ATLANTA — When a crowdfunded startup fails, backers who invested may feel as if they were misled.
Giving to a startup is easy and convenient with online sites like IndieGoGo, GoFundMe and Kickstarter.
A major draw are the perks backers get for donating. Often, backers are told they will be the first to receive the new product they help fund.
That’s why Tim Trainum gave money to the Portland startup Coolest Cooler.
"I went and looked at a video of it and it was just, it was really cool," Trainum said.
He wasn't the only one who thought so. The so-called “portable party” with built-in blender and speakers raised more than $13 million on Kickstarter. It was one of the website’s most successful campaigns to date.
"It was, what I thought, a very inexpensive price for all the things that were going to come in it,” Trainum said. “So I bought it, or invested in it."
Trainum said backers waited for months as the startup said manufacturing setbacks kept them from getting their own coolest cooler. Months later, backers found out the coolers were being sold on Amazon.
"We started to wonder if this was fraudulent," Trainum said.
He’s not alone.
Georgia Tech startup TechJect used snazzy marketing to promote its Robot Dragonfly.
Their 2012 IndieGoGo campaign was one of the first crowdfunded tech startups to raise more than $1 million.
But the dragonfly hasn’t made it off the ground.
TechJect announced a suspension of the project last November. On TechJect’s IndieGoGo site, many backers said they were duped.
Perry Binder, professor of legal studies at Georgia State University, said that feeling is common, but actual fraud is rare.
“If they make reasonable efforts and try to refund what's still available, it's not their fault,” Binder said. “It's when they personally pocket this stuff. That's where it's really fraudulent, and that's when there're problems, and that's where attorneys or the [Federal Trade Commission] might get involved.”
Channel 2 Consumer Advisor Clark Howard said crowdfunding can be a lot of fun, but risky, because you are investing in an idea that’s not an actual product yet, with no legal guarantee of a return.
"The reality is a lot of startups fail,” Howard said. “So before you put money in, it's got to be money you can afford to lose.”
On their IndieGoGo site, TechJect committed to releasing their intellectual property to backers to make up for any financial loss if the project ultimately fails.
Trainum, who still desperately wanted his own Coolest Cooler, took matters into his own hands.
He started a petition on Change.org demanding Coolest make good on their promise to backers before selling to the public, and he got results.
Trainum's cooler was delivered weeks later. Coolest said they are very close to getting all their backers coolers.
In an email a representative for Coolest said:
“We want to apologize for the delay in getting out the Coolest coolers to our Kickstarter backers. When you do a Kickstarter campaign you plan for success and we did a great deal of research before launching.“As a small business we have been challenged by unforeseen issues that created this delay. These issues included the overwhelming demand for our product, compounded by challenges with logistics (62,000 backers in more than 72 countries around the world) and a strike at the battery motor manufacturer last year which caused a halt in production.“In the last few weeks alone, we have shipped 10,400 coolers to backers and now have approximately 25,000 backers left to fulfill. We communicate regularly on the plans we have to achieve this and are making good progress. Bringing a new product like this to market is challenging but we are actively engaged in fulfilling backers and shipping more coolers every week. We thank everyone for their continued support and patience.”
A representative for TechJect told Channel 2 by email TechJect has good intentions for its supporters, but has been in contract disputes with startup partners.
"They have an obligation to try to fulfill their promise to you but it is not a legal obligation," Trainum said. "If the project fails, they don't owe you anything."
Cox Media Group
