What happens with KickStarter if you run out of money and decide to shutdown the company after funding?

Have there been companies who have used KickStarter and then had to close the company before delivering because they ran out of money? What happens in this case? Do you have to pay KickStarter back?

PS. Apart from screwing up your reputation, which would be a given for not delivering.

To answer your question about failed KickStarter projects, some of them have absolutely failed.

Do you have to pay back KickStarter? Um... sort of, and sort of not. KickStarter never actually has the funds (except the cut they take). KickStarter keeps themselves out of the payment process as much as they can. It's the backers' responsibility to determine if the creator is worth putting money in to. The transaction happens between the backer and the creator.

So you don't have to pay back KickStarter, but it's quite clear from their FAQ that you have to pay back backers for any rewards that you can't fulfill, which I suspect is what you were really asking about.

In many ways, this is actually worse for you. For one thing, KickStarter does take a small percent of the transaction. I searched for a while but I don't see anything that makes me think KickStarter will pay back their share; it seems like that comes out of your pocket. Second, there's a payment transaction fee that happened in the initial payment which is also gone, and you'll probably have to cover. Add on top of that that you'll probably need (or should) pay the transaction fee on the refund as well. Third, if it has been more than two months, you're basically going to have to initiate a new transaction for every refund. That's potentially a lot of manual work.

Let me reiterate what Chrissy said though: despite the refunds, your biggest hit will probably be to your reputation. KickStarter is pretty public, and a failure there (not a failure to raise funds, but a failure to deliver) will almost certainly have a large impact on your reputation. KickStarter goes out of its way to make sure that you keep using the same account or disclose any previous accounts, so failing to deliver may also effectively mean you won't be able to fund a new idea through KickStarter because they'll be able to see your history.

Obviously, the solution here is to do your homework in advance. Make sure your deadline is realistic. Make sure you've accounted for everything when you set the limit on the amount of money you need to raise. Make sure you only promise rewards you know you can deliver on. It's far better to find yourself unable to fund your project than it is to get it funded and not be able to deliver.

The biggest thing you would lose is indeed your reputation since crowd-sourced funding is a very open and public thing. This is why you calculate the minimum you would need to complete the project and set that amount as the minimum. NPR had a blog post about this very issue.