Apple Denies License, Prompting $139K Kickstarter Refund
After encountering problems funding his projects on Kickstarter, inventor Jamie Siminoff decided to start a competing crowdfunding site with stricter funding rules. When his latest project on Kickstarter, Pop, had to be shuttered after Apple denied it a license for the technology behind the Lightning connector, Siminoff decided to use his site, Christie Street, to issue refunds to his Kickstarter investors.
Edison Junior is issuing the largest Kickstarter refund ever after it couldn't secure the use of Apple's new Lightning dock technology for its universal charging gadget.
The company set out to create a portable charging station, called the "Pop." The minimalist device was supposed to support ports for multiple chargeable devices, including iPhones. In September, Edison Junior looked to Kickstarter to fund the project, and raised US$139,170, well over its $50,000 goal.
When Apple debuted its new Lightning connector, however, Edison Junior said its product application with Apple fell apart. Apple would not approve a device that uses the Lightning charger alongside any other, including its own classic 30-pin connector, according to a post from Edison Junior on Kickstarter.
When it became clear that Apple wasn't going to be able to provide the licensing, Edison Junior began to explore its options for scrapping the project and refunding its backer donations, since an Apple-free charger wouldn't have lived up to customer expectations.
Determining how to issue a refund was a challenge, since Kickstarter doesn't have a mechanism for such occurrences.
So, Edison Junior founder Jamie Siminoff started Christie Street, a crowdfunding site "designed to handle needs that can arise from products," including refunds. The site focuses on industrial design projects and requires more background auditing and failure preparation than Kickstarter does before a campaign can launch.
Through Christie Street, Edison Junior said it will refund 100 percent of backer donations. The Pop backers will receive Christie Street accounts, from which they can decide to cash in for a refund, or use on Christie Street's site to invest in other projects.
Pop backers can count on a full refund even if it has to absorb the 5 percent fee that Kickstarter normally collects. Edison Junior asked Kickstarter to return that money, but if it doesn't, Edison Junior would be responsible to pay back $11,000, including a 3 percent credit-card fee it said it will absorb.
None of the companies involved responded to our request to comment for this story.
That Edison Junior chose to give a refund is significant, since Kickstarter doesn't mandate any sort of failure policy. Several of its backers noted as much in the comments on Siminoff's Kickstarter post. Donations are completely voluntary, and backers must understand that when they hand over money they're not guaranteed anything, said Darren Cleveland, president of Start Up Consultants.
"Kickstarter is a place where it can be amazing to see things get off the ground that maybe wouldn't have," he told the E-Commerce Times. "But it's essentially a new source of funds, and those could be from someone's retirement fund, and they really have no idea what they're getting. Having a sense of reality is essential."
Kickstarter is just one of a few sites that are facing the same issues as they try to figure out the best balance between supporting entrepreneurship and guaranteeing credibility, said Chris Barsness, senior associate at Barth Calderon.
"The problem inherent with the sites listing these is that they don't really tell you what, if any, due diligence they may have done on the company," he told the E-Commerce Times. "They aren't explicitly stating that they endorse or recommend you put money into them, but the fact that they list them tends to give the companies more credibility and more access to funds."
The regulations might become more strict in 2013, Barsness noted. As part of the JOBS Act, crowdfunding restrictions are set to be finalized next year. Sites such as Kickstarter or Christie Street would have to be registered with the SEC, which would presumably put into place more investor protections on the fundraising campaigns.
"Kickstarter and others are relatively new, but you can be sure the SEC and other regulatory agencies will keep their eye on further investor protections and may start enforcement actions against any company they think may be misleading investors," Barsness pointed out.