securities regulation). And how much they care about just how the money is being used seems to mostly depend on whether or not the project appears to be on track or not.

What the backers are promised depends on the particular crowdfunding platform. With Kickstarter, after some initial criticisms they changed their ToU to state that backers of successfully funded projects are owed whatever rewards were promised for the project, and if these rewards are not delivered by the promised delivery date then they are owed refunds if they request them. However, Kickstarter refuses to actually be involved in this process, saying that any disputes must be settled between backers and the people they donated the money to. Of course, since the individual amounts being donated are usually fairly small it's pretty much never worth it for individual backers to pursue such matters through the courts if a project fails to deliver the rewards promised and the people behind the project are unwilling to provided requested refunds.

Just recently the Washington state Attorney General filed a consumer protection lawsuit against a Kickstarter project that failed to deliver its promised rewards and also failed to honor refund requests. I'd consider it likely that without crowdfunding introducing much better accountability we'll be seeing more such lawsuits filed, and in addition there's also the chance of seeing state or federal legislation introduced aimed at regulated crowdfunding (which could be either a decent to a horribly bad thing depending on what form such legislation takes). As it stands now crowdfunding desperately needs greater transparency and accountability (and the crowdfunding platforms really need to step up and take responsibility for this), otherwise we're likely to see either crowdfunding dying due to people becoming disillusioned with it, or significantly restricted by regulation. Basically crowdfunding needs to get its house in order, or someone is going to do it for them.

Yes! Agree 100%