The Australian Securities and Investments Commission (ASIC) said it is closely monitoring crowd funding and, in February 2015, filed a submission to the federal government outlining recommendations to regulate crowd funding.
But, for now, there is little or no protection for people who pledge money and are left out of pocket following crowdfunding disasters.
Crowdfunding is a multi-billion dollar industry. Global crowdfunding experienced accelerated growth in 2014 to $16.2 billion and it's on the way to raising $34.4 billion in 2015, according to Massolution's recently released Crowdfunding Industry Report.
But what about the projects that fail? What about when Kickstarters stop?
An award winning Australian film maker has started a crowdfunding campaign to back his documentary, Kickstaller, to draw attention to the crowdfunding disasters that leave thousands of people disappointed and out of pocket.
Jason van Genderen is a passionate crowdfunder who has funded over 120 projects across three platforms. He has pledged $22,000 in projects and usually feels it’s a win-win situation; creators get funds and he also receives a reward when the project succeeds.
But, after being stung himself, now van Genderen wants to put the spotlight on the failures that have left funders seething.
“A major problem is that almost all projects have a timeframe blow out; they're late in delivering the ‘perk’ they say they will. If the project creator is a good communicator, usually everyone is very forgiving, understanding of this,” van Genderen said.
“But when they take a stand and declare ‘We’re operating within the Kickstarter rules, check them yourself', then my hackles go up. Suddenly I transition from being someone they needed to someone they have no value in, because they have my money and I’ve ‘served my role’ to them."
The project that hurt van Genderen the most was for a tablet form of the Macbook. In Sept 2014 he pledged over $6,500 for a custom order and, more than 12 months later, he feels cheated and tricked.
“The project was funded in September, with a projected delivery date of December 2014. It’s now October 2015. Despite being one of their ‘upper level’ backers, they have hidden behind generic monthly posts on the project page which have largely been noncommittal of delivery scope. When they have defined timeframes, they’ve ended up being so elastic they didn’t matter,” van Genderen said.
“Initially they did engage with me directly with some desperate email pleas I made (mainly to explore a refund) but their responses were rigid, dismissive and plain rude. I was simply a figure standing in line. It seems I have no right to my cash, despite the timeline blow out. My last email (1st Oct) to them remains unanswered. The previous email update from them was 5 months prior.”
When van Genderen emailed Kickstarter directly and asked for input, there was no response. The project comments page is littered with disgruntled backers, but the creator hasn’t responded to a single post.
Repeated attempts by The Huffington Post Australia to put questions to Kickstarter have been unanswered.
ASIC Commissioner, Greg Tanzer, said ASIC has been monitoring increasing use of crowd funding for investment purposes to identify any arrangements, or aspects of those arrangements, that may be regulated by ASIC.
"Depending on the particular crowd funding arrangement, ASIC's view is that some types of crowd funding could involve offering or advertising a financial product, providing a financial service or fundraising through securities requiring a complying disclosure documents," Tanzer said in a statement.
"These activities are regulated by ASIC under the Corporations Act and ASIC Act and may impose legal obligations on operators of crowd funding sites and on people using those sites to raise fund."
In a bid to expose what he believes are the failures of crowd funding, van Genderen is posting his own crowdfunding pitch to Kickstarter, appealing for others to come forward and appear in his documentar, Kickstaller. If Kickstarter rejects his application, he will post his video pitch on Indigogo (which doesn't have a screening process).
“Kickstarter seems to offer the individual backers little or no protection, at all," van Genderen said.
“Kickstarter makes 5 percent commission directly on successful funding of a project, plus between 3-5 percent extra on ‘payment processing fees’. The monies then go directly to the project creator.
"If the creator fails to deliver, Kickstarter offers no assurance, back-up or refund to individuals -- but they still keep their commissions intact. When a problem arises there’s no ‘person’ to speak with or address your rights. You’re all alone in the crowd.
“It’s a huge industry but there is so much money just vapourising. Where is it going? I run a business and, if I did that to my customers, they would sue me.
"But if I put up a project on a crowd funding platform, it is a veil, a shield to hide behind and the normal terms of business do not apply."
Jason Linney is a budding Sydney singer and film maker. He contributed to a crowd funding campaign set up by a South Korean music producer who was upgrading his studio.
The producer promised leading contributors to his fund raising would be given the opportunity to record their music in his studio. He also promised a marketing campaign to take advantage of the K-Pop phenomenon in the wake of mega-hit Gangnam Style.
“I’m half Australian, half Korean, so I decided to fly to South Korea where this man was going to produce my music," Linney told HuffPost Australia.
"He was also going to market it and we had a good email and Skype contact and he made a lot of promises. But when I got there, I realised he didn’t have a studio at all. His ‘studio’ was his bedroom. I managed to record my song but it has never seen the light of day.
“The music producer had a huge presence on Youtube and Facebook, so I thought everything would be OK. I’ve tried relentlessly to get what I was promised, but it is hopeless. What’s sad is that it’s now 2015 and it looks like nothing is going to happen. I feel very cheated and deceived and I really hope my story helps others.
Van Genderen is hoping his skills as a filmmaker will shed light on what he believes is a huge problem. He's calling for others who have been left feeling cheated by crowdfunding campaigns to get in touch with him on Crowdfunding Horror Stories for possible inclusion in Kickstaller, the documentary.
“Kickstarter makes money from a project whether it delivers or not. It is very unfair. When a project fails, Kickstarter could invest that money into an insurance program that gives backers some backup when their money is misappropriated. Instead, they run and hide and don’t respond to you," he said.
"You just stew and get angry. You go from being a passionate funder to a victim and there is no way to escape it.”