Critique of Indiegogo and the Shaq Fu Campaign

This article is a critique of the Indiegogo crowdfunding platform using examples from the Shaq Fu: A Legend Reborn campaign, which closed two weeks ago. Backers face significant risks – including late delivery, unexpected changes to the product, and non-delivery – when pledging to any crowdfunding campaign, and I believe the way Indiegogo campaigns are designed both amplifies these risks and introduces further unnecessary ones.


Flexible Funding

Crowdlogs chart of pledge total, missing last 15 days as campaign was extended

Crowdlogs chart of pledge total, missing last 15 days as campaign was extended

I started paying attention to the Shaq Fu campaign after the first week, when it seemed likely that it wouldn’t meet its funding goal, despite raising over $100,000. The Indiegogo campaign was “flexible funding”, meaning that they would receive the pledged money regardless of whether they met their goal. This means that they would face still having to produce and distribute the game, even if they fell well short of their $450,000 goal.

This is not an uncommon situation; Indiegogo is full of flexible funding campaigns, and it has been estimated that over 90% of projects failed to reach their goal. Many of these projects will have to fulfil their pledge rewards with much less money than they expected, greatly amplifying the risk that they will fail to deliver.

IndiegogoFee.png

The fee structure of these flexible funding campaigns also leads to strange economic incentives for Indiegogo. These campaigns pay a 4% Indiegogo fee if they reach their goal and a 9% fee if they fail to, leading to many situations in which Indiegogo make significantly more money if you fail to reach your goal. For example, if you just fail to reach your goal, Indiegogo will take the same fee as if you exceeded your goal by 125%.


Extending Campaign Length

The Shaq Fu campaign was originally supposed to run for 45 days, from March 6 to April 20, 2014. However, midway through the campaign this deadline was extended by 15 days, finishing on May 5 instead. It turns out that allowing an extension to a 60 day campaign is a general Indiegogo policy. This will come as a great surprise to most Indiegogo users, as project pages say that a project “will close” on a given date, which may not be true if the campaign is extended. Extending the deadline of a fixed funding campaign that fails to reach its goal results in backers of the campaign not having their money refunded when it otherwise should be.


Reducing Campaign Goal

Indiegogo, on multiple occasions, has also reduced the fundraising goal on campaigns. This leads to the same increased risks as flexible funding, resulting in the project raising less money than they originally estimated they would require. When combined with the ability to extend deadlines, this can lead to dramatic differences between what people think they are backing and the altered campaign.


Backing Your Own Project

The Shaq Fu campaign ended up meeting its goal by the revised deadline, raising $23,884 more than their $450,000 goal. When looking through the project backers, however, I was surprised to find that the CEO of Big Deez Productions, Matthew Karch, had made at least 15 contributions to his own campaign.

Downloading the full list of backers of the project, and looking for the ones with Matthew Karch’s user ID, yields the following comparison:

ShaqFuKarchPledgeTable.png

The pledges from Matthew Karch’s account were made under various names, an Indiegogo privacy option, and at many times throughout the last three weeks of the campaign. Three of these pledges, totalling $20,005, have public pledge amounts, with the remaining twelve being private. Privacy for Indiegogo pledges is a relative term, however, and I was able to get some information about the last two pledges, made under the names Joe Winner and Jason Hoffman, using hourly sampled data from the last 13 hours of the campaign.

ShaqFuPledgeChart.png

By looking at the amount pledged during the hour, and subtracting pledges with public pledge amounts, it is easy to calculate that the Joe Winner pledge was for $17,500, bringing the total known pledges to $37,505. However, two other private pledges happened during the same hour as the Jason Hoffman pledge, so the exact amount of cannot be determined. The three private pledges made during this hour totalled $12,235. It is interesting to note that even in the final hours of the campaign, usually a strong period for crowdfunding campaigns, the major jumps in funding occurred during periods in which Matthew Karch pledged to the project.

ShaqFuKarchProfile.png

These 15 pledges aren’t necessarily the only ones made to the Shaq Fu campaign by Matthew Karch. There is a privacy option that causes your pledge to appear under the name “Anonymous” and not appear on under your account activity. However, these contributions are still tallied on your account page. Matthew Karch has 70 contributions on Indiegogo, leaving 55 anonymous contributions unaccounted for. Keep in mind that it’s possible that these contributions were made to a different Indiegogo campaign.

 
ShaqFuPledgeAmounts.png

The public backer data from the campaign makes it straightforward to get information on the average pledged by pledge type. In the above charts, anonymous pledges are those with the username “Anonymous” and a public pledge amount, and private pledges are those where the pledge amount was withheld. Using these averages, a naïve estimate of the scope of Matthew Karch’s pledges can be made, under the assumptions that all 55 of his anonymous pledges were made to his own campaign and that his pledges were average for their type. The four known pledges total $37,505, leaving 11 private pledges and 55 anonymous pledges, yielding a total estimate of approximately $127,000. This would be more than a quarter of the total pledges to the Shaq Fu campaign.

Allowing registered team members of a campaign to pledge to their own campaign seems to be an Indiegogo policy. Ostensibly designed to allow you to add “offline pledges” to your campaign, which may explain Matthew Karch’s pledges above, it also has great potential for abuse. There are many reasons why someone might pledge to their own crowdfunding campaign. Failing to reach a crowdfunding goal can not only be embarrassing, it can also impact your ability to raise money from other sources. The fee schedule for flexible funding campaigns results in an economic incentive for project creators to contribute to their own campaign in order to reduce the Indiegogo fee they have to pay. Similarly, for fixed funding campaigns, contributing to your own campaign could save you from receiving nothing. Changing this policy to forbid pledging to your own campaign would curb some of this potential for abuse, or at least remove the appearance of impropriety that this creates.


Pledge Amplification

There’s also an exploit, of sorts, that makes contributing to your own flexible funding campaign on Indiegogo much easier. On Kickstarter, or with a fixed funding campaign, you would need to have access to all the money you wanted to contribute to your campaign. For a flexible funding campaign, however, a PayPal pledge is “sent to your PayPal account instantly”. This means you are able to pledge a smaller sum of money over and over again, without waiting for the end of the campaign to get it back. Assuming a 9% Indiegogo fee and 4% transaction fee, this geometric series allows you to pledge up to 7.7 times your initial amount to your own campaign. For example, pledging to yourself ten times amplifies your pledge by a factor of 5.8, turning $10,000 into $58,000 in pledges. If you achieve your goal, you will even get 5% of the Indiegogo fees from these pledges refunded when the campaign ends. This makes achieving even large campaign goals easy and relatively cheap. The only way to prevent this amplification would be to delay payment until the conclusion of the campaign, or to prevent multiple pledges to the same project.


Summary

Indiegogo’s flexible funding campaigns increase the risk that a project will not be able to deliver on its pledge rewards. The pledge goal for these campaigns is really just a point at which your Indiegogo fee decreases, as even if the goal is not met the campaign creator is expected to still deliver all backer rewards. To me, crowdfunding is best when it helps someone cover the fixed costs required to produce their project. Someone starting a flexible funding campaign on Indiegogo needs to already have another way to cover those costs and produce all their backer rewards if they fail to reach their goal. The fee schedule for these campaigns also gives Indiegogo economic incentives that aren’t aligned with those of project creators, as in many situations failed campaigns pay more in Indiegogo fees than successful ones.

Indiegogo also seem to have no issue with changing the deadline and funding goal for projects on their site, and this is not clear to backers. A backer of a project on Indiegogo cannot trust that these attributes of a project won't change, and any such change may lead to them receiving a refund of their pledge much later than expected, or to a pledge that was made to a failing project going through solely because the goal was lowered.

It’s impossible to prevent someone from pledging to their own crowdfunding campaign, but Indiegogo not only technically allows it to happen, it also encourages it in its policies.  Pledging to your own campaign looks bad to project backers and can be abused by project creators for financial advantage. The design of flexible funding campaigns allows pledges to your own project to be recycled and made repeatedly, allowing someone to create the appearance of a large pledge total from a comparatively small amount of money.

In my opinion, Matthew Karch, the CEO of Big Deez Productions, showed poor judgement when making multiple large contributions to his own campaign. Even if these contributions were the result of fundraising efforts outside of Indiegogo, it would be better to ask these people to pledge to the campaign themselves to avoid appearing unscrupulous. Also, if you need $450,000 to make a video game then you should probably be running a fixed funding campaign. If the Shaq Fu campaign had ended up making less than $200,000, as appeared likely after the first month of the campaign, then Big Deez Productions would be facing a budget shortfall of over $250,000 while still being required to deliver the game and all other pledge rewards.


Thanks to Polsy for gathering and processing the pledge data I used. Follow the RSS or Twitter account for future updates.