When crowdfunding goes wrong: how platforms handle fundraiser disputes: Candice So at IT World: CATA CEO Speaks Out
August 6, 2013

When Tara Reed first began her crowdfunding campaign on Indiegogo, she had high hopes that it would help her achieve her dream – to self-publish her book.

In March, the Toronto-area writer launched a campaign on Indiegogo to try to get backers to support her project. Armed with perks, videos, and regular updates, her campaign goal originally started at $70,000, though it was later lowered to $40,000. Her campaign ultimately only netted her about $9,000.

In a phone interview, Reed said Indiegogo treated her unfairly, adding her campaign would have had better results if the platform had been more transparent with her and had responded to her concerns. She now questions whether she would have been better off canvassing her friends and family for funding, rather than going through a crowdfunding platform...

The legal disclaimer on the site isn’t surprising, says John Reid, CEO of the Canadian Advanced Technology Alliance (CATA) and a member of Invest Crowdfund Canada, a group pushing to legalize equity-based crowdfunding for startups.

Still, if crowdfunding sites want to protect their reputation and generate goodwill towards their brand, it’s key to preserve a good relationship with their campaigners, despite what their legal disclaimers might say, Reid points out.

“If you look at crowdfunding, which is a relatively new concept, you’re obviously dealing with people with different expectations,” he says. “So it’s very important for these platforms to be very upfront and have very understandable terms and conditions … People want to just understand what the rules of the game are.”

With social media becoming such a big part of branding and marketing, it’s easy for any disillusioned individual to tell people about a bad experience with any company, including a crowdfunding platform, he says. And as crowdfunding becomes ever more popular, this is only going to become a bigger issue – especially if equity-based crowdfunding is thrown into the mix, he adds.

But on the flip side, Reid has a piece of advice for campaigners, or even startups looking to promote their minimum viable product through crowdfunding. He points out it’s easy to destroy a business relationship through one hotheaded moment – and the relationship between a campaigner and a crowdfunding platform is a business relationship like any other.

“Some people have quick boil-over points, so when you’re under a lot of pressure, you’re trying to pay your employees, you’re trying to build your customer base, sometimes it’s very easy to lose perspective on what you’re doing,” he says.

For Reed, the author who had been dissatisfied with how Indiegogo handled her case, her breaking point came when the platform refused to keep her in the loop.

“I absolutely said to them, if you don’t tell me what’s happening, then yes, I have to write about this,” she says, adding she wrote a series of blog posts outlining her experiences with running her crowdfunding campaign.

Indiegogo declined an interview for this story. However, it released this statement via a public relations firm:

“We built Indiegogo into the world’s largest crowdfunding platform, one customer at a time, so we take very seriously the decision to terminate any relationship with a customer, which we had no choice but to do in this case.” (Its terms of use are available here).

And after a series of email exchanges between Reed and customer service agents, Indiegogo eventually decided to ban Reed from running any more campaigns on its site.

Avoiding a bridge-burning might be a strategy for startups to consider if they start their own crowdfunding campaigns, CATA’s Reid says.

“Understand that when you do get in a situation where there is a dispute, you don’t want to immediately go into quantum escalation,” he says. “Always try to resolve at the lowest possible denominator, understanding the cost of losing goodwill."

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