Mollick said a crowd may be the best safety mechanism in crowdfunding—he contends fraud mostly happens on platforms that have less "eyes on them," making it easier for fraudsters to go unnoticed.
"Its fine to fund projects listed on unknown sites … but ask them why they choose that particular platform," Mollick said, adding that projects aimed at a specific niche market tend to work well on smaller platforms.
The Geode campaign with near 1,800 backers donating $352,000 suggests there is no single, simple measure that can be relied on, while the Washington State case against a Kickstarter campaign and Kickscammed suggest that it's far from hard science to say larger platforms are safer.
Mollick said the Geode campaign is a good example of the kind of projects that fail and receive negative attention—they raise a lot of money, more than expected in many cases, and have ambitious goals. But he said that having watched the space develop in the past few years, it's the same projects that show up in negative mentions over and over again. "The impressive thing isn't the scams, it's the lack of them," he said.
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There is no science of crowdfunding due diligence. Indeed, Ma said backers should "do a gut-level check" and assess if they truly trust the project and its ability to deliver on promises. "If it sounds too good to be true, it usually is," Ma said. He added that while crowdfunding fraud cases may have legal standing, "lawsuits won't help if you've already lost your money," because of legal fees and court cost.
Jason Best, who co-authored the framework for the U.S. JOBS Act to legalize equity- and debt-based crowdfunding, said there is no substitute for due diligence. "It all starts with a basic Internet search," he said. "Type in the name of principals in the project, coupled with the word 'fraud.' ... Dig into their background."
It's best to invest in projects that relate to technologies or industries with which an individual has knowledge, but if you don't know a lot about the industry, read the comment section of the campaign to see if industry professionals support the project, Best said, adding, "Is the company responding to questions completely, quickly and in a way that's honest and fair? If they're not responding in a few hours, I think that's a red flag."
Mollick said expertise in a specific area is what often attracts people to projects, and that can also help to weed out any suspicious projects before it is too late. This was the case in a famous Kickstarter scam that has made the rounds of the press—a Kobe Beef jerky campaign, which was pulled by Kickstarter right before it reached its goal (and would have been able to collect the $120,000 it raised). The Kickstarter community ultimately "self-policed" the campaign to discover that its creators didn't have the background or appropriate knowledge in the subject area to be legitimate.