ickstarter is a great combination of the right service coming along at exactly the right moment. Crowd funding has been around for quite some time, but with the ever-increasing footprint the Internet and our connected mobile devices leave upon our daily lives, it was just waiting for something like Kickstarter to make it catch fire globally.
One of the biggest selling points of Kickstarter was that it puts people on a completely level playing field. For example, if some Average Joe programmer had a fantastic idea for a videogame and the talent and team to create it, it traditionally would have been very difficult for someone with no connections to the venture capital market to try to raise a decent amount of money to fund development. More so, even if they were to acquire the necessary coinage to stay afloat and design the game, getting the required amount of publicity/awareness to pique the interest of publishers would be another difficult obstacle in its own right. With Kickstarter, as long as Average Joe has a compelling concept that people want to partake in, he has just a good of chance of getting his game funded as would a seasoned, AAA developer with connections to funding and publishers. And with the emergence of Kicstater as a platform, there are plenty of industry eyeballs watching it daily for the “next big thing”.
This leveling of the playing field is a big reason why Kickstarter has completely blown up in the past few years. But with the open-source nature of Kickstarter which allows anyone to create an account and ask for pledges, there needs to be a certain amount of trepidation on the part of potential backers. You are essentially placing a bet on whether or not the person (or company) that is running the Kickstarter campaign will follow through with their promise or not.
In December of 2011, a company named Crypteks successfully completed a Kickstarter campaign to produce high-quality, high-security encrypted USB flash drives. “Successfully” is actually putting it mildly, as Crypteks was able to raise a whopping 16 times their stated goal of $12,000 for a grand total of $196,404. The USB drives featured incredibly sleek designs, and many people were in the market for a secure flash drive that would be incredibly hard to steal the data from or to destroy outright. The campaign got off to a good start, received some good PR along with way with stories on tech blogs and sites, and it had no problems smashing its fundraising goal.
But after the Crypteks team crossed the finish line, there were some issues. First they said there were problems with international orders and shipping. Then there were problems with the way that Kickstarter synced up with Amazon Payments. Weeks turned into months, and although they would periodically update the Kickstarter page with the latest, there was no denying Crpyteks was falling behind with the manufacturing and distributing the flash drive. As of today, they still have not shipped them out to the people who pledged money more than a year and a half ago. Requests for comments were not returned.
With nearly 1,000 backers left out in the cold and the countless of thousands who read the articles and were intrigued by the device enough to keep it on their radar, the inevitable backlash began once the delays started. A thread on the popular message board Reddit was started has nearly 230 comments that cover the entire gamut of reactions from indignant outrage to chalking it up to the uncertain nature of internet-based crowd funding. The comments on the Kickstarter page tend to be more synoptic, with frustrated backers suggesting filing a class-action lawsuit. We will continue to monitor the situation.
However, a bit of digging on Crypteks itself pulls up some very unsettling information. Their WHOIS search for their domain (www.cryptrade.com) is registered to a company called Bitwize S.A.R.L, which is located in Mansourieh, Lebanon and is a marketing/design/CMS agency. However, the website does not list Crypteks or Cryptrade as a client or mention them at all in their works section – which is odd considering that the website and accompanying marketing video produced by Bitwize were a big reason the Crypteks Kickstarter campaign was so successful, and even won web design awards. One would think an award-winning campaign would be worthy of mentioning on the agency’s highlight reel. A request for more information from Bitwize has not yet been returned.
Interestingly, one of the founders of Cryptrade, Fahad Koumiaha, is spearheading a new project before rectifying the Crypteks situation. After the updates on the Kickstarter page slowed to a trickle, Koumiaha was off to his next venture – as the CEO of Cryoniks, a hardware manufacturer claiming to have created one of the most sophisticated BitCoin miners in existence with the FrostBit device. Although some have claimed that the proposed specs and capabilities of FrostBit fall outside of the realm of possibility, that remains to be seen as no units have been issued yet – what is more concerning is the fact that Koumiaha has already moved on to greener pastures while 989 people are waiting to see anything from their collective $196,404 that he and the rest of Cryptrade received.
After a story on BTC Bible revelaed the connection between Cryptrade and Cryoniks, Koumiaha replied with the following:
“I thought it would be wise for me to reach out and correct a few misconceptions that were stated in the article. It is true that I have designed the CRXi and CRXii units for Cryptrade in 2010, however, I am unaffiliated with that company. It was a commissioned contract that I was very proud to successfully deliver upon. Unfortunately, I have no bearing on the business practices nor do I receive a royalty from Cryptrade. With that said, Cryoniks, Inc. and Cryptrade are not affiliated. It is rather unfortunate that I should be wrongly accused of “scamming” or of being a “serial scammer” when I have done nothing of the sort. It would behoove your staff to perhaps contact Cryptrade for a detailed explanation of their business practices.”
The full response cane be read at the top of the BTC Bible article…so while Koumiaha claims he has nothing to do with Cryptrade anymore and only did his contracted duties, it’s worth noting that both Cryptrade and Cryoniks are represented by the same law firm, Safford & Baker, PLLC.
While all the updates promise they will eventually make good on their end of the deal, there is no way to know for certain if they ever will. It’s entirely possible (and with each passing day, more likely) they could never ship a single flash drive and the hundreds of people that collectively pooled together nearly $200,000 will see their money absolutely wasted. And the craziest part is, Kickstarter can’t and won’t do anything about it.
Since Kickstarter is a service, it views itself more as a platform or place where business can take place, not as a business itself. This is made abundantly clear in their terms of service, which states that they are in no way, shape, or form responsible for any financial loss relating to “rewards or any other use of the Service.” It goes on to elaborate that “All dealings are solely between users…Kickstarter is under no obligation to become involved in disputes between any users, or between users and any third party.” Which is all to say that once you decide to pledge a project, there is no guarantee by either the recipient of your pledge or by Kickstarter itself that you will ever receive what you are entitled to.
This is a facet of their service that Kickstarter understandably isn’t shouting from the rooftops. There have been several high-profile cases of creators of successful Kickstarter campaigns “taking the money and running”. And according to Kickstarter advisor and board member Sunny Bates, that is a risk you need to evaluate before deciding whether or not to back a cause. In an interview with Polygon, she states that: “When it’s syndicated out so broadly with backers, even if somebody is scammed – and it looks too good to be true and you still take a risk on it anyhow – you feel pissed off and upset at the creator and then, you know, some of that may lead over on some people feeling ‘why can’t Kickstarter control this?’ Well, it’s a platform – we can’t.”
And even though the vast majority of the backers on Kickstarter are for under $100, Bates goes on to say that, “I think that because where the bulk of the projects are is between the $25 to $1500 range, are you going to go take legal action on something that you put $50 into? I mean you tell me. Maybe if you put $10,000, sure. Or $1000, maybe. But if you lost $25 or $50 then you’re a little disappointed and you think the [project creator] sucks. But that’s the beauty of crowdsourcing, it’s not really worth your effort – you’re disappointed and you’re angry that somebody would do this because it does feel like they’re duplicitous and they’re trying to pull the wool over the crowd’s eyes, and clearly they can’t. But I think legal action, when you syndicate it out and you have hundreds of backers for any one project, it’s a very different story.”
It’s worth noting that Kickstarter takes a 5% cut on all successfully funded projects, meaning that most of the company’s money is derived from these smaller, $25-$50 pledges that Bates so flippantly dismisses.
Since Kickstarter doesn’t have your back, there is absolutely no guarantee regarding any campaigns, and every pledge should be viewed as a calculated risk. The best way to protect yourself is to do as much of the calculating as possible to minimize the risk. Research the people behind the campaign as thoroughly as possible – people or companies with little to no information about their history should be a huge red flag. Consider how difficult it will be for the campaign creator to actually deliver on what they are claiming to produce – a Kickstarter campaign promising to cultivate a city lot into an urban farmland is much easier to achieve than a campaign that has to create a sophisticated, never-seen-before piece of hardware tech like a full-body feedback suit for videogames. Don’t pledge what you wouldn’t be willing to lose – again, pledging to a Kickstarter campaign is a gamble, and as any decent gambler will tell you to never wager what you can’t afford to lose. Consider alternatives – in the case of Crypteks, many people noted that there are other, vastly cheaper, options to creating a secure USB flash drive (such as TrueCrypt) that are free to implement in existing, run-of-the-mill flash drives (although this would admittedly be without the physical enhancements Crypteks added to the casing of the drive to prevent literally cracking them open).
Crypteks has been in somewhat of a “radio silent” mode once it became clear they were not going to be shipping the flash drive anytime soon. Their Facebook page hasn’t been updated since December of 2011, and clicking on the Blog link on their website only directs you to the inert Facebook page. On the Kickstarter page itself, there have only been three updates in 2013, and two of the most recent updates were about how people can get refunds (the updates are almost all shared with backers only, so since the campaign is now closed, it is impossible to read the full updates unless you were an initial backer). While it seems unlikely that Crypteks was out to scam people from the get go (why even offer refunds if you’re aiming to ride off into the sunset with bags of cash?), they are losing more and more customer faith and positive brand association with each day that passes without sending their backers their product.
Kickstarter can be a great way to hear of new projects that you may never would have come across otherwise, and it does serve as a great equalizer for Davids trying to compete with the Goliaths in their industry. But you should always exercise restraint and caution before pledging money towards a campaign. As a backer, you’re investing in the person or people who are running the campaign – not all investments are sound, however, and if you don’t do your research into who you’re giving money to and what you hope to get back in return, you may never see either again.