Why Indiegogo’s Shipping Guarantee Program is a Terrible Idea

I read this week in the Verge about Indiegogo’s plans to offer a money-back guarantee for people supporting projects on the platform.

As Indiegogo put it, the new initiative is “designed to enhance trust and reliability within the crowdfunding community by ensuring backers receive their orders or a full refund if the project doesn’t ship on time.”

Sounds like a great idea, right?

No, I think it’s a terrible idea.

What is crowdfunding?

Taking a step back for a moment, what is crowdfunding?

Indiegogo and Kickstarter are both crowdfunding platforms - specifically rewards-based crowdfunding. With rewards-based crowdfunding the creator is not giving away equity in a company or committing to pay back any of the money they receive. There’s a more direct quid pro quo - people give you money, you make a product (or service or experience) for them.

Unlike a regular ecommerce transaction though, the thing you’re offering doesn’t exist yet. So as a creator, you get the money first, make the thing, and only then do you give the thing to your backers (customers).

However, making things is hard, and projects don’t always go to plan. As a backer, there’s an inherent risk that you might never get the thing that you pledged money for.

Kickstarter and Indiegogo try to be very transparent about this risk, but it’s of course disappointing if it ever happens. When it does though, the platforms pretty much offer no recourse or recompense, and as a backer, your money is lost.

Trust

Personally I’ve never backed a project that has completely failed to deliver. A great many of them are late, but things always turn up in the end.

Kickstarter and Indiegogo can only work if backers have faith in the system.

It’s up to creators to put together a compelling pitch and build trust with potential backers.

It’s also up to backers to do some due diligence. Apply some critical reasoning and make sure you’re comfortable with the risk when it comes to crowdfunding. As with anything on the internet, if something seems too good to be true, it probably is. And AI has introduced a whole new world of potentially misleading project information and even downright scams.

The subject of backer due diligence is probably worth its own post so look out for that in the future.

Why is a guarantee bad?

Indiegogo’s new “shipping guarantee” seems to be their attempt at addressing the issue of trust.

On the surface, you might think it makes sense, but I believe it has the potential for negative consequences.

Crowdfunding is not online shopping. That’s the whole point of it.

Many creators, including me, couldn’t have launched the products that we have without crowdfunding.

The beauty of running a crowdfunding project is that it simultaneously tests the market for an idea, and provides the money to get it off the ground. It allows creative people with smaller budgets to bring exciting new ideas to life.

The way Indiegogo’s new “shipping guarantee” works is that when a campaign ends, Indiegogo holds onto the funds until the creator finally ships the finished product. That destroys one of the two central tenets of crowdfunding.

As a creator wanting to use the new “shipping guarantee”, you’ll need to have enough money to make your product without the money you raised from the crowd. That could easily be thousands or even hundreds of thousands of dollars.

I can see this resulting in two classes of Indiegogo projects - ones run by established companies that can afford to have the “shipping guarantee”, and smaller projects that are deemed less trustworthy because they can’t afford to have it.

The future

I’m still in two minds about whether big rich companies have a place on crowdfunding platforms.

There are examples of multi-billion dollar companies launching products on Kickstarter just as a marketing exercise.

The argument in favour for such projects is that they bring more backers to the platform and it just increases the pie for all creators.

To the purest in me, it doesn’t feel quite right though. It feels like it’s taking crowdfunding too far away from what it was originally conceived for.

That’s probably something I just need to get over. Things change. Progress progresses.

The new Indiegogo feature is more existential than that though. If Indiegogo becomes only available to well-funded companies and people start to treat it as an online shop then that will be the beginning of the end for them.

Rant over

I still love the concept of crowdfunding and will continue to create and back crowdfunding projects.

I don’t want to put you off crowdfunding. So many cool products simply wouldn’t exist today if it wasn’t for crowdfunding and long may that continue.

There are definitely plenty of bad crowdfunding campaigns, and occasionally outright scams. But the vast majority are run be honest people trying to make great new things.

Just remember that backing a Kickstarter campaign is not the same as buying something on Amazon. There’s a risk you’ll never see that money again, but use your common sense when evaluating a campaign and that risk will be almost zero.

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