A few years ago, Chris Rouse was a passionate crowdfunding supporter. He poured more than $1500 into several independent film projects hosted on Indiegogo.
All of them were months behind – sometimes years – on delivering what they promised, but Rouse was forgiving.
When he invested in a failed tech gadget on Kickstarter, however, it was the last straw.
"I got sick of the lack of communication and lies," the Sydney-based IT worker says.
"It's not the fact that you've personally lost $100 — it's the idea that this company has walked away with, in some cases, $500,000 to $1 million worth of backers' money combined [without delivering anything]."
Online crowdfunding platforms have exploded in popularity in the few short years since they launched. But lax vetting standards can leave backers like Rouse vulnerable to failure and fraud.
With a few clicks, would-be entrepreneurs, artists and charities can launch a project and start crowdfunding. All they need to do is nominate a dollar goal to raise within a certain time, and list some "perks": rewards for supporters based on how much money they pledge. A perk might be a signed poster, dinner with an artist, or the finished product.
Perks are, technically, binding transactions that the creator must eventually deliver, subject to consumer laws.
But in 2012, Kickstarter launched a PR campaign reminding backers it was "not a store", to highlight the risks involved.
An independent US study found one in 10 Kickstarter projects never delivers its perks – and in those cases backers should expect a refund just 13 per cent of the time.
Rouse invested in a mobile wallet called the iCache Geode. It raised more than $US350,000 ($456,770) but after months of delays, backers were angry. Many never received a product, and those who did reported major problems. Eventually the company stopped updating its backers completely, and all but vanished from the web.
When things go bad like this, crowdfunding platforms will pass on a creator's contact details, and some will actively facilitate refunds. But that's usually where it ends.
Rouse managed to get a refund two years later for his lost investment — but only when he hounded Amazon Payments, which processed his transaction, after he read about US backers getting refunds.
"Really you're sort of throwing your money into these products with no assured way of recovering it should there be an issue down track," he says.
Rouse thinks crowdfunding platforms don't work hard enough for the money they skim off every campaign - up to 8 per cent of funds raised in transaction and service fees. That's significant cash when you're talking sometimes hundreds of thousands of dollars for a single project.
"It's only fair that they do some basic vetting," he says. "The problem with a lot of these fantastic ideas is the creators don't have the knowledge or skills to produce them. It only takes one or two bad experiences to turn people off for good."
Kickstarter has lifted its game since the Geode debacle. It's imposed stricter rules around technology products, which are on average higher risk than other categories. It now requires creators to have a working prototype and a production timeline before they can launch a campaign.
Indiegogo has no such checks – and that has resulted in some very spurious projects indeed.
There's the Triton Oxygen Respirator, which promises its "artificial gills" let you breathe underwater without scuba gear. Skepticism about the product hit fever pitch after scientists debunked its claims, and Triton recently refunded all its backers. It has since relaunched with a modified campaign.
The product spawned its own spoof campaign called the "Tricon", featuring a 1€ perk which promised "absolutely nothing". Indiegogo suspended the campaign for a few hours, but returned it after its creators argued Triton was guilty of worse than parody. Triton has raised more than $US400,000 – more than eight times its $US50,000 goal – with two days left of its relaunched campaign at the time of writing.
Then there's the Batteriser, which promises to extend the life of reusable batteries up to eight times. Several electrical engineers have publicly questioned Batteriser's marketing claims. By that measure alone, Batteriser – and the Triton – may be in breach of Indiegogo's terms and conditions, which state that "Campaign Owners shall not make any false or misleading statements in connection with their Campaigns".
Batteriser is now months overdue to ship to backers – and they're not happy, with some accusing the company of scam behaviour. The company says it is now in the final production stages, with plans to fulfill "all orders soon".
Nick Karolidis, founder of Australian platform OzCrowd, says the best marker of whether a campaign will do well is if the creators' own network is prepared to back them.
"It's not even just dollar amounts, it's really just activity behind a campaign – those that are shared, those that have comments, those that have multiple contributors are much more likely to get broader public interest," he says.
In the past OzCrowd has intervened in good faith to help creators manage production delays when things start to go south – but that's a rarity in the industry.
"The key there was making sure we caught them early," Karolidis says. "Most of the time because of the nature of the campaign people are very interested in supporting the particular project, so delays and tweaks to products because of manufacturing issues tend to be accepted so long as the campaigners do a good of job keeping people updated."
Claire Merquita, general manager at Australian crowdfunding site Pozible, says high-profile crowdfunding flops – particularly technology projects – are making potential backers more cautious.
"We're seeing tech products not doing as well as they used to [in terms of fundraising], and we're seeing that across the industry as a whole," she says.
That's potentially worrying for local tech entrepreneurs who may have trouble raising funds elsewhere due to a lack of risk appetite in Australia.
"I feel for tech companies that are trying to make money and are getting frustrated by a lack of progress," Merquita says.
Crowdfunding legislation that would allow start-ups to offer equity to backers rather than a "perk" or product is currently before the Senate.
