My post on what should happen when crowdfunded projects fail to deliver — short answer: Nothing — has received a couple of interesting responses, including this one from Fund All Be All, who wrote:
Whoa whoa whoa, why should we be encouraging people to just give up if they can’t deliver? Even if they burn through all of the crowdfunded money shouldn’t they still try to some how deliver on promises? Letting people crash and burn like this would hurt the entire crowdfunded scene.
The first thing to note is that I am definitely not encouraging people to just give up and, of course, I think they should try to deliver on their promises. And I am not suggesting that we let people crash and burn. Instead, I’m trying to figure out what should happen after the crash has happened and the fire has burned out.
In those cases, Fund All Be All’s suggestion that project creators should “keep at it” despite their struggles is not one that a project creator could follow in any meaningful way. As with any enterprise, you can only keep going for as long as you’ve got cash and other necessary resources. Once you’ve run out and can’t find more, there is nothing left to do but give up. This is sad. This is a disappointing. This is a truth that is bigger than crowdfunding.
So, when it comes to failed projects, there is a choice between two evils.
On the one hand, the project creator can persevere despite the futility of the situation. I don’t know what that would mean in practice — should the creator try to take out a loan in order to do what they weren’t able to do with their crowdfunded money or to refund their backers? — and my fear is that the prospects of having to continue down a useless path or ending up with an unaffordable liability will scare off prospective project creators.
On the other hand, campaign backers can accept that they took a risk when they invested and that their gamble didn’t pay off. Fund All Be All’s fear is that this will “hurt the entire crowdfund scene”. I don’t think that’s the case. Crowdfund backers know that they’re taking a risk when they back a campaign and they should do their due diligence just like any other investor. As long as they haven’t been scammed, I think they’ll come back to the crowdfunding market and make wiser decisions.
Given the relative risks — backers losing relatively small investments, project creators having strong disincentives even to try — my inclination is to choose the one that will make it easier for good faith project creators to make a go of it.