If you’ve been following events in the crowdfunding or online tech startup worlds at all, you might have heard of the controversy surrounding Healbe GoBe, an over $1m Indiegogo campaign to fund a device that medical science says can’t possibly work. A startup-focused news site called PandoDaily has been leading the charge on the investigation into Healbe’s possibly fraudulent campaign, and it hasn’t looked good on Indiegogo at all.
A little under a fortnight after the first article ran, Indiegogo responded by modifying the anti-fraud guarantee on its website so that the wording was less absolute. A day later, Pando reported on another Indiegogo campaign which had been funded less than six months earlier, also appears to be medically impossible if it can do everything it claims, and for which the company responsible for the device, TellSpec, has since completely reset the clock on the development of a product they originally claimed to have nearly perfected. A parody of the Healbe GoBe campaign was created called ‘Miracle Health Bracelet: Vaguely Track Your Health, Fitness and More’ which made it past Indiegogo’s supposed anti-fraud algorithm, though it has since been removed. Finally, to cap everything off, Pando reported yesterday that the undisclosed donation which pushed Healbe’s calorie counter over the brink of $1 million came from none other than Indiegogo’s chief of hardware, Kate Drane. Clearly, Indiegogo is determined to throw its full weight behind this campaign in spite of all the negative press, scientific debunking and waves of requests for backer refunds.
There have been arguments made on both sides, some saying that Indiegogo needs to take responsibility for the campaigns promoted on its platform and others saying that it can’t be held liable for what the crowd decides to put its money behind. Either way, the Healbe controversy is bound to have a knock-on effect on Indiegogo’s credibility and the willingness of consumers to back other products on its site. After all, there are plenty of other crowdfunding sites out there with innovative projects, products and ventures. But how can you be sure that they won’t have the same problem?
Well, there’s always an element of risk involved in crowdfunding a project, and it pays to do research beyond just watching the campaign video – particularly when something claims to be miraculous, innovative, never-before-seen technology. However, there is also a system that’s been put in place to ensure a high level of operational standards and transparency on crowdfunding platforms, and it’s called Crowdfunding Accreditation for Platform Standards.
CAPS debuted in early 2012 just as the JOBS Act, a law intended to encourage the funding of small businesses in the United States, was amended with provisions for crowdfunding, generating a great deal of excitement amongst investors and the crowdfunding community. The act was signed into law by President Obama two weeks later. Given the unprecedented amount of attention around crowdfunding created by the JOBS Act, and taking into account the hundreds of crowdfunding platforms that were already operating before it even was signed into law, some kind of basic standard was clearly needed in order to prevent the newly-legitimised crowdfunding market from being swamped by fraud, as some had feared it might. The initiative to establish a crowdfunding accreditation program had already begun long before the JOBS Act was introduced, but CAPS couldn’t have come at a better time.
A little over two years on from CAPS’ debut and the JOBS Act being signed into law, forty sites are listed as being CAPS accredited. They hail from various corners of the globe and span a range of different industries and niches, with platforms such as Gambitious, the first professional crowdfunding platform dedicated exclusively to the gaming industry; FoodStart, which focuses on crowdfunding food and beverage ventures; Crowdcube, the first equity-based crowdfunding platform, which has its own vetting procedure and requires businesses to present at least three years of financial projections; and Piglt (pronounced “piglet”), which crowdfunds higher education and student loan debt and education-related causes. More than anything, browsing through the list can bring some great new ideas and investments to your attention, with the assurance of knowing that they all conform to a high, independently established standard of practice and transparency.
Needless to say, Indiegogo is not on the list. Then again, neither is Kickstarter, arguably the most well-known crowdfunding platform out there and one which offers the projects it hosts all kinds of clout and visibility. Kickstarter has its own vetting procedure for campaigns, which although restrictive, offers accepted projects a great deal of legitimacy, as well as helping to prevent fraudulent campaigns. Kickstarter isn’t impervious to fraud, as demonstrated by the Kobe Red incident, but Kickstarter acted quickly enough that it was able to suspend the project before it completed its campaign, saving over 3,000 backers more than $120,000 collectively. Kickstarter’s reputation and proven track record speak loudly enough that a CAPS accreditation is hardly needed; and just because a site is CAPS accredited doesn’t mean that its backing procedure will be completely free of problems either.
There’s also the possibility that selectiveness and rigorous standards are not always in the crowdfunding industry’s best interests. Certainly there is a place for the 100% reliable and discerning crowdfunding platforms, and if a buyer wants to play it safe with their money, they should always have the option. However, Charles Luzar of Crowdfund Insider makes a very persuasive case for the no-holds-barred approach to crowdfunding with a higher level of risk to balance out the choosier platforms. “Ask me if I think an entrepreneur with a half-baked idea should be able to raise money for said half-baked idea and I’ll tell you, unequivocally: Yes, if the crowd decides it to be so”, he writes. “The final decision to provide HealBe with the funds they deem necessary to bring their product to market lies with the crowd and only the crowd.”
I totally agree with this sentiment, given that as I said earlier, crowdfunding always carries an element of risk and doing background research on something you want to back, if you’re not already familiar with the creator and their track record, is basic common sense. The more attention a project attracts, the more likely it is that anything dodgy about its claims or its background will be brought to light by some sharp-eyed individual, so in that respect, the “crowd” part of crowdfunding brings with it a reasonable degree of reliability – if, as I say, you do the research before you commit the cash. But as Luzar points out, Indiegogo lacks two important safeguards which are really needed on a platform with a non-discriminatory approach to campaigns. One, the funds for its Flexible Funding campaigns are not “held in escrow”, which means not released to the campaign creator until the campaign has completely run its course. In the case of Healbe GoBe, it means that even if Indiegogo pulled the campaign from its site, Healbe wouldn’t lose any of the $1 million it has raised to this date, and refunds are also issued at its own discretion. Which brings us to problem two: there is no option to cancel a pledge while the campaign is running, under any type of funding, flexible or not.
There’s another issue that I can see with the argument that Indiegogo shouldn’t be responsible for whether or not campaigns like GoBe and TellSpec are based on fraudulent science, which is that Indiegogo claims to have a fraud prevention system in place which has already vetted these campaigns. Its support article on how Indiegogo deals with fraudulent campaigns asserts that “Indiegogo has a comprehensive fraud-prevention system to protect our users.” It also says that an “examination” is performed before funds are disbursed. A few paragraphs down, it blithely states that “Campaigns that are not transparent with their goals and project status tend not to attract contributors.” In the case of Healbe, clearly this doesn’t apply, nor does it preclude the possibility of campaign creators inventing information and doctoring videos to give the appearance of transparency.
If Indiegogo wanted to take the line that backers fund possibly-fraudulent campaigns at their own risk and that campaigns which truly lack transparency and good practice are unlikely to attract backers, then why claim to protect users at all? Why remove obvious parody campaigns like the Miracle Health Bracelet? Why repeatedly insist that the GoBe campaign is reliable, and even go so far as to have a high-ranking member of staff back it? If Indiegogo wants to be a free-for-all crowdfunding platform, it should be a free-for-all crowdfunding platform and not leave users in any doubt about that fact. As it is, it risks providing its users with the worst of both worlds and suffering an extreme loss in credibility by giving a platform to campaigns based in sham science.