Watch out! Clever funding scams spreading online

May 7, 2019

By Kim Komando

Go back about 15 years, and the word “crowdfunding” was as foreign as “ride-sharing.” How times change. Fast forward to today, and you’ll find it’s a common practice that generates billions of dollars.

From personal campaigns to new products, crowdfunding has been been a huge success for a lot of people and startups. But just like any business, bad actors are going to come in looking for an easy payday.

Now, the Federal Trade Commission (FTC) has a warning about potential scammers, including legal action it’s taking against one of these project creators. Find out about that case, and what to look out for so you don’t hand your money over to a crook.

To back a project or not to back

If you look at a crowdfunding site like Kickstarter, it’s got a decade of experience in the modern business. According to its own statistics, there’s been $4.2 billion pledged to Kickstarter projects over the years, more than 160,000 of which were successful. A survey by a University of Pennsylvania professor even found that only about 9% of projects failed to deliver.

The same goes for a similar crowdfunding site, Indiegogo. More than a decade on the scene, about $1.7 billion has been raised through Indiegogo projects.

The whole point is to support a project you believe in and to be rewarded for your efforts, right? The problem is, anyone can have an idea and that certainly doesn’t always mean it’s a good one – or even genuine.

In a hurry? Tap or click to listen to Kim’s take on Kickstarter winners and fails in less than a minute!

So it comes down to you, and the key is to be smart about these crowdfunding projects by knowing the product or goal you plan to back and who’s behind it. Because some of these “ideas” could simply involve taking advantage of unsuspecting supporters, which brings us back to the FTC.

A warning from the FTC

To be fair, some projects just fail and that’s going to happen. For other creators, however, their plan doesn’t involve success because it seems they have no intention on following through on their promises.

For instance, the FTC has just taken legal action against the person behind a (non-existent) high-tech backpack and other products. It says Douglas Monahan and his company, iBackPack of Texas, LLC, raised more than $800,000 from backers on his various projects, but the money raised was not used for development.

Instead, the FTC says he used it for personal use and when backers began to complain, he allegedly threatened some of them. Nice.

The whole situation is a mess. The complaint says this guy first started raising money for his iBackPack through Indiegogo in 2015, which was supposed to ship the following year. It didn’t happen.

The FTC says he not only failed to produce that techy backpack, he started a new campaign on Kickstarter in 2016 for the iBackPack 2.0. Yeah, a follow-up to a backpack that was never released.

You can guess what happened. No one got that backpack either and now it’s going to court. The FTC says this is why it’s important to check those projects out thoroughly before pledging. Read the full release here. And it’s right.

Know how crowdfunding sites work before contributing

One thing to remember is that you’re not buying something at a store. Kickstarter and Indiegogo are just there to facilitate creators and their supporters.

With Kickstarter, for instance, its terms of use say creators are entering into a contract with backers. It’s not part of that contract, doesn’t get involved in legal disputes and it makes no guarantees. However, it does have a Trust & Safety team that monitors for suspicious activity and looks into concerns raised by backers.

For Indiegogo, it has a similar set of terms and cannot guarantee the success of any campaign. Check out its limited refund policy as well.

Do your own research on campaigns

With everything mentioned above, that’s exactly why it’s so important to learn everything you can about a project and the person or group putting it out there.

For starters, a spokesperson for Indiegogo says you should be thorough when reading the campaign page and that transparency is key. Make sure the page clearly states how they’re going to use the funds and how they plan to move the project forward.

Here are a few other tips:

Familiarize yourself with people behind a campaign. Who are they? What’s their background and experience? Do they have previous campaigns? Are they trustworthy? Read the information on their campaign page and run a separate internet search for more details, including social media. Watch for red flags, but it should also tell you something if you’re having trouble finding any useful information at all.

For the project itself, check to see how detailed perk information is, as well as any images and video included on the page. Take note of the expected delivery date of the perk and based on the promised project, ask yourself if the timeframe seems strangely optimistic – or a long, long time from happening. There should also be constant updates on the project, including status updates or any changes.

Look at how much money has already been raised. Is there a strong backing, or hardly anything at all? Just remember, though – strong financial support doesn’t always mean you’re completely in the clear. The iBackpack guy raised hundreds of thousands of dollars.

Here’s a big tip: read the comments. If there are a lot of angry backers, they’re definitely going to say something about it.

And finally, take a hard look at what you’re backing. Take note of the project scope and look for grand promises. How realistic is their idea? Because if something sounds too good to be true, it often is.

If you’ve already pledged before running into trouble, first contact the crowdfunding site. Click or tap here for Kickstarter and here for Indiegogo. You can also report any scams to the Federal Trade Commission or your state Attorney General.