You may have heard whispers, or maybe you’ve even been burned yourself, but it’s a crucial truth in the crowdfunding world: Scammers are heavily attracted to crowdfunding platforms like Kickstarter and Indiegogo. These platforms, while innovative and powerful for legitimate creators, unfortunately provide fertile ground for fraudulent campaigns. You’ll consistently encounter crowdfunding scams, even on the most reputable platforms.
Why is this happening? What makes crowdfunding so attractive to scammers? It boils down to a few key factors:
- Difficulty in Verifying Viability: Many crowdfunding projects are based on concepts – prototypes, early designs, or even just compelling ideas. It can be incredibly challenging, even for experts, to definitively determine if a product concept is truly feasible, will actually work as advertised, and can be manufactured at the promised price point. Scammers exploit this uncertainty. They present polished marketing materials that mask fundamental flaws in the product’s design or the team’s ability to deliver.
- Investor Due Diligence (or Lack Thereof): Crowdfunding often attracts enthusiastic backers who are excited by innovation and the prospect of getting in on the ground floor of something new. This enthusiasm, coupled with the relatively small individual investment amounts, can lead to a lack of thorough due diligence. Many investors don’t have the time, resources, or expertise to deeply investigate the technical specifications, manufacturing plans, or the background of the creators. Scammers count on this. They know that many backers will rely on the platform’s perceived legitimacy and the persuasive power of the campaign itself, rather than conducting independent research.
- The “Get Rich Quick” Appeal: Crowdfunding platforms often highlight success stories – projects that have raised millions of dollars. This creates a “gold rush” mentality, attracting both legitimate creators and those looking to exploit the system. Scammers see the potential for a large, quick payout with minimal accountability.
What are the actual numbers? The reality of crowdfunding success is often less rosy than the headlines suggest.
- Overall Success Rates: While platforms celebrate successful funding, the overall success rate (projects reaching their funding goal) is often cited as being between 22% and 38%. This means a majority of projects fail to even reach their initial funding target. (Source: This range is based on publicly available data and analyses from various sources, including Kickstarter’s own statistics and studies by research firms like The Crowdfunding Center. It’s crucial to note that methodologies vary.)
- Fulfillment Rates (Delivering the Product): This is where the picture gets even murkier. Even among projects that reach their funding goal, a significant percentage fail to deliver the promised product or experience to backers. Estimates for failure to deliver range widely, but a commonly cited figure is around 1 in 10 successfully funded projects ultimately fail to deliver. Other studies suggest the failure rate could be even higher, particularly for complex technology or hardware projects. A 2015 study by the University of Pennsylvania focusing on Kickstarter found that about 9% of projects that met their funding goal failed to deliver rewards.
- Failure to Deliver: One study by Kickstarter, found that of all successfully funded projects, between 5-10% do not deliver the goods, rising to 15% for projects that raise over $1million!
- Scams and Fraud: Quantifying outright fraud is the most difficult. There’s no central database tracking crowdfunding scams. However, anecdotal evidence and reports from platforms themselves indicate that fraud is a persistent and growing problem. The very nature of scams (being hidden and deceptive) makes them hard to track.
This is the core problem: a system designed to foster innovation is being actively exploited, harming both investors and the credibility of crowdfunding as a whole. The numbers, while not perfectly precise, paint a clear picture: a significant portion of crowdfunding projects fail to deliver, and a subset of those failures are due to deliberate fraud.