Project creators are not a uniform group; each project creator has a different business set-up and rationale for running a Kickstarter campaign.
It is important to realise that the type of project creator you are backing not only influence the success of the Kickstarter campaign and how it is managed, but is also an indicator of the level of risk in the transaction and your options for legal recourse. Legal recourse means that if the project creator doesn’t deliver your reward, you can take legal action against him.
The risks in a crowdfunding campaign are predominantly whether the product / service will actually be manufactured with the described features, to the described quality, including any add-ons or stretch goals, and actually delivered.
- There are various types of project creators all competing for backers’ “pledges” on a crowdfunding platform.
- There is no uniformity of expected risk because each project creator has a different risk profile.
- Legal recourse for backers, in the event that the project creator doesn’t deliver, is limited overall.
The types of project creators
Below is a brief, general description of each type.
The eight types of project creators are:
1) Content creator – typically a one-man operation creating content for the internet, such as instructional or educational videos.
The risk level of transacting with a content creator varies depending on their experience. Typically, content creators are people who work full-time but create content for consumption over the internet for educational or entertainment reasons. The funding they seek is relatively lower, usually to cover the cost to create the content and to avoid using advertising over their content. The funding is more in the form of donations than income from rewards-based crowdfunding.
If you are a backer, legal recourse is relatively low, because the funds are typically gifts with intangible rewards.
2) Self-employed – this is a sole proprietor, a one-man business, an artist or writer.
The risk level of transacting with a self-employed person is higher compared to a company, although the actual legal incorporation and overall business experience could mitigate the risk. The risk is higher because of limited resources, opportunity cost and time, for example, you can’t write your book and run a business. These are conflicting goals, and the one will supersede the other one at times.
If you are a backer, legal recourse is limited, because if the money is spent, a refund may not be possible and there are few assets that could be attached in a legal proceeding.
3) Start-up – this is a company less than three years old, still gaining a footing in the market. It is lean and hungry, possibly looking for investors.
The risk is relatively high because start-up’s have a higher failure rate and may go into liquidation.
If you are a backer, legal recourse is also limited. There may not be money available for a refund, and, as a customer of the start-up that has failed, you are last in the debt repayment queue.
4) Small and medium businesses – companies that are between 3-10 years old, with a workforce between 10 and 100.
The risk of transacting with a small or medium business is lower. The legal structure, accounts, business relationships should all be relatively optimised, and the business would understand consumer law and the consequences of failing to deliver.
As a backer, you have a higher level of legal recourse, and the business may be able to process a refund or offer you a deal. If no delivery is due to the business failing, you are unfortunately last in the debt repayment queue.
5) Experienced project creator – any project creator type with multiple Kickstarter campaigns under his belt
The risk and legal recourse depends on the experienced project creator’s business structure. Given previous successful campaigns, both in terms of funding and delivering promised rewards, the level of risk is lower.
6) Corporate – a large company
The risk is low and legal recourse is high. Think of Amazon: if they don’t deliver, they substitute the product or offer a refund. And the company would have clear policies in place, in addition to respecting your statutory rights.
7) Non-profits or charities – organisations with a social or environmental mission
The risk and recourse options are negligible because of the nature of the business and the project. The reasons for backing these types of project creators are very different to those backing a business. But I would recommend that you understand the implications of this type of transaction.
8) Opportunists – project creators with the sole intention to scam you and get your money
Yes, unfortunately this type of project creator exists, and sometimes it is difficult to identify him. The risk is high and you would have limited recourse.