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The Dark Side of Kickstarter – No Refunds

by on September 14, 2012

Dark Side of Kickstarter No Refunds

What do you do when you have a great business idea but don’t have the money to support it? You go to Kickstarter. Since 2009, the crowd-sourcing site has helped thousands of entrepreneurs finance their dreams by allowing them to pitch for small donations from private donors worldwide. It’s a staggeringly simple formula: you pitch your idea via a webpage, you offer investors incentives to donate – such as film credits, discounts or shares in your company – and then you let the money roll in.

However, with one of Kickstarter’s largest projects in the midst of an $8.6 million R&D phase, a major question regarding the financing platform’s functionality still begs to be answered. What happens if the entrepreneur fails to deliver?

The elephant in everyone’s collective room is a video game console known as Ouya. It’s the brainchild of former IGN and GameFly executive Julie Uhrman, and if it’s successful it has the potential to seriously shake up the gaming industry. The console, priced at $99, is based around the free-to-play business model popularized by PC games like Team Fortress 2. All games hosted on the console will have free baseline functionality, but gamers can purchase extra levels, weapons and characters. In some cases they can unlock the “full game” all at once.

Since Ouya uses an open-source, Android-based OS, it’s ideal for indie game developers. The software can be modified, hacked, tweaked and expanded however the Ouya development team and its proposed legion of developers see fit. Additionally, any app-based game that comes out for Android phones will also be available on Ouya.

The console sounds great in theory – so good, in fact, that 57,000 people have already pre-ordered an Ouya through Kickstarter. But pushing the Ouya out of development and into the real world will require a herculean effort by Uhrman’s team, and some investors are starting to question the project’s feasibility.

NPR addressed these concerns when it asked, in an interview, if Uhrman would refund investors’ money if the Ouya never actually gets made. Her response was as follows:

“Technically, from the Kickstarter perspective, I actually don’t know the answer to that. But from a doing-the-right-thing perspective, we will treat our backers the best possible way.”

What does that entail? In so many words, it seems to mean that Ouya won’t be giving any money back unless Kickstarter makes them.

That’s bad news for investors, because at the moment Kickstarter doesn’t know how it would handle such a catastrophe. The company has never been faced with such a dilemma before.

“You know, that would be new ground,” said Kickstarter co-founder Yancey Strickler. “I don’t know. I mean, no, I don’t think that we would [get involved in a dispute]. But certainly, the kind of thing you’re talking about is not a bridge that has been crossed yet. Someday it will. And you know, I think if something did go awry, it wouldn’t be my favorite day.”

Strickler has already had a few less-than-favorite days this season. The Pebble smart watch, a device which received a record-breaking $10 million from Kickstarter investors, just missed its first expected shipping deadline. Investors who’ve demanded their money back have been ignored. Another project, the PopSockets phone case, is now running a year late for its debut.

So the bottom line is this: if you pre-ordered an Ouya, pray that the forecast for the console’s release remains sunny. Because if Uhrman fails to deliver, then it looks like you’re going to be out $99 and Kickstarter isn’t going to help you get it back. Tough luck, kids.

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