Crowdfunding is Broken
It’s easy to love the idea behind crowdfunding: a bunch of people getting together to pay for a concept they love. It’s everything capitalism is supposed to be, with all the benefits of utopian communism.
There’s only one problem: for the most part, it doesn’t work.
Here’s an overview for how most crowdfunded projects start, and consequently end:
- Think of a cool idea.
- Make very general estimates for total cost.
- With any cash on hand, do whatever you can to get attention and clicks.
- Set price goal and host on a centralized platform (Kickstarter, IndieGoGo, etc) or bLoCkChAiN iT bRo.
- Receive money, make the slightest provable effort to complete product.
- Stop updating with either an unpolished alpha product or no product release whatsoever.
Stop Being a Cynic, Dude
No. When you take even a cursory glance of the highest-funded crowdfunding projects, it should fill you with woe, too.
I’m certainly not going to run through every concept/product on this list and explain why it’s an abject failure or scam-adjacent, but it may be worthwhile to delve into a couple of the bigger projects.
Most people in the blockchain space know what EOS is — a shitty cryptocurrency — but fail to reflect on the fact that before launch EOS received $4.1 billion… sorry, let me reiterate that.
BEFORE LAUNCH EOS RECEIVED $4.1 BILLION.
That is an ungodly amount of money. So what do the EOS and Block.One teams have to show for it?
A fat lot of nothing.
EOS branded itself as the “Ethereum killer” (before Ethereum had even really defined itself) and a “paradigm shifting governance technology.” It has proven to be neither of those things.
The current marketcap of EOS sits at $2.8 billion, a 31% decline in value from the money handed to it. Feel free to ask any developer in the blockchain/cryptocurrency space if they utilize EOS for anything. The answer will be resounding:
Meanwhile, anyone who is lamenting about how great EOS is likely has heavy bags of EOS bux, is incredibly naive, or genuinely knows nothing about the cryptocurrency space.
Don’t get me wrong though: you can’t label EOS a scam. “Why not?” Well, they have developed a platform — as unpopular and useless as it may be. In addition, they’ve already paid out fines to the federal government for inadequacies in their raising process. At best, EOS is a gigantic failure, at worst, the ones in charge knew it was likely to go nowhere but kept their cards close to their chests.
It’s nice to delve into an enormous mess that isn’t blockchain-related. Star Citizen is… god, almost impossible to define at this point. For ease of discussion purposes, we’ll call it a video game. But Star Citizen promises so much more.
Eight years ago, video game developer and pioneer Chris Roberts Kickstarted a new concept, er… not new, but more a throwback to space video games of past, with slick graphics and fun combat. That was pretty much it.
And the internet went gangbusters. The initial $2 million goal was quickly met, so they added stretch goals: new worlds, different forms of gameplay, hand-to-hand combat, adventure modes. The money poured in. $3 million, $4 million, and finally, $6.2 million raised via Kickstarter. They couldn’t have asked for a more successful raise. But yet…
Onward and upward. Chris opened up shop on his own website and, surprisingly, the money continued to pour in. The more money poured in though, the more promises the company made. By 2014 Star Citizen had raised $50 million and made countless promises. By 2017 Star Citizen had raised $150 million and still didn’t have a working game. By 2018, Chris Roberts was requesting money from venture capitalists and hedge funds, along with leaving the website up and running for accepting crowd-sourced funds.
As of writing this, Star Citizen has raised over $300 million in crowdfunding and over $60 million in private raises, meaning $360 million and a really wonky game that basically runs on lootboxes. It cost $265 million to make Grand Theft Auto V.
Don’t call it a scam though. Listen to this gentleman who has sunk $42,000 into this “video game.” He’s adamant that it’s everything he desires:
It’s also fair to say, again, that Star Citizen has delivered… a product. Not really a video game at this point. But certainly a thing.
Benefit of the Doubt
Few lawsuits seem to arise from these massive project failures, and if you’re anything like me, it probably leaves you scratching your head wondering “Why?”
I think the best ELI5 way to interpret this is as follows:
If I get a loan to start a business and do what I can to make that business succeed, and it subsequently fails, there isn’t much room for a lawsuit. I did my best, the idea was a failure, tough luck.
However, if I take that loan and runaway with it without ever proving that I attempted to start the business I promised I would, there are immense liability issues.
As long as the one’s receiving the crowd-sourced funds can vouch for the fact that they “tried,” even if they tried very little, there’s not much leeway for legal maneuvering.
DISCLAIMER: I AM NOT A LAWYER
If It’s Broke, Fix It
It would be nice if it were that easy. But I truly believe that crowdfunding isn’t broken economically, it’s broken psychologically. There’s two levels to how successfully crowdfunded projects fail on a psychological level:
- Mob mentality. When a few people see a project they like, spend money on it, and it climbs up whatever rankings are available (be it the “Featured” page on Kickstarter or a big jump on CoinMarketCap), others inherently want to put money into it. So, projects with any momentum quickly outpace their goals, while solid, but “boring” projects may get no momentum whatsoever.
- People love to spend money. When we get our hands on cash, we spend it, and if we get our hands on too much cash, we spend it indiscriminately. Goals get opaque if people believe they have forever to work on them and all the money in the world. Instead of pursuing the concept they promised initially, once individuals have exceeded their goals they’re inclined to **overpromise** and **underdeliver**.
Exceptions to the Rule
There are people who will read this and get angry. “What about this (insert random crowdfunded project here)?”
Yes, there’s plenty of cool, successful, and real projects that have been crowdfunded — from GlowForge to Prison Architect to any number of smaller endeavors. The problem is when they get way too much money, way too fast — which is to say, almost every popular idea ends up being a complete failure or scam-adjacent.
I don’t have the solution to this. I believe in crowdfunding on some level and hope a better method is figured out. The main platforms have given reliably poor results.
Stay skeptical, friends.