The Media Is Missing The Point On Crowdfunding, Indiegogo And The HealBe “Scampaign”

GoBeAt this point, I’ll skip the process of reiterating HealBe’s disaster of an Indiegogo campaign in any detail. In short, HealBe launched a campaign for a device called the GoBe that promised to count calories burned during a workout by measuring glucose levels in the bloodstream. It may not even be possible. That’s just one of the issues with the campaign. Here are the relevant links if you need some deeper background:

On Indiegogo, a miracle health device crowdfunds $730k. One problem: it might be total bullshit [PandoDaily]

Indiegogo’s Reputation May Hinge On Outcome Of GoBe Campaign

Revealed: Healbe isn’t Indiegogo’s first giant medical scam [PandoDaily]

PandoDaily’s James Robinson has led the charge on covering the campaign, and he deserves to be applauded for it. He in all likelihood saved an untold number of people from parting with their cash. I say this as a member of the crowd; I’ve read the allegations and done my own due diligence, and I cannot for the life of me believe that HealBe is going to deliver a product that works as advertised. I don’t believe in the team or the science.

Part of the beauty of crowdfunding is that I’m entitled to that opinion as much as some of HealBe’s most zealous backers are entitled to disagree with me. When people say “the democratization of capital,” this is what they mean.

indiegogoFurthermore, I have a profound respect for Indiegogo as a platform because I know from the past year-plus of covering them that this process of democratization is their raison d’être. If Kickstarter is the careful, surgical & cliquey big brother of the crowdfunding space, Indiegogo is the occasionally reckless little brother that makes friends with everyone in the neighborhood. Indiegogo balances Kickstarter out with their “no gatekeepers” approach.

I’m not saying either is right or wrong. There’s a place for both, but ask me if I think an entrepreneur with a half-baked idea should be able to raise money for said half-baked idea and I’ll tell you, unequivocally: Yes, if the crowd decides it to be so.

If Kickstarter is the careful, surgical & cliquey big brother of the crowdfunding space, Indiegogo is the occasionally reckless little brother that makes friends with everyone in the neighborhood. Indiegogo balances Kickstarter out with their “no gatekeepers” approach.

That is the story of the GoBe. It’s not a product yet. If it were, it’d in all likelihood be listed on Kickstarter, the inarguable leader of the crowdfunding pack and stop #1 for hardware projects even though they aren’t a store or something. However, the GoBe is at this point just an idea – a prototype – and Indiegogo is the place to raise funds for an idea.

Here’s where James Robinson and so many other journalists miss the boat, and why Indiegogo is right in not canceling the GoBe campaign: it isn’t up to us or the individual platforms. The final decision for whether or not to provide HealBe with the funds they deem necessary to bring their product to market lies with the crowd and only the crowd.

However, this is predicated on a couple of important concepts. One, backer pledges should be held in escrow until a campaign is completed. Two, backers should be able to cancel a pledge as long as the campaign is running. Without these two elements of the crowdfunding puzzle, there’s undue risk for backers at the point of contributing to a campaign. Backers should be able to contribute, change their mind based on due diligence performed within a transparently-defined timeframe (the length of the campaign) and retract their pledge.

kobe red beef jerky scam kickstartedRemember the Kobe Beef Jerky campaign on Kickstarter? A clear scam that was outed by a documentary team. Not one dollar was lost to the campaign thanks to escrow protection. Was it a misgiving of the system? Absolutely not. The system worked.

Indiegogo fails to employ this important safeguard for backer pledges for one specific cocktail of scenarios. For flexibly funded campaigns, PayPal contributions are released immediately. No escrow protection. This is why backers are having to ask for refunds during the HealBe campaign.

I asked Indiegogo why the decision was made to release funds immediately in this circumstance and received a response from within Trust & Safety…

The decision to allow PayPal contributions to immediately accessible to campaign owners in a flexible funding structure was made a long time ago. We believe this is an important feature that have been received favorable with our users.

I understand why project creators would love the immediate release of funds. Who doesn’t like receiving money? Having said that, it flies in the face of crowdfunding best practice. It cannot be tolerated.

There’s a secondary problem here as well. It results in diminished transparency. How much money has HealBe raised when taking refunds into account? Refunds aren’t reflected in their current fundraising total, which stands at over $990,000. The short answer: nobody has any idea how much HealBe has raised. That is a problem.

The HealBe campaign is not a failure of Indiegogo’s own fraud detection program as PandoDaily has suggested. It isn’t Indiegogo’s responsibility to call the winners and losers. That responsibility lies solely with the crowd. On this front, I agree with Indiegogo.

However, it does raise an important red flag in regards to how Indiegogo executes flexibly funded campaigns. Any good steward of crowdfunding is doing the space a disservice by not providing escrow protection to backers. It needs to change and it needs to change now, whether the project creators like the feature or not. This isn’t about them. It’s about the health of an industry and the ability for platforms to protect the end user from fraud. In releasing funds immediately, Indiegogo is exposing itself to complicity in a clear fraud if one were to arise. It’s shameful.

That is Indiegogo’s failure. Let’s not criticize them for allowing the campaign to run, because in the end that is the ethos of crowdfunding. Let’s leave that decision to the crowd and empower them to make the decision, right or wrong.


Have a crowdfunding offering you'd like to share? Submit an offering for consideration using our Submit a Tip form and we may share it on our site!

  • mendelj2

    Great article, but I don’t understand how flexible funding, if shown in a completely transparent way is a violation of crowdfunding best practices in your mind. As long as backers know what they are getting into the same rules should apply.

    • http://www.crowdfundinsider.com/ Charles Luzar

      I take no issue with flexible funding as an idea. In fact, I love that it is out there and available. However, funds should not be released until a campaign ends. That is what I take issue with. Funding for all of these campaigns should sit in escrow and only be released once the campaign runs its course.

      • mendelj2

        Even after 100% of the goal has been reached?

        • http://www.crowdfundinsider.com/ Charles Luzar

          Yes, even after 100% of the goal has been reached. This is a prime example. HealBe may secure 100% of funding before anyone raises a red flag. Say there’s a week left to go when someone discovers something of concern. Backers should have a chance to rescind their pledges based on newly-available information as long as the campaign is running without having to ask the project creator for a refund.

          What if HealBe wasn’t willing to issue those refunds? What if this were a true “steal your money and take off” fraud? Indiegogo would be in a heap of trouble.

          • mendelj2

            I guess it’s a question of what defines fraud and at what stage, right? And at what point is crowd funding campaign fraudulent? Obviously there is an issue if they don’t deliver on the perks that are promised and if the product doesn’t work at all. While it seems like the product won’t work based on the news surrounding this case we wont know that truly until it is delivered. And what responsibility does IndieGogo have in this case? If a Kickstarter backed movie is not good – do they owe money back? I think we are living in a gray area between “responsibility” and the comfort level with the risk associated with any crowdfunding or charitable donation. Fascinating to see how this plays out.

          • http://www.crowdfundinsider.com/ Charles Luzar

            I’m of the opinion that the question of whether this campaign is fraud in an empirical sense is completely irrelevant (although more than a few lawyers I know would certainly argue otherwise). That is up to the individual backer to decide.

  • Pingback: As media outrage grows louder, Indiegogo scampaigners launch PR counter assault | PandoDaily

  • Paul Spinrad

    You nailed it– IGG isn’t in the business of assessing claims of possible future products, but I also agree with you re: best practices for funds transfer timing.

    Also also– campaign creators shouldn’t be able to remove suspicious or critical comments from backers by simply clicking “remove as spam.” This happened after I donated $1 to The Body Dryer campaign (https://www.indiegogo.com/projects/the-body-dryer/x/13457) in order to leave a questioning comment. My comment was quickly removed. I’m not sure why the Healbe folks haven’t been doing the same with their critical comments and refund requests.

    The Body Dryer was posted April 1, possibly as a joke for plausible deniability, but it has already topped $100k in pledges. Check out the diagrams “Air Column and Drying Effect” and “Air Flow & Compression System” linked at the bottom of the Gallery tab, under Files. These explanations make no sense.

    • http://www.crowdfundinsider.com/ Charles Luzar

      Those are seemingly gone from the product’s campaign page…?

      I’m coming to find it isn’t just Indiegogo that does this, either.

  • Pingback: WTF? Healbe scampaign reaches $1m thanks to undisclosed contribution from Indiegogo’s hardware chief | PandoDaily

  • David Chitester

    Excellent analysis, thanks.

    • http://www.crowdfundinsider.com/ Charles Luzar

      Thank you

  • Pingback: How to Trust Crowdfunding in the Midst of Scams and Controversy? | A Footprint in Cyberspace

  • Pingback: Set Realistic Crowdfunding Goals | Loans or Grants

  • Pingback: As media outrage grows louder, Indiegogo scampaigners launch PR counter assault |

  • Pingback: The 3 Deadly Mistakes of Crowdfunding | DEMO SIte

  • Pingback: Copy Me: The First Crowdfunded Webseries on Copyright |Art Law Journal

  • Pingback: StartupValue | Making money by Crowdfunding to Kickstart your Projects - StartupValue

  • Pingback: The World Of Ktdata » Blog Archive » KickCast – Episode 39: A Kolibree, Rufus and Zuta Walk Into A Podcast