About two years ago, I saw a video on Facebook about a Kickstarter campaign for the Coolest cooler. I thought it was a joke. It was a cooler with a blender and a Bluetooth speaker, plus giant wheels, built in bottle opener and USB charger.
My older son plays travel baseball, and we spent a ridiculous amount of time watching games. Music and blended drinks seemed to be a way to pass the time. So we ponied up our 185 bucks and watched to see what would happen.
The Coolest Kickstarter campaign raised a record-breaking $13 million but hit a lot of snags in production, including factory strikes overseas and shipping problems.
After much complaining, we finally received our Coolest a few months ago. It weighs about 100 lbs. but it’s pretty cool.
About 40% of the Coolest backers were not so lucky, and apparently some of them called the Department of Justice to lodge a complaint.
The question: if a Kickstarter campaign fails and you don’t get the product (or a refund), is that fraud?
What is Kickstarter?
Kickstarter is a platform that allows people to fund certain projects—inventions, films, music, whatever they’d like. Since it started in 2009, over $10 million people (called “backers”) have backed projects for over $2.6 billion.
The website is very clear about how it works:
Thousands of creative projects are funding on Kickstarter at any given moment. Each project is independently created and crafted by the person behind it. The filmmakers, musicians, artists, and designers you see on Kickstarter have complete control and responsibility over their projects. They spend weeks building their project pages, shooting their videos, and brainstorming what rewards to offer backers. When they’re ready, creators launch their project and share it with their community.
Every project creator sets their project’s funding goal and deadline. If people like the project, they can pledge money to make it happen. If the project succeeds in reaching its funding goal, all backers’ credit cards are charged when time expires. If the project falls short, no one is charged. Funding on Kickstarter is all-or-nothing.
It also makes clear that backers do not get any equity in the projects they fund.
Do backers get ownership or equity in the projects they fund?
No. Project creators keep 100% ownership of their work. Kickstarter cannot be used to offer financial returns or equity, or to solicit loans.
Some projects that are funded on Kickstarter may go on to make money, but backers are supporting projects to help them come to life, not to financially profit.
The DOJ Investigation
The way I learned about the complaints to DOJ by the Coolest backers was through an email update from the company.
At last count, we’ve had ~200 backers file complaints with the Oregon Department of Justice (DOJ). They usually say — without context to the Kickstarter terms of service, any of our updates, or any of our shipping policies — something like, “Hey, I bought a cooler two years ago from these people and they refuse to send it.” Obviously, if you’ve read our updates, you know that’s not the truth. We aren’t refusing to send Coolests – we can’t afford to and we lack inventory and resources to fulfill all Backer units. We’ve been very clear about our continual efforts in all our updates and are following Kickstarter terms of service.
The company then goes on to explain that it has had to “spend tremendous resources in legal fees and man hours to deal with these complaints.”
It goes on to say (correctly, I think):
Kickstarter is not a store. It’s a way to bring creative projects to life. It is a platform that allows creators and backers to come together to fund a project, and a platform that allows the community to engage and support the project as it comes to life over time. You can’t “buy” anything on Kickstarter. You back a project, hope for the best, and wait for the process to complete. Yes, it’s taking us longer than we expected but we were the most massive project in Kickstarter history, our product was tremendously complex, and we’ve hit a lot of snags. And yet we work everyday to keep making this happen and we’ve never stopped working for you guys.
My favorite line is this one:
We’ve cooperated fully with the DOJ and they will see we’ve done nothing wrong.
If I had a dollar for every client who thought that…
But Is It a Crime?
No way. I just don’t see it.
To be a fraud, the company had to have made an intentional, material misrepresentation.
When the backers sent their money, they were not promised a Coolest cooler. All they were promised was the opportunity to make the project come to life. If the project was successful, then they may get a Coolest.
The backers’ complaint is based on the fact that the company is selling the Coolest cooler on Amazon (at a retail price of $400) rather than giving them to the backers first. The company has explained that it’s doing this so it can “keep the lights” on and continue to manufacture the product.
Nowhere do the Kickstarter terms of service promise that the backers will be the first ones to get the product either.
I have no doubt that the backers were induced to send money because they wanted a Coolest cooler. But inducement isn’t enough–there must be a false statement. There doesn’t seem to be one here.
It does seem unfair that non-backers can buy the Coolest on Amazon before the backers get their coolers. But if that’s the only way to keep the company producing any coolers at all, then that’s just business—not a crime.
Stay calm and blend on.
What has been revealed, and admitted to by Ryan Grepper, is that he (supposedly) knew very early on that he did not have enough money to produce all the coolers and ship them to backers. He never let on to this until about 6 months after he stated shipping of coolers had begun and all backers would have them by the end of the year. If he knew after the final development phase that he was stuck, why wasn’t that told to backers prior to July instead of a faux shipping schedule? Do all his deceptions and backpedaling count to the DOJ? Maybe not. Further, again, knowing he was supposedly “short” on money to deliver, He had no problem soliciting shipping fees and selling “extras” like batteries, speakers, plates, etc. These fees where charged outside of the Kickstarter system. To some it looked like a money grab. And of course, he supposedly didn’t have enough coolers to ship. Where did all that money go? Most people never received the accessories or a refund of those monies acquired outside of the Kickstarter system. The ones who did were the ones who made a fuss. There are many folks who paid money outside of Kickstarter for accessories and and overseas shipping who are in limbo because they haven’t spoken up. I’d think that’s something that might bite him. Maybe not a ORDOJ thing but perhaps the FTC? It will be interesting how it all pans out. I think in the end many of these project creators should be reigned in on how they are allowed to promote their project. Looking at the Coolest campaign’s page on Kickstarter, the word “ORDER” is used in the FAQ session it looks like a storefront and that will of course confuse people. Yes, in the end, it’s up to the individual to read all the terms. But maybe crowdfunders should be spending more time on the details and caveats of a project, versus going on the Today show and making their campaign pages look like storefronts, using the word “order” when what these folks are getting into is really not an “order” at all 🙂
What has been revealed, and admitted to by Ryan Grepper, is that he (supposedly) knew very early on that he did not have enough money to produce all the coolers and ship them to backers. He never let on to this until about 6 months after he stated shipping of coolers had begun and all backers would have them by the end of the year. If he knew after the final development phase that he was stuck, why wasn’t that told to backers prior to July instead of releasing a faux shipping schedule? Do all his deceptions and backpedaling count to the DOJ? Maybe not. As you said, perhaps it’s just business (or in his case bad business). You also mention in your blog on how Kickstarter terms state that backers are not guaranteed to have their rewards shipped first, that is correct. However, how about when the project creator states it in the campaign information that they will, as Grepper did? Does it just go down as slick salesmanship that holds no weight? Perhaps, legally, it may for now, but should statements like that be allowed in crowdfunding at all if they don’t have to deliver to backers first per the terms. Mixed signals, that ultimately cause confusion. I think crowdfunding needs a bit more accountability, it would only help the industry. Many good project creators who work as a team with backers will ultimately lose out as more and more of these big dollar crowdfunding projects go south and get plastered all over the media, whether they were at fault or not.
Further, again, knowing he was supposedly “short” on money to deliver, He had no problem soliciting shipping fees and selling “extras” like batteries, speakers, plates, etc. These fees where charged outside of the Kickstarter system. To some it looked like a money grab. And of course, he supposedly didn’t have enough coolers to ship. Where did all that money accrued outside of Kickstarter go? Many people have never received the accessories or a refund of those monies acquired outside of the Kickstarter system. The ones who did were the ones who made a fuss and filed complaints. There are many folks who paid money outside of Kickstarter for accessories and and overseas shipping who are in limbo because they haven’t spoken up. I’d think that’s something that might bite him. Maybe not a ORDOJ thing but perhaps the FTC? It will be interesting how it all pans out. I think in the end, many of these project creators should be reigned in on how they are allowed to promote their project. Looking at the Coolest campaign’s page on Kickstarter, the word “ORDER” is used in the FAQ session it looks like a storefront and that will of course confuse people. Yes, in the end, it’s up to the individual to read all the terms. But maybe crowdfunding project creators should be spending more time on the details and caveats of a project, versus going on the Today show and making their campaign pages look like storefronts, using the word “order” when what these folks are getting into is really not an “order” at all 🙂
[…] (60% of franchisees are in non-food sectors and industries.) Mark Katz,(Antitrust Connect) The Coolest Investigation – Is a Failed Kickstarter Campaign a Crime? About two years ago, I saw a video on Facebook about a Kickstarter campaign for the Coolest cooler. […]