Your money might get you a cool T-shirt or bolster a good cause, but pledging money to a crowdfunding campaign isn't the same as shopping online or donating to charity. Extra scrutiny may be required.
Google "Greek bailout fund" and the top search result is currently an Indiegogo campaign aiming to raise the 1.6 billion euro (or nearly $1.8 billion) payment Greece owes the International Money Fund on Tuesday. Indiegogo CEO Slava Rubin told CNBC last week that if the campaign is successful, the site will work with campaigner Thom Feeney—a 29-year-old Londoner—to arrange transfer of the funds to Greece.
By July 6, contributors had pledged nearly 1.9 million euro, garnering postcards of Greek Prime Minister Alexis Tsipras, bottles of Greek wine and vacations to Greece, among other perks. (Still, that's barely 0.1 percent of the needed amount.)
But not all recent crowdfunding news has been so heartwarming. Last month, the Federal Trade Commission announced its first legal action involving crowdfunding—a settlement against a Kickstarter campaigner who raised money for a board game but spent the funds on himself. Under the settlement, defendant Erik Chevalier is prohibited from deceptive representations in future crowdfunding campaigns, and must adhere to stated refund policies.
"Many consumers enjoy the opportunity to take part in the development of a product or service through crowdfunding, and they generally know there's some uncertainty involved in helping start something new," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in the announcement. "But consumers should be able to trust their money will actually be spent on the project they funded."
A Kickstarter spokesman said the site lays out potential hurdles and risks for contributors on its Trust & Safety page, and includes suggestions for backers to scrutinize projects. "There is always risk involved in backing a project on Kickstarter, and there are no guarantees," he said. But the results show that the risk is worth taking. Kickstarter creators have a great track record."
Outright fraud is rare because of the public attention campaigns receive, said Ethan Mollick, a professor of management at the Wharton School of the University of Pennsylvania who studies crowdfunding campaigns. "You have a lot of eyeballs on it, and it's likely someone is going to spot a problem," he said. That can shut down a bad campaign before it's funded.