Do you Perform Basic Crowdfunding Campaign Due Diligence?

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Lifehacker | Alan Henry | October 13, 2014

Crowdfunding expectationsDear Lifehacker,

I've seen a lot of Kickstarter campaigns lately that promise great rewards and have awesome ideas. Some of them are already fully funded, others need a little help. Is it safe to give them my money if they're already funded? How can I tell if the end result is going to be as awesome as they promised?

Sincerely,
GoFundYourself

Dear GoFundYourself,

It's tricky to be sure, and while we've explained how to vet a Kickstarter project before you back it, all of the good vetting in the world won't change things if the project looks great on paper but turns out to be disappointing. In addition to making sure you do your homework before tossing your money in the pot, let's talk about a few things to remember before you go wild backing Kickstarters or Indiegogos.

Remember: You're Not Shopping, You're Investing (or Donating)

Even those crowdfunding campaigns that are completely funded and then some by the time you get to them may wind up crashing and burning by the time the money is all gone, so don't assume that just because a project is overfunded by the time you see it, it's bound for success. It's easy to look at Kickstarter and the array of other crowdfunding sites on the web and feel like you're going shopping when you browse their projects. In reality, that's what those sites want you to think—they want you to check out the good-looking rewards and shiny campaign promo materials, and toss a few bucks in the hope that you're going to get early access to an awesome new game, or a great new battery pack, or the next fitness tracker that'll help you get in shape.

View:  Kickstarter Updates Terms and Conditions Section related to Failed Projects

The problem with that mindset though is that you're not shopping. You're investing, and that comes with risks that aren't necessarily obvious at first, although they should be. To their credit, none of the major crowdfunding sites like KIckstarter or Indiegogo pretend you're doing anything different. They make it clear that you're not ordering a product, you're contributing money in the hopes that a product or service comes to life. Kickstarter is a little better at this by nature, since if a project isn't funded, no money changes hands—but other sites offer flexible funding, where everyone who contributes is out the money, even if the project misses its goal. Either way, it's a gamble, and remember, you should never gamble with money you're not prepared to lose.

Read the Terms of the Crowdfunding Site Before You Contribute

Crowdfunding sites are a dime a dozen, and many of them have different rules and terms of use. Some, like Kickstarter, only take your money when a campaign has closed, and only then if the campaign was successful. Others hit your bank account right away, and take your money whether the funding goal is reached or not. Kickstarter, for example, doesn't let you fund someone's "lifestyle," or essentially fund a person—which also means that things like health care fundraisers or memorial funds can't live on the site. Other sites are okay with that.

Related: 

Wherever the campaign is hosted, make sure you read up on when your money will leave your pocket and when it'll hit the bank account of the fund creator. Some people get angry when a campaign fails but they're still out the money they chipped in—if that matters to you, make sure of it before you contribute and go in for the extra perks. Remember, giving $45 for extra perks like stickers, or your name in a short film's credits, won't make a difference if the campaign fails, the movie never gets made, and the creator just takes the money and walks away.

See What Everyone Else is Saying Before You Contribute

At this point, it may go without saying, but you should check the web before you contribute. A catchy promo video, a good looking prototype, and a fully-backed project with money to spare is no excuse for not doing a couple of Google searches to see if major publications have highlighted the Kickstarter you're thinking about funding. Equally important, you can see if the campaign looks great and has tons of money, but no one is talking about it. That should also be a cause for concern.

We've mentioned before that looking up the people behind a project is a good way to start your research—you can learn if they have the right backgrounds and skills to make the ideas they're pitching a reality. That's another great step. If you find there's a lot of buzz about the campaign, or if you—like me—usually discover great campaigns because some other website talks about them, some of this may already be done for you. However, it's important to keep digging. One video game blog may talk about a campaign as the next great platformer, but another may notice that the people involved were also involved in a dozen failed campaigns in the past, and may not be quite so trustworthy with your investment dollars.

Read the Updates, and Don't Be Afraid to Change Your Donation Level

Every crowdfunding platform allows the creators of the campaign to keep in touch with their investors by publishing updates or posting notices to the campaign page. Make sure you read those updates—preferably before you contribute (and if the updates are closed and only visible to backers, that should be a red flag.) You can see the type of tone they take with their investors, how they're currently spending the money, what information they're giving out about the project, and most importantly, you can see how committed they are and regularly they communicate with their investors. You don't want to back a project that's been up for 20 days with no updates from the people behind it.

Check out:  Are my Crowdfunding efforts taxable?

Some campaigns launch to huge fanfare and praise, but as the team behind it realizes exactly how much work is required to make their idea a reality, they may bail on it. Don't toss your money in after they've left the building. For example, previously mentioned FitRPG, a great app for gamifying your Fitbit, launched a Kickstarter shortly after their app launched to add tons of great new features to the app. Riding a wave of popularity, the Kickstarter began racking up money, but after a week or so, the developers behind the app mysteriously vanished. The app stopped getting updates, their Twitter stream went silent, and while the app still works, it has bugs and issues that remain unfixed. Where they went is anyone's guess, but a quick look at the comments page shows a number of backers who caught wind that things weren't going well and reduced their pledges from whatever dollar amount they initially promised to the $1 level because they were worried the project wasn't going anywhere.

If you find yourself having already backed a Kickstarter—or any campaign—that seems to be going south, remember you can always adjust your pledge amount down to the lowest tier. You're still out for that money, but it won't hurt so hard, and best case everyone else doing the same will result in the campaign failing, so no one gets any money. Then the founders are free to get their act together and try again later.

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