Date
19 October 2017
Crowdfunding platforms, like Kickstarter, usually set a low risk threshold for their projects. Photo: Bloomberg
Crowdfunding platforms, like Kickstarter, usually set a low risk threshold for their projects. Photo: Bloomberg

Avoid traps on crowdfunding platforms

Some of my readers told me they have supported various kinds of crowdfunding projects.

They enjoy being one of the first to get new technology products or artworks.

However some had unhappy experiences with such crowdfunding projects, owing to project failure or misuse of funds.

Investing comes with risk.

However, crowdfunding platforms, like Kickstarter, will usually set a low risk threshold for their projects.

Most people who invest on crowdfunding platforms treat it like a hobby.

Instead of conducting due diligence like private equity or venture capital firms do, they will, in most cases, simply make their decision based on quick search results or the attractiveness of the demo videos.

Failure, or delays, in a project is often blamed on technical problems.

But investors may have been misled in the first place by astonishing demo videos that use special effects or filters.

It is acceptable if technical failure is the real reason for the failure of a project, but more and more cases of failure are due to other reasons.

For example, game developer ETeeski successfully raised US$4,000 from Kickstarter for a new game, Ant Simulator.

But a co-founder later announced via YouTube that the money was spent by two other co-founders on spirits, clubbing and even strippers!

This reflects serious corporate governance issues associated with crowdfunding.

And recently, Ezubao, the Chinese crowdfunding platform for financial leasing projects, turned out being a huge Ponzi scheme.

The money of hundreds of thousands of investors was used to buy luxury handbags for the founder and his friends.

In the past two years, as crowdfunding platforms have grown rapidly, many fraud cases have cast a shadow over the industry.

That’s why a model combining crowdfunding and venture investment is welcome, because ordinary investors will expect support from professional investors.

This article appeared in the Hong Kong Economic Journal on Feb. 5.

Translation by Myssie You

[Chinese version 中文版]

– Contact us at [email protected]

MY/DY/FL

Director at Spring Capital

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