Donations-based crowdfunding site Kickstarter has been increasingly used by small-business owners—particularly popular retail businesses and restaurants—as a way to raise money and engage customers in their fundraising efforts.
While some small businesses have built some very successful Kickstarter campaigns, there’s growing push back against for-profit businesses seeking donations, according to The New York Times.
The Chocolate Room, a Brooklyn, New York, dessert and wine spot, launched a Kickstarter campaign in late 2013 to try and raise $40,000 in donations to help the business cover the costs of relocating due to facing high rents in its current location. Soon after the campaign was launched, however, it sparked controversy.
A local blogger questioned The Chocolate Room’s Kickstarter campaign, adding: “There's something about asking your customers to help fund your expansion that just feels a little … wrong.”
Many readers agreed. “This notion of commercial businesses asking the public for gifts of money is a perversion of market economics but even worse it’s a perversion of what charity is supposed to represent,” one commenter wrote.
The Chocolate Room ended up getting about $10,000 in pledges from 64 backers—well short of its goal.
The Times notes that many for-profit businesses are unsuccessful in reaching their fundraising goals on Kickstarter. (That means people who pledged money ultimately didn’t give anything because businesses have to reach their goal in order to receive any donations through Kickstarter.) A few small businesses, however, have been extremely successful.
Travail Kitchen and Amusements, a Robbinsdale, Minnesota, restaurant, raised more than $255,000 on Kickstarter to build a new restaurant after aiming to only raise $75,000. Donors received free meals, cooking classes and other small gifts, depending on how much they contributed.
The ethics of Kickstarter campaigns for businesses aren’t the only concern about them, however: What happens if a business or entrepreneur raises a ton of money but doesn’t use it for the intended purpose?
In 2011, entrepreneurs Seth Quest and Juan Cespedes raised about $35,000 from 440 backers to make a specially designed iPad stand called the Hanfree. However, after the successful campaign ended, the product never materialized. Backers were getting impatient and questioning what happened. Eventually, Quest admitted that the project had failed and he planned to give refunds to all the backers.
However, one backer, lawyer Neil Singh of Arizona, wasn’t satisfied with that explanation and sued Quest. It forced Quest into bankruptcy and hurt his reputation—even making it difficult for him to find a job. He told Inc.com that the situation made him relocate to New York and gave him hypertension and anxiety.
"When you fail on Kickstarter, it's a very public failure,” Quest told Inc. "It definitely derailed my career substantially. Your backers can give you massive support, but they can also tear you down if you fail."
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