Crowdfunding: Highs and lows of adventure capital

ABC7 I-Team Investigation

ByChuck Goudie and Ann Pistone WLS logo
Friday, August 7, 2015
Crowdfunding: Highs and lows of adventure capital
In the booming Internet investment industry known as crowdfunding, anyone can bankroll an idea. But just like traditional investing, there are risks.

CHICAGO (WLS) -- In the booming Internet investment industry known as crowdfunding, anyone can bankroll an idea, business venture, real estate project, charity - the list is endless. But just like traditional investing, there are risks.

By the end of this year, crowdfunding will create almost $35 billion in adventure capital, double the money raised last year. But even with this new opportunity for investing, an old adage applies: if it sounds too good to be true, it probably is.

Theater director Jerry Miller requested $1,500 in donations on a crowdfunding site so that he and local young actors could put on a play about the consequences of violence.

In "Bang, Bang You're Dead," a young shooter is confronted by the souls of those he has killed.

"I really want to have a discussion of the violence in our community, in the nation, in the world," Miller said. "The play is free, the funding helps pay the actors, fund director, provide lights, costumes and props and offers a free play."

This is a crowdfunding success story. Not all have happy endings.

"There are no guarantees with this," said Sherwood Neiss, Crowdfund Capital Investors.

Neiss is one of the architects of crowdfunding.

"From what I saw, I probably wouldn't back that campaign," he said.

Neiss is talking about the crowdfunding campaign for a product called Ritot. For $199 you can receive a projection watch as a contribution "perk"; your money will fund start-up costs. Ritot's team pulled in $1.6 million, 30 times more than their goal.

Their 9,000 funders are still waiting for the watch, which is nearly a year behind schedule. Some are out of patience.

"Wait a second, light doesn't behave the way they are depicting it," said Darryl Moskowitz, a crowdfunder.

Moskowitz was intrigued by Ritot, so he made a small donation.

"Initially when I started commenting, my comments would disappear. I was being censored," he said.

Neiss says investors need to assess their risks and the comments page is the place to start.

-Check for complaints and red flag questions

-For products, there should be a prototype. Ritot recently posted a video of a prototype that is 10 times larger than the fabricated images they posted last year of what Ritot is supposed to look like.

-Make sure the campaign has a website and company email. Neither exist in the case of Ritot. Nor does their advertised San Francisco office.

In an email to the I-Team, Ritot's founder Michael Medvid said the company was planning to move to San Francisco.

"Maybe that was our mistake, we were over hasty," he said.

So where is Ritot located? Ukraine.

"Anytime when you have regular Joes getting into an area where they are spending money and they don't understand the rules and think there maybe are some guarantees there that do not exist, I think it's a formula for trouble," Moskowitz said.

So where are the watches? Medvid says they are actively working on them. He says the company started making refunds but stopped due to legal issues. And he says every person from their refund list will get their money back. Indiegogo, which hosts the Ritot campaign, closed their funding after the I-Team started asking questions, saying the action was "a result of the current challenges Ritot is experiencing."

READ: Ritot's full statement to the ABC7 I-Team

Indiegogo's website states contributions are nonrefundable and transactions are between contributors and the campaign owners.

So what is the safest way to invest through crowdfunding?

"Put money into people that you know love and trust," Neiss said.

This summer, the Federal Trade Commission took its first action against a crowdfunding campaign, charging the owner of a board game site with deceptive tactics after he raised more than $100,000 and then spent it on himself.