When crowdfunding goes wrong: how platforms handle fundraiser disputes

When Tara Reed first began her crowdfunding campaign on Indiegogo, she had high hopes that it would help her achieve her dream – to self-publish her book.

In March, the Toronto-area writer launched a campaign on Indiegogo to try to get backers to support her project. Armed with perks, videos, and regular updates, her campaign goal originally started at $70,000, though it was later lowered to $40,000. Her campaign ultimately only netted her about $9,000.

In a phone interview, Reed said Indiegogo treated her unfairly, adding her campaign would have had better results if the platform had been more transparent with her and had responded to her concerns. She now questions whether she would have been better off canvassing her friends and family for funding, rather than going through a crowdfunding platform.

“[My funding] came from 121 people that I knew. I could have just asked for money. And they took nine per cent of it [as a fee] and I lost additional money for payment processing, et cetera,” she says.

Stories like Reed’s raise the question of what happens when a campaigner is unhappy with the crowdfunding platform he or she is using for a project.

While crowdfunding is still a relatively new way of raising money for a cause, it’s not hard to imagine the fallout if a campaigner and a platform can’t see eye-to-eye. For example, a campaigner might believe his campaign deserves to be featured more prominently on a page. Another campaigner might feel shunted aside by a platform’s customer service agents, or not taken seriously.

Screenshot of Tara Reed's Indiegogo campaign.
Screenshot of Tara Reed’s Indiegogo campaign.

And of course, disputes will inevitably arise when a crowdfunding platform meets campaigners who just aren’t happy with the amount of money they’re raising on the site, says Daryl Hatton, founder and CEO of FundRazr, one of Canada’s biggest crowdfunding platforms.

Part of the issue comes down to managing expectations, he says.

“We’re not there to help you make it successful. We’re there to help you reach the community… If you’re just unhappy, we can’t help much,” Hatton says.

But he says he also feels campaign platforms do have some kind of duty to investigate when any disputes do crop up. Recently, FundRazr ran into a situation where a California man set up a campaign to get his dog back from the city of San Francisco. The local pound there had taken his dog, and he wanted to raise money for the legal costs required to argue its decision.

However, some in the community flagged the man’s campaign, saying it was fraudulent and that FundRazr should shut it down. FundRazr’s employees considered doing that, but decided to try to resolve the problem by approaching the campaigner and asking him to prove he was really using campaign funds to rescue his dog.

It would have been easier to just shut down the campaign and ignore the campaigner’s protests, Hatton says. Instead, Fundrazr negotiated with him to rework some aspects of his campaign, and then it allowed him to continue running it on their site.

Screenshot of FundRazr campaign to reclaim a dog from the city of San Francisco, CA.
Screenshot of FundRazr campaign to reclaim a dog from the city of San Francisco, CA.

But those kinds of decisions really depend upon the crowdfunding platform, as well as the circumstances of each individual case that comes up, he says. So people really need to understand what they’re getting into when they register a campaign on a crowdfunding site, he adds.

“It’s hard to say if there’s any recourse. In the terms of service, [a platform] tells you how it’s going to work … that’s not the platform’s fault,” he says.

Besides a “terms of service” page, crowdfunding sites typically have web pages for disclaimers indicating they’re not to be held responsible for disputes.

Kickstarter declined an interview for this story. But in the terms of use agreement posted on its site, it noted:

“Kickstarter is not liable for any damages or loss incurred related to rewards or any other use of the Service. Kickstarter is under no obligation to become involved in disputes between any Users, or between Users and any third party arising in connection with the use of the Service … You release Kickstarter, its officers, employees, agents, and successors in rights from claims, damages, and demands of every kind, known or unknown, suspected or unsuspected, disclosed or undisclosed, arising out of or in any way related to such disputes and the Service.”

The legal disclaimer on the site isn’t surprising, says John Reid, CEO of the Canadian Advanced Technology Alliance (CATA) and a member of Invest Crowdfund Canada, a group pushing to legalize equity-based crowdfunding for startups.

Still, if crowdfunding sites want to protect their reputation and generate goodwill towards their brand, it’s key to preserve a good relationship with their campaigners, despite what their legal disclaimers might say, Reid points out.

“If you look at crowdfunding, which is a relatively new concept, you’re obviously dealing with people with different expectations,” he says. “So it’s very important for these platforms to be very upfront and have very understandable terms and conditions … People want to just understand what the rules of the game are.”

With social media becoming such a big part of branding and marketing, it’s easy for any disillusioned individual to tell people about a bad experience with any company, including a crowdfunding platform, he says. And as crowdfunding becomes ever more popular, this is only going to become a bigger issue – especially if equity-based crowdfunding is thrown into the mix, he adds.

But on the flip side, Reid has a piece of advice for campaigners, or even startups looking to promote their minimum viable product through crowdfunding. He points out it’s easy to destroy a business relationship through one hotheaded moment – and the relationship between a campaigner and a crowdfunding platform is a business relationship like any other.

“Some people have quick boil-over points, so when you’re under a lot of pressure, you’re trying to pay your employees, you’re trying to build your customer base, sometimes it’s very easy to lose perspective on what you’re doing,” he says.

For Reed, the author who had been dissatisfied with how Indiegogo handled her case, her breaking point came when the platform refused to keep her in the loop.

“I absolutely said to them, if you don’t tell me what’s happening, then yes, I have to write about this,” she says, adding she wrote a series of blog posts outlining her experiences with running her crowdfunding campaign.

Indiegogo declined an interview for this story. However, it released this statement via a public relations firm:

“We built Indiegogo into the world’s largest crowdfunding platform, one customer at a time, so we take very seriously the decision to terminate any relationship with a customer, which we had no choice but to do in this case.” (Its terms of use are available here).

And after a series of email exchanges between Reed and customer service agents, Indiegogo eventually decided to ban Reed from running any more campaigns on its site.

Avoiding a bridge-burning might be a strategy for startups to consider if they start their own crowdfunding campaigns, CATA’s Reid says.

“Understand that when you do get in a situation where there is a dispute, you don’t want to immediately go into quantum escalation,” he says. “Always try to resolve at the lowest possible denominator, understanding the cost of losing goodwill.”

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Candice So
Candice Sohttp://www.itbusiness.ca
Candice is a graduate of Carleton University and has worked in several newsrooms as a freelance reporter and intern, including the Edmonton Journal, the Ottawa Citizen, the Globe and Mail, and the Windsor Star. Candice is a dog lover and a coffee drinker.

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