There are only so many ways of funding a startup. While entrepreneurs would want to be funded by venture capital or angel investors, but most would have to contend with bootstrapping, or financing a project with their own funds. Still, an innovative way of funding a project would be crowdsourcing, which is what Kickstarter does. But a recent discovery of a scam raises questions on the viability of this business model.

Kickstarter has financed a few successful startups, such as the Pebble Watch, a smart watch that syncs with one’s Android, iOS or BlackBerry device to display content and act as remote control. The Pebble is actually Kickstarter’s most successful project, having raised US$ 100,000 in its first two hours. Pebble has raised US$ 600,000 on its first day, and US$ 7.8 million to date, with 16 more days to go.

Kickstarter has just turned three years last Friday, and has raised about US$ 200 million for 22,000 projects so far.

Pebble actually needed just US$ 100,000 to finance its first run of smart watches. But, with viral marketing — and a little help from popular tech blogs like Engadget — it reached a tipping point and found itself getting millions of dollars in pledges. And, because it raised its required pledge level within the time limit, Kickstarter was able to successfully charge those who pledged funding.

A Mythical Project

With growth and success, though, come a few challenges. Amid Kickstarter’s success stories, there are also projects that have turned out to be potential scams. For example, the purported video game Mythic: The Story of Gods which promised “gameplay characteristics will be similar to that of World of Warcraft and the graphics quality should be up there with Skyrim.”

Mythic offered financiers the opportunity to participate in game development, even to the extent of voicing characters and being embodied in the game through motion capture “at the Disney Studios.” However, the Disney/Pixar claim raised suspicions, and users have reported the project to have used concept art and graphics copied from elsewhere.

No money has actually changed hands with the Mythic project. Kickstarter will only charge pledgers’ credit cards if the project raises enough pledges during its time limit to meet its minimum requirements. Mythic’s creator pulled out the project after getting US$ 4,739 from 83 backers. The project had a goal of US$ 80,000.

Still, the fact that shady projects like this one make it to Kickstarter have put the system’s filtering mechanisms to question. “A simple Google search, and I found out for myself this was very shady,” says a user who posted a comment on the Mythic project.

Whether Mythic was a legitimate project that used questionable claims to market itself, or if it was a fraud, still has to be confirmed. Alfonzo Burton, CEO of independent game studio Burton Design Group, says the video plagiarized content from his company. He has also claimed to know the person featured in the project video as Seth Westphal, a former employee. Westphal claims he runs a group of 12 game developers who left Burton due to the owner “being shady with funds.”

With dozens of projects cropping up each day, there is question whether Kickstarter’s policies are enough to vet against frauds.

Kickstarter’s Project and Community guidelines are quite straightforward, having defined what can and what cannot be launched as a creative Project for funding. However, there are no filtering mechanisms. Kickstarter relies on the community to police itself. The outing of the Mythic “scam” was actually brought about by two vigilant Kickstarter users.

With this precedent, will Kickstarter enforce measures to make sure projects are legitimate? Or will such an act be difficult to implement, given the nature of startup businesses? Some startup ideas are actually started from scratch, and funding facilities like Kickstarter give an opportunity for would-be entrepreneurs to turn their creative ideas into reality. Have scammers ruined the picture for startups and Kickstarter?

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