16 Biggest Crowdfunding Scams and Failures of All Time
In this article, we shall discuss the 16 biggest crowdfunding scams and failures of all time. To skip our detailed analysis of the global crowdfunding sector in 2023, go directly and see 5 Biggest Crowdfunding Scams and Failures of All Time.
Crowdfunding is a way to raise funds for a specific cause or project through contributions from a significant number of public donors. It comprises financial support through a diverse variety of different methods including equity investment, peer-to-peer lending, donation-based funding, reward-based funding, and hybrid models of two or more different methods. Conventionally, it is conducted through online channels, primarily via social media networking sites. It paves the way for direct market access and is a flexible, scalable, and effective alternative to venture capitalists, investment banks, and other conventional forms of generating cash inflow.
Crowdfunding hit its stride during the COVID-19 pandemic, when numerous NGOs resorted to different crowdfunding platforms and methods to raise funds. Although there was an increased risk of exposure to some of the biggest crowdfunding scams and failures of all time, such campaigns provided convenient access to extensive networks of people and assisted many organizations to raise funds in a shorter time span. Furthermore, the increasing influence of social media is further supplementing the expansion of the crowdfunding market, causing the industry to gain substantial momentum in a variety of different business models in order to inculcate an innovative concept, gauge the interest of the target audience, and pre-sell a product. Through crowdfunding, companies can acquire vital feedback from the consumer and important information with respect to the advancement and demand of a new commodity. Some of the biggest publicly-traded players in the crowdfunding industry are Blackrock Inc. (NYSE:BCX) and Netcapital Inc. (NASDAQ:NCPL). Companies can also use social media platforms like those provided by Meta Platforms Inc. (NASDAQ:META), namely Facebook and Instagram. Some prominent private-owned companies also providing crowdfunding services are Patreon, GoFundMe, and Kickstarter.
Crowdfunding in 2023: Industry Dynamics
According to a market report by Bloomberg, the global crowdfunding market was worth more than $16.5 billion in 2022 and is estimated to reach more than $28.2 billion by 2028, at a CAGR of 11.8%. The large projected growth of the industry is largely predicated on the increasing use of social media platforms and free social media promotion. Social media enables companies to pre-sell a product whilst acting as a minimal marketing technique. Consequently, in addition to raising substantial funding, a successful crowdfunding campaign might also be able to connect with a wide range of channels at exorbitantly low prices. Numerous crowdfunding campaigns make use of social media platforms as a medium primarily due to them being able to guide referral traffic back to websites. Hence, companies can endorse an idea on social media for free, and in turn, drive the global crowdfunding market during the forecast period 2022-28. However, there have been negative consequences of such advancements as well, primarily pertaining to the biggest crowdfunding scams and failures of all time. To read more on the increasing importance of social media in 2023, check out our coverage of 15 Most Popular Social Networks in the World.
According to a report by Allied Market Research, governments also play an important part in the promotion and growth of the global crowdfunding market by introducing and implementing supporting policies and regulations and minimizing the biggest crowdfunding scams and failures of all time. Furthermore, tax incentives to individuals and organizations which invest in crowd funding projects encourage a greater amount of people to partake in the crowdfunding industry and invest in companies like Blackrock Inc. (NYSE:BCX), Meta Platforms Inc. (NASDAQ:META) and Netcapital Inc. (NASDAQ:NCPL). In many countries around the world, governments have even implemented reforms to protect investors from the biggest crowdfunding scams and failures of all time and incentivize entrepreneurs into generating funding via crowdfunding platforms like Patreon, GoFundMe, and Kickstarter.
One of the primary reasons investors are flocking towards companies like Blackrock Inc. (NYSE:BCX), Meta Platforms Inc. (NASDAQ:META) and Netcapital Inc. (NASDAQ:NCPL) is that they tend to offer higher returns than traditional forms of investing. For those looking to generate a greater financial return from their investments, crowdfunding investments are simply not subject to the same regulatory oversight as many of the companies we covered in our article on the Top 20 Investment Companies in the World which largely engage in traditional forms of investing. And although this may exacerbate risk for investors especially pertaining to an increased exposure to different crowdfunding scams and failures, they are still more willing to divert large amount of investment into crowdfunding alternatives due to higher returns on investment and the opportunity to invest in innovative companies and ideas.
However, the growth of the crowdfunding industry is also subject to certain restraints, particularly owing to low investment liquidity, regulatory constraints, and other associated risks pertaining to crowdfunding. Due to the fact that securities purchased through crowdfunding are incredibly volatile, exit alternatives are highly limited, much like those available to traditional venture capital investors. Since companies take a substantial amount of time before investments pay off, crowdfunding investors may also wait for a number of years to get the aforementioned high returns on their capital. Furthermore, the rising number of crowdfunding scams and failures are expected to be a dark cloud over the potential of the crowdfunding market.
Opportunities in the Developing World
According to a report by the World Bank, the sustainability of crowdfunding for development projects and high-growth entrepreneurs will be highly dependant upon the project or business type, geographic presence, and the amount of funding needed. Remittances make up for a major source of development funding, scaling into billions of dollars annually. These fund flows, traditionally, are person-to-person, and hence are well aligned with dominant crowdfunding frameworks. There may also be a relationship between crowdfunding and foreign capital inflows but the data for that has not be made available as of yet.
According to the report, the level of FDI (foreign direct investment) seems to be directly related to the launch of crowdfunding capabilities in a country. Another variable might be the amount of remittances flowing into a country from expat citizens living outside the parent geographic area. Early findings on this causal relationship point to the fact that crowdfunding may shed light upon the inclination of the international community to invest in a given country whilst also serving as means for remittance capital to be redirected into high-growth companies to stimulate economic activity in a country.
Furthermore, crowdfunding may prove to be a financial outlet for expats' emotional desire to support their country of origin. The rampant growth of crowdfunding markets may support these dynamics and supplement the rise of regionally specific crowdfunding platforms which attract substantial investment from the diaspora community. Moreover, remittance dollars tend to provide a digital footprint of any cash inflow, which in turn, can aid governments in understanding their financial health.
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Our Methodology
To compile our list of the 16 biggest crowdfunding scams and failures of all time, we decided to use a mixed methods approach by first making a list of 50 of the most prominent and well-known crowdfunding scams of all time using third-party research from a variety of credible sources (1, 2, 3, 4, 5). We considered multiple platforms, including Patreon, GoFundMe, and Kickstarter. We then evaluated each scam based on the total value of the scam in USD. We picked 16 scams which managed to raise the largest amount of money, and then ranked them based on the total value of the scam, from lowest to highest.
To know more about scams pertaining to the stock market, check out our article on the 11 Biggest Stock Scams in Recent Years.
Biggest Crowdfunding Scams and Failures of All Time
16. FND Films
Amount Raised: $75,000
FND Films was a famous comedy group of three people who announced that they wanted to collect funds to make a movie. They gathered around $75,000 from 603 invested fans. However, the movie was not released; instead, the group was seen vacationing abroad and the fans realized that it was, in fact, a scam.
15. iBackPack 2.0
Amount Raised: $76,694
The owner of iBackPack, Doug Monahan, attempted to raise funds to produce a smart backpack. He managed to collect around $76,694; however, instead of creating the backpack, the money was raised for personal expenses. He was later sued by the FTC and was banned from all crowdfunding platforms.
14. Kobe Red
Amount Raised: $120,309
Kobe Red is a company that intended to offer three beef flavors to its customers and asked for funds. The company managed to raise $120,309, a lot more than what they had expected. However, filmmakers and the Kickstarter community gathered suspicious information about the company and shut down the campaign.
13. Dragonfly Futurefon
Amount Raised: $726,397
The owner, Jeff Batio, promised to deliver a smart mobile device with futuristic features. In 2014, he asked for funds to produce the device and was able to raise $726,397. However, the mobile device has yet not been delivered. In 2016, the company posted an update that the company ran into a few problems. This was one of the biggest crowdfunding scams and failures of all time.
12. Triton
Amount Raised: $800,000
Triton announced that they were using artificial gill technology to produce sci-fi underwater breathing devices; however, they were only using oxygen canisters that are generally used in all scuba gears. Triton’s scam was exposed and the initial pledges were refunded to the donors.
11. CST-01
Amount Raised: $1.03M
CST-01 was a thin flexible smartwatch and was designed to be as minimalistic as possible. The company producing the watch raised around $1 million; however, the company was unable to deliver the watch to the backers. The backers, then, realized that this was a crowdfunding scam.
10. ZNAPS
Amount Raised: $2.3M
ZNAPS was a magnetic cable that was compatible with most devices. Because of its low price, it attracted around 70,000 investors and gathered $2,370,000. However the company kept changing the delivery date and none of the investors received the cable. They soon realized it was a scam and started a petition for the company to refund the money.
9. Tiko
Amount Raised: $3M
One of the biggest crowdfunding scams and failures of all time, Tiko was a 3-D printer and was sold at a cheaper price compared to other 3-D printers. After receiving the product, customers complained about its low quality and the printer not being worth the money. However, the company disappeared with the amount gathered.
8. Amabrush
Amount Raised:$3.4M
Amabrush was an automatic toothbrush that allegedly brushed your teeth in 10 seconds. It managed to gather around $3,400,000. However, it failed because its creators were not able to find manufacturers who could produce that in low cost, while also maintaining quality. They finally filed for bankruptcy.
7. Zano
Amount Raised: $3.5M
Zano was a small drone that could capture photos and videos and could be controlled through mobile devices. However, the company had never tested the product and so when customers received it, the drone failed to take flight.
6. Skarp Laser Razor
Amount Raised: $4.5M
Skarp Laser Razor claimed to use laser instead of a regular shaving blade on the razor. For this campaign, the company raised $4,512,921. However, the razor was not as effective as they claimed it to be. The crowdfunding platform, Kickstarter, noticed suspicious details about the company and shut down the campaign. Skarp Laser Razor ranks number 6 on our list of the 16 biggest crowdfunding scams and failures of all time.
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Disclosure: None. 16 Biggest Crowdfunding Scams and Failures of All Time is originally published on Insider Monkey.