Back in 2014, a movie production company started by three friends successfully reached its $75k goal on Indiegogo. The company called FND films promised to create an action-comedy but went silent after the campaign instead. Backers were outraged and believed that the creators waisted the collected money on ungodly things that shouldn’t be named. However, here’s the twist: just 4 days ago FND films released their movie trailer for “It’s all good”: A movie about not making a movie, as the filmmakers cleverly point out.
Misleading backers in order to create ‘art’ is ethically questionable; in this case it all panned out well. Needless to say, this crazy stunt does raise a critical issue: crowdfunding is solely built on trust and is therefore perfect for fraud. In the past a network of family and friends could vouch for the credibility of the investment seeker, whereas today every stranger looking for funding is only as reliable as their promises.
The frightening thing is that these ‘scampaigns’ are easy to setup, literally anyone can create an account, setup a campaign page and accept donations without any background check from the crowdfunding platform and only very few scampaigns have been discovered. The federal trade commission isn’t yet able to identify one crowdfunding site as more prone to scams and fraud than another. They rely on consumer complaints as a barometer, but they’re not a good one-to-one measure of prevalence.
According to the Massolution crowdfunding report 2015, the global crowdfunding industry grew from $6.1 billion in 2013 to $34.4 billion in 2015. With this explosion crowdfunding is a platform that comes with huge promises, but big hurdles. It is not a guarantee for success even if the campaign is sincere. The campaign might lack momentum, media attention or even support from the platform. Especially during the Internet age we all live in, being so connected is a danger that we must all recognise.
Below are some tips to protect yourself from being scammed:
- Check the creator’s credentials. Check their Facebook page; check their friends, the comments. Basically check if this person is ‘real’.
- Dig into the creator’s business background. Did he or she launch other successful projects?
- Be suspicious. If the campaign is on different crowdfund platforms this might be an attempt to steal as much money from people as possible.
If you have ideas about how to protect yourself in this digital era feel free to share your thoughts.
Also, if you’re interested you can view the original campaign and official movie trailer of FND films here: https://www.indiegogo.com/projects/it-s-all-good-by-fnd-films#/
Other sources:
https://techcrunch.com/2016/10/01/yhbt-hand/
http://www.consumerreports.org/cro/money/crowdfunding-scam
http://www.gadgetreview.com/7-scamtastic-crowdfunding-campaigns
http://www.crowdfundinsider.com/2014/03/34255-crowdfunding-fraud-big-threat/
http://dazeinfo.com/2016/01/12/crowdfunding-industry-34-4-billion-surpass-vc-2016/
Hi Lorence, very interesting topic! I myself have never put money into a crowdfunding campaign, thus I had never thought about the possibility to be scammed. Your blog definitely opened my eyes! Maybe some other tips that can help to be avoid scams:
– Check whether a financial plan has been made, thus, why does a campaign need a certain amount of money, and what will happen with the money? Check if these estimates are reasonable
– For people asking money for medical help, find a way to verify that the medical incident actually happened. Need-based campaigns often play in on feelings (http://www.crowdcrux.com/ways-to-avoid-crowdfunding-scams/)
– Google search the images used to verify that they are not taken from another website
– If you find a scam, report it.
I did a quick Google search, and there are actually many tips out there. If I ever decide to fund a crowdfunding campaign, I will now make sure to see if its not fraud!
Hi Lorence,
Thanks for your interesting post! I do believe in crowdfunding there are more factors that explain why certain projects fail to succeed even after being successfully funded. One important factor is the unability for project creators to precisely predict the demand. If a project is massively successful, a project creator might overlook some problems that arise to fulfill such a huge demand. Another big problem is that project creators often have little insight in the true costs of fullfilling the ‘orders’. I know that in your case you talk about a movie being produced (so basically 1 product for all backers), but if you look at the more retail oriented projects (with each backer receiving a product), a project creator may be faced with much higher costs than he initially thought he would have. Another factor that plays a big role, is that crowdfunding projects are often based on ideas; something that is not yet developed, or partially developed. Thus, additional costs or problems arrising from the actual production can be a reason for a project’s failure. Even if a financial plan has been made, this is often based on assumptions, estimates and do not always reflect the actual costs.
So I do believe the term ‘Scampaign’ might be a bit generalizing, because I think that most project creators do not fail intentially, but fail due to one of the above risks of a crowdfunding project, even though for the audience, they both might be perceived as a scam.