Indiegogo will withhold certain crowdfunding campaigns’ funds until they ship

Crowdfunding lost its luster over the past few years as major campaigns failed to deliver on millions of dollars’ worth of promises. Indiegogo CEO David Mandelbrot recognizes backers’ disappointment, and so now, the company is planning to fundamentally alter the concept of crowdfunding and make it more like regular pre-sales.

Mandelbrot tells The Verge that Indiegogo is planning to experiment with a new payment method for crowdfunded campaigns called “guaranteed shipping.” This new system would guarantee that backers will receive a specific product, and if they don’t, they’ll receive their money back. Creators’ raised funds will be withheld until the product ships, at least when the program launches at first. This will begin rolling out for select campaigns early next year, although Indiegogo wouldn’t get specific on potential partners.

“By guaranteeing delivery of certain perks we can help ensure backers get their perks or get their money back,” Mandelbrot tells The Verge in an emailed comment. “So far, backers of products in the Indiegogo Marketplace where shipping is guaranteed have been very happy with the experience.”

As Mandelbrot mentions, the company first tested this payment method in its Marketplace, which acts more like eBay or Etsy, letting creators sell products directly to users. In Marketplace, Indiegogo verifies that a product has shipped before transferring sales money to the creator. It does so by looking at specific shipping codes, as well as sending out surveys to customers.

Marketplace is a unique feature among the crowdfunding websites. It acts more like a conventional retail store with no risk involved. By bringing guaranteed shipping over to crowdfunding, Indiegogo is fundamentally altering the practice of backers risking their money to support a creator. Granted, crowdfunding has already changed drastically with bigger brands relying on the platforms to get the word out about a new product. Their buy-in then affected how backers perceive crowdfunding with many expecting a product at the end of the process, not just the glory of having tried to help a startup get going.

Of course, not every creator will be psyched to jump on this new payment method, Mandelbrot tells me. But he sees it as particularly beneficial for these bigger companies, like Gillette and Lego, that use Indiegogo as a marketing tool or a place to do product research. Those companies don’t need access to their funding right away, unlike the smaller creators that need cash to get started on production.

Because some companies might not be jazzed about restricted access to their money, Indiegogo isn’t currently planning to require all campaigns to use guaranteed shipping. This new payment plan won’t completely resolve the issue of backers never receiving their products. Instead, Mandelbrot thinks it’ll give backers more information to make a decision. If you see one campaign that’s guaranteed to ship and another one that’s not, presumably that’ll factor into whichever campaign you decide to back.

A major pain point for crowdfunding backers are the “successful” campaigns that reach their funding goal, but fail to ever actually ship. Guaranteed shipping could change the entire relationship between backers and creators, although it could also represent the beginning of the end of traditional crowdfunding. Both Indiegogo and Kickstarter have said that risk is part of the game when it comes to backing a product, but at least Indiegogo is now seeing that backers are happier and more satisfied when they actually receive the product they wanted to buy.

The company’s creation of Marketplace also contributed to it having its first profitable quarter, according to Mandelbrot. (The company isn’t public, so we have no way to verify its profitability.) Indiegogo managed to onboard more campaigns this quarter — the company takes a percentage of however much money is raised — and it has launched a creative service to help entrepreneurs brand themselves and their products. These steps led to more cash flow.

Essentially, Indiegogo is diversifying its revenue and looking to make crowdfunding an option not only for startups, but also for bigger companies that might want to experiment with the platform and use it as a place to sell directly to the consumer. Crowdfunding is a powerful tool for entrepreneurs, but it’s only as good as its reputation. And if people start losing faith in the system entirely, no one will succeed.

Correction 11/15, 1:28 PM ET: This article previously mentioned a badge on campaign pages. Indiegogo hasn’t decided yet how it’ll represent these types of campaigns yet.