Digital Compass

Put Your Money Where Your Mouth Is

Editorial - Kickstarter, and the pitfalls of crowdfunding in the digital age.

Jake L, 18/06/2025

In today’s highly consumer world we have access to almost anything we could dream of. Too much, perhaps. Especially from the perspective of someone who has a great idea they’re trying to sell to the world, it’s easy to get lost in the sea of things online. Securing funding for new projects can be hard, especially if it’s high risk or so unique that it’s hard to picture a market. This being compounded by the financial strain and increase cost of living that people experience world-wide. Many world changing ideas are doomed to be forever be scribbles on paper because of this, and many that get off the ground often never find their market. However a few hundred years ago a new method of funding projects was envisioned, one that continues to reinvent itself today as the world evolves. It’s called crowdfunding and it has absolutely exploded in the last decade, turning into a multi-billion dollar industry that for many has redefined how businesses can be built and how the operate. The short version is that investors to contribute funds upfront in exchange for rewards or some kind of return on investment. Consumers as a result can support the ideas and products they want to see in the world or support low volume products that would otherwise not be viable. It sounds like a win/win situation and there’s a lot to love about it. It seems that no one seems to have a moderate opinion on the subject, with so many praising the creativity it allows and equally as many mocking how many ludicrous ideas see the light of day because of crowdfunding. Spurred on by this, I decided to dig a little deeper and see what the reality is.

So what is crowdfunding?

Crowdfunding is a system in which multiple people invest towards a goal, usually before the project has formally begun and favouring smaller contributions from more people. There are different ways to approach this, all with small but important differences. Most of the time these investments don’t offer a stake in the company, relying on other incentives to attract investors.

They all have their intended use cases, or probably more accurately: target audiences. While nothing new, the explosion of the internet and an increase in consumerism in the last few decades has lead to reward and donation based crowdfunding becoming the crowd favourite. I knew I had to look into both of these but also realised quickly that they couldn’t be covered at the same time and do them justice, so from this point onward I will be focusing on reward based crowdfunding, in particular the current poster child that is Kickstarter.com. For those of you who are unfamiliar, Kickstarter is a platform to connect creators with investors and to build up start-up capital for products. Investors (or consumers is probably more apt) invest (Or pledge, or back, as they and others may refer to it) in a product with an agreement that they will get a reward for their contribution. Someone asking for investment in their line of stuffed bears might set a goal of $50,000 offer several reward tiers based on how much people invest. These will vary depending on what the product is, and so will the prices to unlock each tier. There’s no upper limit to your investment, and they are usually positioned in such a way to entice you to spend just a little more to unlock the next reward. At this early stage it is relatively risk free, if the project doesn’t reach it’s goal the money you have pledged stays with you and both creator and investor walk away. Only once the goal is reached is the money collected from the community and passed to the creator.

Why is it so popular?

Crowdfunding in this was allows individuals to back projects that would otherwise not get off the ground, while those who are willing to wait are rewarded for their support – whether this us a discount on the finished product or something that would not be available to regular consumers.
Meanwhile creators massively reduce their risk, there is in many cases nothing spent upfront and no commitment unless they reach a goal they determine. Meaning as long as they’ve run their numbers properly and left enough breathing room should more than cover the project. Once the funding goal is met only then do the begin in earnest, using the money to procure the resources they need and set up production lines. A year or so later the project has been fulfilled and not only to the backers get their sweet little bears in their exclusive outfits, but those who made them now have a fully operating company with a product that’s already out to market and a fully set up pipeline to continue to grow. Selling more of the bears and continuing to build their consumer base. The best part is that they have delivered their rewards to the investors and now they fully own their business, they don’t owe anything and are free to continue doing business.
It seems like a match made in heaven, investors get rewarded for their good faith and creators are given the resources to create. It’s the idealistic capitalist dream in full swing right? Well this is mostly true. As with everything in life there is opportunities for exploitation and negligence to occur. With almost all of the risk landing on the investors, this creates a dynamic that can quickly become problematic.

What could go wrong?

To be blunt, quite a lot. Like any start-up investment, things can fall apart at any point along the way – from inception to delivery. This is especially true when it involves goods being delivered. A cool new tech gizmo might look good on paper but it’s not uncommon for the R&D to take longer and cost more than expected. In fact, this is the norm. Ironing out bugs to meet deadlines and procurement issues have resulted in the demise of countless crowdfunded projects. Between ideas that were never going to work, and people that just set the bar too damn high. Many have eventually had to face the fact that all they’ve produced is content for YouTube lists.
Here is where things start to get a little dicey because this model is heavily weighted towards the creator. Not to mention if they don’t make money neither does Kickstarter. Once the goal has been reached Kickstarter helps facilitate communication with customers and delivery of goods but they are essentially hands off from this point. They do little in the way of keeping creators accountable, or to push them along. They’ve taken their cut. This is especially obvious when you look at the stats Kickstarter presents on their website, which rather than discussing the success rate of funding projects, or more importantly, delivering them. They focus on how much money they’ve raised and how many projects have been funded successfully. One must go digging for the stats relevant to the consumer or investor.
Here’s where we get into rather curious but admittedly academic territory. Because independent research has been done, and it shows that investing in these crowdfunding exercises can be a bit of a gamble at the best of times.
To break it down in the easiest of ways, as of today (12/06/2025) 665,804 projects have been launched on Kisckstarter, of those 280,171 have been fully funded. Putting the percentage at 42% of launched Kickstarters being funded. So far this risk is worn by the creator, an it is minimal since no money is exchanged if it doesn’t reach it’s target. From here, data is a little harder to come by but independent research from the University of Applied Sciences Utrecht shows that:

This means that 112,068 of those 280,171 projects never see completion despite reaching their funding goal. Based on Kickstarters own figures of 8.13 billion USD being successfully funded, that means that 3.15 billion was lost, squandered, or in the worst case, maliciously stolen. That’s an obscene amount of money to go missing, and to be fair that is the risk of investing. Research suggests that the majority of this money was simply creators who had bitten off more than they could chew, were victims of shifting market patterns, or otherwise were generally unlucky or incompetent in ways no one could have foreseen.
However there are a large number on the fringe of these that are malicious actors, who intentionally start these Kickstarters with extremely tantalising offers that are just believable enough to ensure they hit their funding goals. Aided by aggressive marketing campaigns and social media presence they use saturation ensure they reach enough people. They reach their goal and then using clever fakes, 3D renders, or simple email updates, they keep up the idea that they are making progress slowly but surely. Usually they will keep this going a long time while slipping in the occasional mention of a delay and/or technical difficulties. As time goes by, these updates become less frequent, with less progress and less effort put in to them. Until they stop altogether, or if they are generous they will send out communications saying that they are unable to continue the project – whether it be money or technical difficulties. They company will be dissolved, the creators will move on, and in many cases will start planning their next crowdfunding project. A number of people have made a living off of this shady practice. From drones, chess boards, underwater breathing devices, board games and everything in-between. It’s less about the product they’re selling and more about making people believe enough to reach for their wallets. Almost like they’re the snake oil paddlers of the digital age.

But that’s illegal right?

Well, that depends on a lot of things. Most importantly where you live. For example, in the UK these kinds of crowdfunding are mostly unregulated. This means if you feel wronged or consider yourself a victim of fraud your only option is to take legal action – something that can quickly become expensive and has a tenancy to drag on a long time. Considering this may be over as little as $100, it becomes a logical choice to simply take the L and move on with your life. This is similar in the USA, where Kickstarter is based. There isn’t a lot to be done unless it can be proved to be outright fraud, and even then it will likely involve a class action or other legal action to seek reimbursement. That is, if the creator or company in question even has any money to give back to you. Or can be located. Or is in a country where you can take legal action against them. Quite simply put, you must make the assumption that if the project you have backed fails you will see no return on your investment.
The best defence is simply to be careful with what you back and how much you spend. Like anything, don’t spend what you don’t have to lose. Accept that it is more likely that you won’t get anything back than that your expectations will be met, and that you will likely experience delays even if they do eventually ship the product. It’s not quite a gambling, but it is a gamble. Sticking to people and entities that you know and can trust is paramount, or people that have a reputation for delivering things successfully in the past. These are all indicators that it is more likely to be successful. But in the end it must be remembered that this is an investment and therefore you are taking the risk that it won’t work out – that is why they are taking these steps in the first place rather than seeking alternative ways of funding the project.

Let’s wrap this up

To this date I have got involved in exactly two crowdfunding projects. One was delivered on time exactly as described and saved me a large sum over the retail price. However it was a Mass Drop which was run by an existing (large) company with production lines and R&D all completed already. It was more akin to having something made to order rather than investing in a start-up. The other strung me along, gave me updates here and there for almost two years before silently taking down their socials and disappearing into the vastness of the internet. That’s working under the assumption that they weren’t straight up stealing my personal information. The alarming thing is this literal coin toss situation still found me beating the market average at a 50% success rate. Those numbers are scary, and while I knew it was a risk when I signed up I still lost $500 with nothing to show for it.
Behind a site that is specifically built in order to sell the best possible scenario and build hype, is the reality that you are playing with your money. Especially since sometimes it’s not even a commitment right away, a pledge won’t be collected until the project is fully funded. This makes it easy to commit to something with no immediate penalty and no immediate reward, only to hurt a lot further down the line. I want to stress that there is a lot of good that comes from these, and that any avenue that gives power to the people to build ideas and innovate in ways that can disrupt the market is a good thing. However it’s only now after researching more about them do I honestly appreciate how risky these things can be. Perhaps in my circles people have been lucky or just involved in more trustworthy projects. However I don’t think I’ll find myself involved in any of these in the future unless it’s a sure thing, I don’t think I want for anything that bad and if I can wait for it I can probably pay a little more for it after the fact too. Regardless of all of this I find it genuinely fascinating how the digital world continues to morph the way we do business and create and this is just one small part of this. May the odds forever be in your favour.

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