Category Archives: Crowdfunding Fraud Alert

$7 Million Lost in CoinDash ICO Hack


Coindesk | Wolfie Zhao | Jul 17, 2017

An initial coin offering (ICO) for a little-know startup project called CoinDash was abruptly halted today when it was revealed the sale had been compromised shortly after it began.

In total, the ICO was able to raise $7.53m before the ethereum address it was using to solicit funds was altered to a fake one by an unidentified hacker, resulting in the ether going to another source.

See:  ICOs: New Model of Blockchain Capitalism

At the time of publication, the CoinDash website has been shut down, and the project is asking investors who have been affected to submit information to the provided link to collect the CoinDash token (CDT) they should be rewarded through the sale.

The company's statement reads:

"Contributors that sent ETH to the fraudulent Ethereum address, which was maliciously placed on our website, and sent ETH to the official address will receive their CDT tokens accordingly."

Notably, as the project is still under attack, and the sale has been terminated.

In a statement, CoinDash urged investors not to send any ether to any address, since "transactions sent to any fraudulent address after the website was shut down will not be compensated."

Via CNBC | |

Fraudsters just stole $7 million by hacking a cryptocoin offering

  • More than $7 million worth of ethereum was stolen in about half an hour.
  • CoinDash said it will provide tokens to buyers except those who invested after its site was shut down.

Around 9 a.m. eastern time on Monday, Shawn Van de Vyver, a dentist in Michigan, went to CoinDash's website to check out the project's initial coin offering — a new way that cryptocurrency start-ups are raising money.

Van de Vyver has been building computers and websites for 20 years and started studying bitcoin when it was trading in the single digits (it's now priced at more than $2,000). He also invested a couple thousand dollars in digital currency ethereum, he told CNBC.

CoinDash is sometimes described as the E-Trade for blockchain and Van de Vyver was interested in tracking the project, even if he wasn't yet ready to invest.

Check out:  Is the SEC About to Crack Down on ICOs?

Shortly after 9, Van de Vyver got a text from a dentist friend telling him that the site had been hacked.

Visitors to the site had been told to send their ethereum to another address in order to participate in the ICO.

People who followed those instructions had their money stolen, according to the website. Over the course of about a half an hour, more than $7 million was routed to the hacker. According to Etherscan, which tracks the movement of ethereum, some 2,130 transactions took place.

"I could've been hoodwinked," said Van de Vyver, 37, in an interview Monday morning. "These are not sophisticated investors trying to invest in a company."

Welcome to the lawless world of ICOs. Start-ups building on blockchain are raising millions of dollars in exchange for tokens that give buyers future access to their network once it's up and running. The tokens also rise and fall in value and can be bought and sold, giving them characteristics of unregulated securities.

The SEC has yet to weigh in on the new market, meaning that buyers have little to no legal recourse if their money gets stolen.

See:  ICO Tracker – Crowdfunding Coins, Tokens and Validator Keys

CoinDash said in a statement on its website that it will provide tokens (CDTs) to people who sent ethereum to the fraudulent address prior to the CoinDash site being closed down. But transactions that took place after the site was shut "will not be compensated," the company said.

"This was a damaging event to both our contributors and our company but it is surely not the end of our project," CoinDash said. "We are looking into the security breach and will update you all as soon as possible about the findings."

A CoinDash spokesperson had no further comment, but referred CNBC to the website.

To assist the investigation, the company tweeted out a form for people to fill out if they tried to purchase coins.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at


Detecting terrorism financing in crowdfunds poses ‘significant challenge’: Fintrac report


GlobalNews | | May 18, 2017

Canada’s money-laundering watchdog is studying the use of crowdfunding platforms by suspected terrorists and says in an internal study that the reporting protocol poses a “significant challenge” in trying to identify such transactions.

The Fintrac report, obtained by The Canadian Press through an Access to Information request, says there is a lack of information available in electronic fund transfer reports on contributors to crowdfunding campaigns.

Financial companies, money services businesses and casinos are legally required to submit the reports to Fintrac for cross-border, electronic transactions above $10,000.

That lack of information poses a problem for financial intelligence, “especially when trying to flag individuals supporting a crowdfunding campaign that may be suspected of being (terrorist financing)-related by an investigative authority,” Fintrac says in the November 2015 report.

See:  Anti money-laundering watchdog assessing vulnerability of fintech startups

The federal agency said the reports typically don’t include information on contributors to crowdfunding campaigns because the amounts transferred tend to fall below the reporting threshold of $10,000.

“Terrorism financing and high-risk traveller cases, in particular, most often entail relatively small amounts of money,” spokeswoman Renee Bercier said in an email.

Daryl Hatton, founder of, a company that runs three crowdfunding websites, said they don’t have to submit funds transfer reports because that is the duty of the payment processors.

“The short answer is that crowdfunding platforms leverage the anti-money laundering systems of our payment processors,” Hatton said in an email.

“We add our own checks on the identities of the people running the fundraising campaigns but trust the much more sophisticated work our partners are doing in this area.”

Hatton said he has removed a “very small number” of campaigns over terrorism financing concerns. The decision to remove the campaigns was made in collaboration with payment processors and was done more as a precaution, he said.

Craig Asano, the executive director of the National Crowdfunding Association of Canada, said it’s important that there are mechanisms in place to detect such transactions.

See:  In Crowdfunding, Who is Responsible for Preventing Fraud?

The Financial Action Task Force, an international organization that aims to combat money laundering and terrorist financing, flagged crowdfunding as an emerging terrorism-finance risk in a 2015 report.

The task force report said crowdfunding platforms are vulnerable to being exploited for illegal purposes because people can mask the true reason for their fundraising efforts.

It also said there have been instances in Canada where people under investigation for terrorism-related offences have used crowdfunding sites before leaving the country or attempting to leave the country, suggesting that they could be using that money to fight overseas. But details of those cases were not provided.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1500+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at


Popular Selfie Stick Kickstarter Copied and Undercut by China in Record Time


PetaPixel | DL Cade |


Remember the StikBox? The creative smartphone case selfie stick raised over $40K on Kickstarter for a product that would eventually cost about $47. But before the Kickstarter was even over, China was selling a perfect copy for as little as 8 bucks.

It’s part horror story, part PSA: if you’re planning to create a mass market product and release it over Kickstarter, be ready to deal with the lightning-quick copycats in China.

Isreali entrepreneur and creator of the StikBox, Yekutiel Sherman, was not ready. He did things the right way: put together prototypes, raised money from relatives to launch a professional crowdfunding campaign, and was prepared to deliver a fun, useful product.

See:  Accessing capital in China and solutions for crowdfunded companies

But just one week after launching his successful Kickstarter, exact replicas started popping up online:

When his backers started finding the copycats, many of which were selling for less than half the discount price they paid on Kickstarter, the backlash was swift and unforgiving:

Are you kidding me? We need the product now. You’re going to have your own lawsuit on your hands if you don’t start producing the products we’ve all paid for. Stop worrying about other companies and distribute your product. You’re company’s barely into its first year and you’re already running it into the ground.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at


The First Investment Crowdfunding Fraud. What Does this Mean for the Industry?


Crowdfund Insider by JD Alois | December 2, 2015


During the buildup to the Securities and Exchange Commission’s announcement regarding the final rules on Title III retail crowdfunding, the Commission filed a fraud case in the US District Court of Nevada.  The SEC accused Ascenergy, a company ostensibly in the oil and gas industry, in an emergency action to stop ongoing fraud by the company and its CEO Joseph “Joey” Gabaldon.  The company had been soliciting investors under Title II of the JOBS Act, seeking accredited investors to fund a startup company.  Ascenergy had utilized several, well known, equity crowdfunding platforms having already raised approximately $5 million. Not a small amount.  The statement by the SEC was damning. To quote:

“Ascenergy has raised at least approximately $5 million from 90 investors nationwide and internationally. Ascenergy has already spent at least $1.2 million of the offering proceeds, but only a few thousand dollars appear to have been used for oil and gas-related expenses. Instead, a significant part of the $1.2 million has been spent on payments to Galbadon or companies he controls, or for expenses unrelated to the oil & gas business, including, by way of example, foreign travel, fast food restaurants, Apple stores and iTunes, dietary supplements, and personal care products.”

“…Ascenergy has no known oil and gas revenues or track record of reserve identification, drilling, or production…”

It is probably safe to say, dietary supplements and iTunes purchases were not in the Ascenergy business plan. The SEC stated that only approximately $2000 was spent on the oil and gas industry.

The complaint continues to outline how Ascenergy took funds and shifted them to different entities including Pyckl LLC, supposedly a web and mobile application development shop, which received $3.8 million. There was also a transfer to Alanah Energy, a company believed to be controlled by Gabaldon, in the amount of $100,000.  These actions pretty much scream fraud.

Related: Kickstarter fraud: Washington files first consumer protection lawsuit involving crowdfunding

There is plenty of information available on the internet documenting the Ascenergy mantra.  You may view the siren song of “low risk and high return” here on YouTube.

The accusations and allegations by the Commission are so blatant the entire crowdfunding industry was taken aback. While there was a general acceptance that it was inevitable,  fraud would occur at some point in the future, the speed and size was disheartening. Crowdfunding, at its core, benefits from exceptional transparency. So what went wrong?

Crowdfund Insider reached out to Sam Guzik, Chair of the Crowdfunding Professional Association (CFPA) and Senior Contributor for this publication, and he shared his perspective;

“The Ascenergy offering highlights the tension between the regulation of Title II platforms, which function more as bulletin boards assisting in the marketing of the offering, and the traditional broker-dealer which must register with the SEC as a broker-dealer.  The latter operate under stringent FINRA rules, which provide for detailed due diligence procedures for all new offerings. The former are, in essence, unregulated. In my opinion what is needed is a new regulatory category for online platforms, who register with the SEC and operate under lighter oversight than a traditional broker-dealer.”

Guzik is of the opinion that Congressional action is necessary to create a more balanced approach serving both investors and issuers alike.  He believes there may be “stiff opposition” from certain sectors, but there remains a need for a balanced regulatory approach.

“Complying with FINRA rules applicable to traditional broker-dealers, though providing significant safeguards for investors, also add significant expense which is not “right-sized” to emerging Internet intermediaries. These post-JOBS Act intermediaries perform fewer functions than a traditional broker-dealer, and cannot readily absorb the costs associated with this level of regulation. Indeed, outside of real estate, the average deal size for today’s Internet platform often ranges between $1.5 – 2 million, well below the $5 million benchmark utilized by a majority of traditional broker-dealers serving the lower end of the private placement market.”

DJ Paul, co-chair of the Crowdfund Intermediary Regulatory Advocates (CFIRA) and member of theSEC Advisory Committee on Small and Emerging Companies (ACSEC), believes this is an opportunity to step up to the plate and perform some much needed self-regulation.

“While deeply unfortunate, of course, the Ascenergy debacle is hardly unexpected. As long as there are people with money to invest, there will be fraudsters trying to take advantage of them. This is why CFIRA provides guidelines for Best Practices for its members and the crowdfunding industry generally. We recognize that funding platforms are the gatekeepers between investors and offerers. And we encourage all funding platforms, in the strongest possible terms, to take that responsibility seriously. The notion that funding platforms can merely list securities offerings, like some kind of glorified bulletin board, is both false and dangerous. Funding platforms have a duty to vet the offerings that appear on their sites.”

Related: In Crowdfunding, Who is Responsible for Preventing Fraud?

Crowdfund Insider reached out to the funding platforms listed in the complaint by the SEC.  According to the document [Crowdfunder], Equitynet, Fundable and [AngelList] were each referenced. With the exception of AngelList, not a one was willing to respond to inquiries from Crowdfund Insider.

Screen Shot 2015-11-12 SlideShare Ascenergy

Speaking with an AngelList representative, they stated absolutely no money transacted on their site. AngelList allows anyone to create a profile, but not just anyone can raise funds. The silence from the other platforms is understandable.  There remains a question as to whether any platform liability remains.  Sara Hanks, a securities attorney and CEO of CrowdCheck, is a highly respected member of the industry.  Hanks reflected on the possibility of the SEC engaging the platforms in light of the alleged fraud;

“Platform liability will depend on whether the platform is deemed to ‘make’ the misleading statements that lead to liability. There’s a Supreme Court case from 2010 that deals with this issue, and that says that whoever has ultimate authority over the statement, including its content and whether and how to communicate it, makes that statement.”

What is widely known within the industry is that multiple platforms turned Ascenergy down. The curation and vetting process achieved its objective on several platforms and protected their investors.  One platform operator stated that the Ascenergy pitch was like a “Securities 101 What Not to Do Manual”.

Related: Man Settles With FTC Over Crowdfunding Case

SeedInvest rejected Ascenergy not just once. But twice.

Wefunder, another platform that dodged the bullet, stated;

“Ascenergy reached out to us last year to fundraise on Wefunder, and even offered to pay us to feature them.  We did not allow them to fundraise from our community. We feel a great responsibility to make sure we do everything possible to mitigate fraud to protect our investors, and it didn’t take a rocket scientist to figure out that something smelled sketchy with that company.”

As far as we know, this is the very first case of equity crowdfunding fraud not just in the US but globally.  The UK, a trailblazer of the industry, has yet to experience its first fraud.  Sure there have been plenty of failed companies but the platforms have so far avoided fraudulent campaigns.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country.  NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  Learn more About Us or visit


Man Settles With FTC Over Crowdfunding Case


WSJ Technology | Angus Loten | June 11, 2015

The doom that came to atlantic cityA Portland, Oregon man has agreed to settle with the Federal Trade Commission over charges he used “unfair or deceptive acts” to raise $122,000 from more than one thousand online backers on Kickstarter, a popular crowdfunding site.

The backers were led to believe they were funding a new board game, but the game’s maker instead spent the cash on personal items, such as paying his rent and moving expenses, the FTC said. Kickstarter itself faces no charges in the case.

The move marks the first time the agency has taken legal action to protect online users in the booming crowdfunding industry, which comprises more than 1,250 online platforms worldwide that together raised $16.2 billion last year, up 167% from 2013, according to crowdfunding research firm Massolution.

According to Massolution, entrepreneurs and startups accounted for 40% of total crowdfunding dollars in 2014, compared to just 27% in 2012 and far ahead of the online dollars raised for social causes, films and performing arts, real estate and music.

Kickstarter says broadly that it is aimed at raising funds for creative projects, from “experiences” to “art” but it prohibits projects that are raising money for charity or for financial incentives, like equity, according to its website.

Erik Chevalier in May 2012 launched a 30-day online fundraising campaign on Kickstarter, seeking to raise $35,000 to create a fantasy board game called “The Doom That Came to Atlantic City,” according to the FTC’s complaint, filed Wednesday in the U.S. District Court for the District of Oregon Portland Division.

Mr. Chevalier said on his project’s Kickstarter web page that he would use the funds to cover the costs of product development, production and distribution, among other startup expenses, the FTC complaint said.

To entice contributors, Mr. Chevalier, presenting himself as the owner of The Forking Path, Co., promised them rewards, such as advanced copies of the game for pledges of $75 or more, and ornate pewter game pieces for pledges above $105.

The game’s Kickstarter page also included a video of Mr. Chevalier describing the game and players gathered around a prototype. When the fundraising campaign closed on June 6, 2012, it had raised $122,874 from 1,246, including over 1,000, or about 85% of backers, who had pledged more than $75 each, according to the complaint.

View:  Kickstarter fraud: Washington files first consumer protection lawsuit involving crowdfunding

Over the next year, Mr. Chevalier posted sporadic updates on the campaign’s Kickstarter page, citing ongoing delays caused by patent infringement and manufacturing issues, among other obstacles.

But in July 2013, he abruptly canceled the project, saying in an online post that after paying to form the company, make the game pieces, move to Portland, get software licenses and hire more artists, the “money was approaching a point of no return.”

This week, FTC officials said Mr. Chevalier instead spent the money on himself and a separate, unrelated project.

Under the settlement, Mr. Chevalier is barred from raising cash on crowdfunding platforms. A $111,793 fine was suspended due to Mr. Chevalier’s inability to pay, according to the agency.

In a statement, Kickstarter spokesman David Gallagher said fundraisers on the site have “an incredible track record when it comes to following on their promises.” But those that “abuse our system and backers’ trust expose themselves to legal action,” he said.

Jay Mayfield, an FTC spokesman, said the agency had received hundreds of complaints about Mr. Chevalier’s venture, he said.

More than three-fourths of crowdfunding projects face delays, some for several years, before promised rewards are delivered to backers, according to Ethan Mollick, a professor of management at the University of Pennsylvania. Yet outright fraud is rare, he said.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country.  NCFA Canada provides education, research, leadership, support and networking opportunities to over 1100+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  Learn more About Us or visit


Crowdvetting for crowdfunding? How donation sites get to the truth behind campaigns


GlobalNews | | Apr 13, 2015

Campaign not foundTORONTO – Crowdfunding websites like Kickstarter, Indiegogo, and GoFundme minimize risk and protect their users from fraud, in part, by relying on their users to find it themselves.

Frauds can happen – a recent post by the unidentified creator of a fundraiser for a South Carolina officer accused of shooting Walter Scott alleges the fundraiser was a fraud.

This person claimed in a Facebook post that the campaign was created to raise money for their car payments.

“Well the jig is up; IndieGoGo pulled my support and returned all donations. I admit I was trolling and was looking to get enough donations to pay my car off,” the person wrote on the Michael T. Slager Support Fund Facebook page.

“I never promised a single dime to Michael Slager and was careful not to say that I was. I was, as a gesture of fair play, going to seek a way to get him some small token of the donations (I was, of course, using his name and likeness).”

The owner of the Facebook page has not responded to requests for comment.

Fraudulent campaigns do happen but they are rare. A World Bank report on crowdfunding states “no successful fraud has been perpetrated through pledge-based crowdfunding platforms.”

The report goes on to say would-be fraudsters were thwarted by “the transparency inherent in crowdfunding.” Or – the large crowd of possible investors vetted the projects themselves.

“The crowd has been very successful at uncovering suspect campaigns,” Craig Asano, the executive director of the National Crowdfunding Association of Canada said in an interview.

Websites like Kickstarter rely in part on their users to vet the campaigns. The Michael T. Slager Support Fund reportedly only received about $1,100 in large part because of the criticism it faced.


Asano said would-be investors should educate themselves about not only the project – making sure it’s legitimate, and realistic – but also the website, making sure it uses accepted methods of payment.

But crowdfunding sites also have their own means of verifying legitimate campaigns and pulling down campaigns deemed unrealistic or illegitimate.

Indiegogo has an algorithm which seeks out fraudulent claims and employs a Trust & Safety Team which combs the site for bad projects, getting rid of anything that doesn’t meet the site’s terms or is deemed to be potentially fraudulent.

Kickstarter doesn’t transfer any money until the project is completely funded. This, according to a spokesperson, helps keep people from being tricked into funding a fake project. But Kickstarter also, in part, relies on the community to vet the project.

“If I pledge to your project on day one and you turn out to be a bad actor, our Integrity Team has 60 days to look into the project, field user input,” Justin Kazmark, a spokesperson for Kickstarter said in a statement.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country.  NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  Learn more About Us or visit


Tackling The Crowdfunding Credibility Gap: A Q&A With Dropkicker


Techvibes by Natasha Lomas | October 30, 2014


As crowdfunding has scaled up so too have some of the problems inherent with firing unconditional cash at people whose main selling point might just be their madcap idea. The big names of the category, the Kickstarters and Indiegogos, would argue that’s the beauty of crowdfunding. People donating unconditional cash to someone else’s dream, however incredible (or otherwise) it may be.

But when it comes to crowdfunding technical projects the category functions more as an extended marketing channel playing to an early adopter community of gadget enthusiasts — so there’s understandably more of an expectation of a tangible, functional device at the end of the day. Which makes separating credible hardware projects from incredible fantasies more of an imperative. A potato salad is a potato salad is a potato salad. But a personal teleportation device remains science fiction (for now).

Related: Kickstarter fraud: Washington files first consumer protection lawsuit involving crowdfunding

The risk of out-and-out scammers looking to make a fast buck from crowdfunding communities is an inevitable consequence of the rising profile of the category and its flagship hardware successes. Several of the highest funded crowdfunding projects to date have been hardware projects, including the Pebble smartwatch (which raised $10.3M) and Ouya console ($8.6M). Other multimillion dollar crowdfunding raises in recent times have included the Form1 3D printer and 3Doodler 3D printing pen, both now shipped. But there have also been problematic high profile campaigns too — such as the device we dubbed the “impossible” projection watch. Or Healbe’s miraculous calorie-counting wristband. Despite some incredible claims these fantastical gizmos still pulled in big bucks.

Crowdfunding certainly has a credibility problem, and arguably a growing one (Kickstarter used to vet projects before they could be posted but ditched that check and balance earlier this year). But attempting to plug that credibility gap, or at least sprinkle some welcome scepticism on proceedings, is a two-man blog, called Dropkicker. It’s been doing technical investigation of crowdfunding projects — acting as a sort of unofficial consumer watchdog for crowdfunding — for about a year.

I came across their work while parsing the comments on the Ampy hardware project on Kickstarter— and asked them to answer a few questions about their own initiative. “Dropkicker has exploded over the past year,” says co-founder Michael Ciuffo. “There are a lot of people out there looking for some skeptical expert advice, and we’re trying to do our best to provide it.”

Who are the founders and writers of Dropkicker? And what’s your technical background?
Jason Haensly (Occam’s Chainsaw) – I’m a software engineer with 4 years of product development experience. I currently work at i1 Biometrics, a wearable tech startup whose launch product is a mouthguard that measures the severity of head impacts. Before that, I worked with Ciuffo at Synapse.

Michael Ciuffo (ch00f) – I got my degree in electrical engineering from MIT in 2011 and have three years of experience in product development specializing in small, consumer electronics. I worked for Numark Industries (now InMusic Brands) for a year before moving to Synapse Product Development in Seattle.

When did you launch Dropkicker? 
Michael: Dropkicker started in the fall of 2013. We just passed our one year anniversary.

What was the trigger for setting it up? 
Michael: During the summer of 2013, I found that one of my personal electronics projects (published on a personal blog) had been copied and used to launch a Kickstarter campaign. While I was mildly upset that my name wasn’t mentioned in the campaign (despite the creators emailing me and asking for details a few months prior), I was more upset at their abysmally low funding goal. Having personally built the product in question myself, I knew that they couldn’t deliver with the funding they were requesting.

Ultimately, they changed a fundamental feature of their product in a sort of bait-and-switch cost-savings effort, and delivered a few months late. The delivered product worked well enough to appease the backers, so I’m not going to mention their name specifically. Still, watching this all unfold was a very frustrating process, and it left me wanting a platform where I could explain in full the kind of challenges facing similar projects that many backers may not know about. I ran it by Jason who had some prior writing experience, and Dropkicker was born.

Related: NCFA Canada Launches Crowdfunding Standards Initiative

How are you funded? Presumably you still have day-jobs so this is a side project?
Michael: We are funded primarily by our day-jobs, and Dropkicker remains very much a side project. We have managed to get a few hundred dollars in donations and advertising revenue (which we try to be very up-front about), but when spread over the number of hours spent on the site, we’re not even approaching minimum wage.

Do you think crowdfunding is becoming more of a target for scammers?
Jason: Sadly, yes, though I’m not sure they all involve malicious intent. With more and more of the traditional funding sources (e.g. VCs) demanding a successful crowdfunding campaign to demonstrate market viability, we’re seeing an increase in the number of projects with no resources and hopelessly unrealistic goals. Whether they’re a scam or just naive and optimistic comes down to intent, which we can’t possibly judge.

I expect this to only get worse as the pool of potential backers – and their money – continues to grow.


Should crowdfunding sites be offering more checks and balances themselves, in your view?
Jason: The fundamental issue is a lack of accountability. If a project raises some money but fails to deliver, it’s the responsibility of a scattered mix of backers to organize and fight, which is both difficult (since it’s a process that will require both time and money) and often fruitless (since the project creators have likely burned through most of their resources).

Of course, more could be done to prevent questionable projects from getting funded in the first place. Currently, backers really only have access to the marketing materials provided by the project, and the comment section is typically a tangled mess – there are definitely tweaks the sites could make that would improve things a bit. More responsible tech journalism would help too.

Michael: As Jason pointed out before, a lot of the “scams” that we’ve found on crowdfunding sites are really the result of inexperienced people hopelessly overestimating their abilities (look up the Dunning Kruger effect for more detail). This is something that is really impossible to filter out. After all, one of the founding principles of the crowdfunding movement is giving power to the “little guy” who may not have the experience or accolades to get attention from traditional funding sources. So when a project raises over a million dollars for a half-baked idea, can you really blame them for being unable to follow through? They’re supposed to be allowed to fail, but when tens of thousands of people get excited about the project, every false step starts to look like intentional deceit.

One of the biggest contributing factors to this is the enormous amount of pressure from overly enthusiastic tech journalists encouraging backers to flock to these projects without first taking a critical or skeptical view. This adds a false sense of credibility to a lot of these otherwise fledgling projects that they really don’t deserve, and backers get upset when their unrealistically high expectations are broken.

As far as the actual scams go, I am happy to to report that Kickstarter at least has been stepping in lately for some of the more obvious ones. iFind, Scribble Pen, The Rock smartwatch, and Luci have all been shut down by Kickstarter after it became obvious that these projects were illegitimate. We would have rather they step in sooner than the final days of the campaigns, but at least they stopped money from changing hands.

Doing a full in-depth feasibility study for every technical project submitted to Kickstarter or Indiegogo is too large of a task for any company to reasonably offer without substantial compensation, so I recognize that these sites will probably never offer these kinds of services. That being said, there is a huge amount of brain power in the community that could be used to validate projects if they only had access to good information. Many project creators are very tight-lipped when it comes to project details either because they’re hiding something or simply because they’re busy and understaffed. Often requests for more detail or a product demonstration are ignored.

If there’s anything crowdfunding sites could do to improve project credibility, it would be to require creator responses to pertinent backer questions. In a recent case, Kickstarter gave the Scribble Pen project 24 hours to produce a video demonstrating the current functionality of their prototype. Claiming that the request was unreasonable, Scribble left the site for Tilt. Tilt ultimately shut them down when their “product demonstration” was shown to be a fake done in post production. This is exactly the way we see that it should work. If your product doesn’t work yet, be up front about it.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada crowdfunding hub providing education, advocacy and networking opportunities in the rapidly evolving crowdfunding industry. NCFA Canada is a community-based, membership-driven entity that was formed at the grass roots level to fill a national need in the market place.  Join our growing network of industry stakeholders, fundraisers and investors. Learn more About Us | Support Canadian Crowdfunding.