Crowdfunding is a socially responsible way to help people in need or donate money to budding entrepreneurs to launch a new business or nonprofit. What else could be better than partnering with a group of people around the world to establish worthwhile projects?
Although there are millions of crowdfunding campaigns that deliver on their promises, there are some people who create bogus campaigns for the sole purpose of scamming others who have a generous heart and an open wallet.
Here are a few examples of crowdfunding scams that have been brought to the attention of the Federal Communications Commission
- Erik Chavalier fraudulently created a campaign to fund a board game. He bilked 1,250 unsuspecting people out of $122,000.
- A mother in Iowa created a campaign to raise money for her daughter’s cancer treatment. However, her daughter did not have cancer.
- Jen Hintz created a campaign to fund her new business, FibroFibers. Her campaign successfully raised $26,000, but she used the money to pay for her relocation expenses to another state.
Ways to Spot Crowdfunding Scams
Whether you are thinking about funding projects on Kickstarter or GoFundMe, it is important for you to know how to protect your financial investment. There are signs that will alert you to a crowdfunding scam.
- The product that you are funding is only a prototype that has not been created or tested. Photoshop can create the illusion of the picture-perfect finished product.
- The project’s team consists solely of marketers who have no intention of creating a project. A solid product team should consist of a diverse group of professionals.
- The product has not received a seal of approval from engineers and product testers.
- The campaign has poor response rates to investor inquiries.
- The campaign story is poorly written with multiple grammatical errors and misspelled words.
- The project seems too good to be true.
How to Avoid Common Crowdfunding Scams
When it comes to crowdfunding campaigns, you must proceed with a healthy dose of skepticism and take actions to avoid being scammed. You can take the following actions to protect yourself from funding a scam.
1. Research the creators of the campaign and the project.
Your computer can be a valuable resource when it comes to spotting scams. By performing a thorough Google search, you can get information about the project. You will find that this is the easiest way to prevent getting involved in a costly scam.
Begin your search by looking for customer or investor reviews. Read every article that you can find about the project.
If you do not find any information about the company or the product, you should proceed with caution. A lack of information does not indicate that the team members are involved in unscrupulous actions. However, it might not be a good idea to invest in something (or someone) that has not been proven.
There are plenty of third-party websites that track scams. Pay close attention to the information on those sites. Send an email to the campaign’s team members to ask them to explain any negative findings.
2. Ask for verification.
It might seem awkward to ask a person who is asking for help with medical bills to verify their claims, but taking this action can ensure that you are not throwing your money away. This is especially true for need-based campaigns.
The examples of fraud in this article are proof that some people do not have a problem with getting money for a need that does not exist. Professional scammers know that there are kind-hearted people who will donate money to any worthy cause.
You can verify the information in a few ways.
- Ask the person for proof of the hardship. Verifiable proof includes pictures, receipts and medical bills. As long as you do not get too personal, it should not be deemed as an unusual request.
- Take a look at the person’s social media sites. Look for pictures, comments and posts that might corroborate the story.
- Ask your friends and family members if they know anything about the hardship.
3. Look at the list of other people who have invested in the campaign.
Technology makes it possible for people to perpetuate illusions. Unscrupulous scammers know how to use technology to their advantage.
Did you know that there are websites that sell crowdfunding phony investor services? On Fiverr, you can purchase services that provide your campaign with investors.
Scammers take this action because their goal is to provide prospective investors with social proof that their campaign is legitimate. After all, large numbers of people investing in a project must indicate that the campaign is legitimate, right?
Take a hard look at the list of people who have funded the campaign. Read their comments to detect any irregularities.
4. Conduct a search of the product’s images.
Scammers can be so bold and brazen that they use product images from other sites to pass them off as their own. The most common site for scammers to get pictures of products is Alibaba.
A group of college scammers hijacked images of a watch from Alibaba and eBay. They started a wildly successful ecommerce store on Kickstarter. They raised over $70,000 with this stunt.
Although the scam is not illegal because the scammers provided the investors with the product, they broke Kickstarter’s cardinal rule. Selling an existing product that is owned by another company is explicitly prohibited.
Check out other sites to verify the product is not manufactured by another company. Look at the posts on Kickstarter subreddit to see if the product has been spotted by another user as a scam. This is the true power of crowdsourcing.
5. Take your time.
If you come across a worthy cause, you do not have to take action on it right away. Take a few hours (or days) to get all of the information that you need in order to make an informed decision.
Report All Scams
As a prospective crowdfunding investor, it is your duty to look out for other investors. You can protect your fellow investors by reporting the scams to the authorities. Here are a few places that are eager to hold scammers accountable.
- Federal Communications Commission
- The Crowdsourcing Platform’s Customer Support
- Ripoff Report
- Kickstarter Forum
- Crowdfunding Forum
The possibility of being scammed should not deter you from investing in a solid crowdfunding campaign. Only a small percentage of campaigns are scams. By implementing these actions, you can avoid the most common scams in crowdfunding.