The Indiegogo campaign for Idaho-couple Scott and Julie Brusaw’s company Solar Roadways has almost reached $1.75 million at the time of this piece’s writing. The company has a real chance to lap its original goal of raising $1 million. Especially since they extended their Indiegogo campaign, originally scheduled to finish on Sunday, all the way to June 20th.
This makes it the most successful Indiegogo campaign of all time. There’s just one problem: while donation crowdfunding platforms like Indiegogo and Kickstarter love to tout themselves as champions of the people, providing seed money to inventors and artists who would otherwise be unable to access the funds they need to make their vision a reality, they’re also a great way for private enterprise to raise cash without having to offer anything in return.
For-Profit Efforts Getting Backing for Nothing
Veronica Mars, Zach Braff, Oculus Rift, what do these all have in common? They all raised more than $1 million for the cause of enriching their founders. They may not have sold them that way, but that was the end result.
While some look at Solar Roadways or Scrubs actor Zach Braff’s campaign to fund his film Wish I Was Here as a disruptive effort to work outside traditional models and fight the powers holding the purse strings, I see it as an effort, intentional or not, to exploit the general public’s ignorance so certain people can reap all of the financial rewards while assuming none of the financial risk.
The spirit of these crowdfunding platforms is one of democratizing our culture, of providing an avenue to funding that doesn’t normally exist. And, for the vast majority of the campaigns, that’s spot on. But for some, and often the ones receiving the most funding, the people raising money are not struggling artists or entrepreneurs without other options. In fact, they’re private businesses using these platforms to raise money in a way that would normally require that they offer something in return.
Kickstarter and Indiegogo are quick to point out that, because of SEC rules, it would be (conveniently) illegal for any of their projects to distribute profits to their backers. And this is definitely true…for now.
Not a Zach Braff Fan, Huh?
So plenty of you are probably asking “what’s wrong with any of this?” If an entrepreneur has a spiffy idea, or an artist has an inspiring project, what’s wrong with them soliciting donations to make that happen?
People will only fund projects that they’re interested in, and the level at which they participate is up to them. A $5 donation to a VR headset that you would love to see become a reality that's not virtual certainly isn’t going to break anyone’s back, is it?
Plus, you get swag! As Kickstarter puts it in a defense of the model posted in August of last year: “Others have accused creators of asking for a handout by using Kickstarter. This is silly. Every project offers a range of rewards to backers in exchange for their pledges.”
But, maybe most importantly, this is a way for passionate people to maintain control of their projects by cutting out any financiers whose money comes with strings attached. This theme is oft-repeated in these projects.
“I’m facing a big problem,” Zach Braff told his fans on Kickstarter. “There are money guys willing to finance the project, but, in order to protect their investment, they’re insisting on having final cut. Also, they want to control how the film is cast.”
And the Solar Roadways campaign had a similar explanation for why it was taking its plea for funding to broke college students rather than venture capitalists.
“…we have various fears about loss of control that can come with bringing in a large investor,” say the Brusaws on their website. “We hesitate to go public (sell stock), because we'd then be answering to stock holders who might want us to move our manufacturing overseas, along with all of the jobs we'll create.”
So, what on earth is wrong with talented, smart people using the general public to fund their ideas so those evil money people can’t ruin it?
They’re Getting Seed Capital for a Profitable Business Venture, and You’re Getting…a T-shirt
See, the biggest difference between the campaigns that I like to fund (like this one) and these are the potential for profit. Raising thousands of dollars for a passion project that’s probably never going to really make any money makes a lot of sense on this platform.
However, raising millions of dollars to fund your feature length movie or to begin manufacturing your solar roadways prototype and start selling fancy driveways to the super rich, that’s a horse of a different color. In this case, the rewards being offered are paltry compared to the returns for the campaign founder.
The recently-launched Kickstarter campaign for a new, web-based Reading Rainbow did something that stood out in the video it posted. Levar Burton, in making his plea, noted very specifically that the money wasn’t just going to go to expanding the Reading Rainbow learning materials, it was also going to subsidize the product for classrooms so it would be available to children in public schools for free.
It stands out because Zach Braff, a man who made $350,000 an episode for starring in Scrubs and has a net worth estimated by some sources to be as high as $22 million (it should be noted that Braff himself denied it was that high), never made any sort of assurance about where any potential profits from his film would go. There didn't seem to be any indication that this question was even a relevant one.
And it’s not hard to see why at this point. A couple of weeks ago, Braff sold Wish I Was Here to Focus Features at the Sundace Festival for $2.75 million. And that would, of course, be pretty much all profit.
So, hope you like your T-Shirt, because I’m pretty sure Zach Braff likes his money.
And, the couple of million dollars that Zach Braff seems to have squeezed from his adoring fans is utter peanuts when compared to the sort of profits the people behind the Oculus Rift Kickstarter have taken down. After raising $2.5 million to get the project off the ground in 2012, Palmer Luckey and his other financiers ended up getting purchased by Facebook (FB) for a whopping $400 million in cash and $1.6 billion in stock. Luckey, indeed.
Are These Kickstarter, Indiegogo Videos Borderline Fraudulent?
The reason this bothers me is because I think, intentional or not, these campaigns preying on people’s ignorance to raise this money. They’re using an earnest tone and the idea of crowdfunding as a democratizing force for good to convince people that their idea for private enterprise is actually a service to the public good. Which isn't to say that private enterprise can't ALSO be a service to the public good, but it's still a distinction that has traditionally been treated as an important when in the act of fundraising.
For starters, some of these ideas presented may just not be all that good. Take Solar Roadways, for instance. The idea, as presented, is for a wildly impractical public works project that would be so incredibly expensive that it will most-likely never come to fruition. However, rather than sell their project as the modest advancement of their technology along with a chance to start making some money selling it, the Brusaws seemed to go out of their way to sell their potential backers on a massive potential that doesn’t realistically exist.
This is made even clearer when you watch the video “Solar FREAKING Roadways.” This seems to be doing everything possible to sell potential donors on the idea that they would be supporting a massive, grandiose humanitarian project rather than a small-scale expansion of a private business.
Plus, anyone actually familiar with the thriving solar industry could tell you that there are already ample opportunities for expanding solar capacity that would be cheaper and more-efficient. The Brusaws seem to imply that their idea is how the only way America can combat global warming, but the reality is that there are already dozens of other, better ideas working towards that goal.
But that’s probably a big part of why the Brusaws are using Indiegogo for their project. Rather than try and convince experts with actual knowledge of the technology, they can put together a snappy video that will appeal to people’s better instincts by selling themselves as two plucky scientists with a world-beating idea. After all, the general public’s familiarity with the solar industry and the research its doing is next to nothing, so they’re going to be a lot easier to convince.
Zach Braff’s explanation also seems implausible. Are we really supposed to believe that his potential financial backers weren’t happy with casting the Emmy-winning star of the top-rated comedy on television, Jim Parsons, in a major role? That might seem reasonable to some, but anyone familiar with the entertainment industry is probably going to call that out as being total bogus.
On the whole, gross oversimplification seems to be the name of the game for these projects. And it’s a gross oversimplification that would seem to be specifically geared towards preying on misconceptions people already have about the industries in question.
Regardless of Intent, Masquerading as a Charity to Raise Money for Business is an Issue
I don’t mean to call these people out by name. I have never met or spoken to the Brusaws (I did attempt to contact them for a chance to respond to my initial article about their campaign. They didn't respond, but I’d assume they’re a tad busy at the moment). It’s entirely possible that they firmly believe in their project and are totally genuine in their vision for the future and how this campaign could get them closer. I may think the idea is a ridiculous one, but that doesn’t mean their motives are in the wrong place.
What’s more, Zach Braff could, at this very moment, be planning out precisely how he’s going to donate any and all profits from his film to charitable organizations (at which point I’m going to look like a real jerk for writing this column).
But, intentional or not, I still think many of these campaigns are essentially using to crowdfunding model, and the Indiegogo and Kickstarter platforms, to repackage themselves as something they are not.
If someone approaches you on the street and tells you they have an investment opportunity for a great company that could make you a lot of money, you’re going to have a certain level of natural skepticism (or at least you should). Except, for some reason, if someone makes the same pitch on the internet, offers you NO financial return for your investment but maintains a very earnest tone about how we’re changing the world, a lot of that skepticism seems to melt away.
On some level, I think it’s the absence of potential returns that makes people think of these efforts like they would a charity. Even when the destination for the money is a private company. And it’s precisely that disconnect that I think is being exploited by campaigns like Zach Braff’s or the Brusaws’.
New Crowdfunding Laws Could be the Answer
It’s really hard to blame these people for doing it, though. If you CAN get the public to give you free, no-strings-attached money for your project, why wouldn’t you? It begs the question of whether it’s Zach Braff’s fault for making the ask or his fans’ for buying in so whole-heartedly. What’s more, the reality remains that this sort of piecemeal, micro-investing simply only exists in this form. What can you do?
Fortunately, there’s a day coming where crowdfunding and crowdfinance won’t have to be donation-based. Equity crowdfunding and locavesting are becoming realities in the next year or so, and that will mean opportunities for ideas to get the funding they need in an equitable manner, one that offers a fair share of any potential returns to the people ponying up the cash to make it happen.
And I think that’s why this has to be addressed. As long as film-makers and inventors CAN go to Indiegogo and Kickstarter and get money for nothing, they probably will. But with these new options, we can all start to ask for more. We can happily give money to a project we believe in, but we can now ask that we get a share of any future profits should there be any. Which is not asking much at all given that we’re the reason that project exists in the first place.
So the next time you’re thinking about donating to a celebrity’s Kickstarter, maybe stop and ask if maybe you should be getting more.
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