Scams and failed projects are quickly becoming a problem for crowdfunding websites, such as Indiegogo. Attributable to lax project guidelines, Indiegogo attracts more extreme and highly unique ideas. Unlike Kickstarter, Indiegogo does not review and approve projects before campaigning begins. Nor do they require a funding cap or minimum. With Indiegogo, individuals collect the funds even if they did not meet their stated goal. Other websites, such as Kickstarter, do not allow this.
Cofounder of Kreyos, Steve Tan, asked for $100,000 to produce a smartwatch featuring voice and gesture controls. Despite raising over $1.5 million, Kreyos failed to deliver a working product. On Facebook, Tan posted photos of a Ferrari and designer clothes. Investors received watches that didn't work and were denied refunds. Because of occurrences such as this, investors are becoming wary. Indiegogo, however, is a testing a potential solution.
Recently, Indiegogo launched a beta program that offered insurance to investors. For a set price, investors have the option of purchasing insurance that will guarantee full reimbursement if the project fails to produce a viable and satisfactory product.
As of now, the only project available with insurance protection is Olive, a wearable stress management device. For $15, or nearly 10% of the contribution requirement, one can purchase a money back guarantee if the product fails to satisfy the description and purpose. The cost of insurance is fixed and is based on the number of units ordered, not the dollar amount contributed.
If the program is a success, it could be used to quell investor unease. Unless Indiegogo changes their policies and becomes more controlled, like Kickstarter, investment insurance might be the only solution.