The scourge of RUG-Pulls, abandoned crowd campaigns and how to counter them

Non-fulfilled Kickstarter and Indiegogo campaigns were the absolute scourge of the ‘crowd’ industry. Large and small amounts of money taken, and nothing shipped. A few lame replies in updates and then crickets. Add to that platforms that remained completely hands-off and accepted no responsibility, and you have a scammers paradise.

From my experience, Kickstarter and Indiegogo’s due diligence doesn’t go far enough. In fact, it’s now automated and there is very little onus on creators, other than a few standards questions. This is a problem. I believe that a lot of the issues seen could be cut off at the pass, as it were. Lets look at one of the most high profile ones - Coolest Cooler. Lots has been written on this but the long and short of it was that the creator didn’t have enough experience to see that the pricing was too low. So he ended up with a $13m campaign, that probably would have cost 20m to fulfill. And the list goes on.

Avoiding these is difficult, but not impossible. Screen the business plan and costs. But this would mean the platforms would have to invest in people to do this. And a look at their own recent figures would suggest their own margins wouldn’t allow this. However, I personally know one person who ran a (smaller) Kickstarter campaign and simply disappeared with the money - and there was no accountability. This is completely unacceptable. Successful campaigns fail do deliver for some legitimate reasons. However this kind of criminal behavior is simply unacceptable, and the platform’s hands-off approach is even more reprehensible. Everette Taylor and co would be much better off tackling these problems, rather than posting on social media morning, noon and night..

So the industry must move to help itself. A lot of people think scam when they think crowdfunding. Equity based crowdfunding is more protected, but it’s in danger of losing the wood from the trees. While in the US there is an SEC advised self-certification of being able to bear the loss financially and there is an acknowledgment of the risk, new regulation in Europe has so many warnings on the platforms and email correspondences that you’d need to be ‘certified’ (in a different way!) themselves to invest.

For me this is box ticking / lip service by the industry. However, the DD burden has also increased. And the platforms and industry need to be careful here. Don’t throw the baby out with the bathwater, and force new businesses to spend more time on DD than on growth. Balance and common sense. And I’d suggest that most people don’t back equity CF campaigns for huge paybacks. Rather to try an help a business get off the ground in a space that interests them. So, again, coming in with eyes wide open is important, with a decent barrier to entry.

As for rug-pulls, and the criminal activity that has sprung up around blockchain technology - in hindsight, it was to be expected. Put a deregulated sector and decentralized tech together with a (practically) anonymous project, which is on trend and there are two potential outcomes - a NEO, which returned impressive ROI (initially at least) / Ethereum outcome, or a OneCoin outcome. And this is the contradiction of the crowd economy. When it works, it can work great. When it fails, it fails spectacularly. But let’s look more closely. NEO gathered huge support from the Chinese government, Microsoft Corp. (MSFT), Alibaba, and other major companies. OneCoin was founded by Bulgarian national Ruja Ignatova, who vanished in 2017. However, not before the scheme raised $4 billion. Maybe a first principle analysis would have been helpful here?!? As an aside, her story is absolutely intriguing. ICO or money laundering project? Look it up sometime.

And the possible upside…

I love the idea of a utility token, being used in its own ecosystem. But it has to make sense and stand alone on its own two feet. Otherwise, why? Just to have another ‘faster’ currency? To be decentralized and rail against the machine? Pure crap. Why? NFT’s - rubbish. Why? These are novelties, and will have very limited genuine applications.

That begs the question. Then what? Well, give me a utility token or coin, that can, for genuine reasons increase in value, and be used as a currency within a specialty ecosystem, where it’s value proposition is genuine, and its monetary value can increase. Now that’d be something. Which leads nicely into our first poll and the first step in our project:

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If you have any other ideas / thoughts / feedback, feel free to drop me a line on [email protected] I’d love to hear your thoughts around this.

Until next week, and chapter 3, Go n-éirí leat!

Derek.