[FAIL] Don't Get Burned By Crowdfailures
Crowdfunding - the raising of capital through small contributions from many people - has grown from an Internet novelty into an SEC-sanctioned financial market. Many successful products have come to the market thanks entirely to crowdfunding. But for every success story there’s a horror story, it seems. Here are some high-profile “crowdfails" and some tips on how to avoid being a part of them…
What's Worse Than Failure? Crowdfailure
If you're new to the concept of crowdfunding, or need a refresher, my article What Is Crowdfunding? will give you the basics. For businesses, Are You Ready For Equity Crowdfunding? provides an introduction to government-regulated equity financing via “the crowd.”
On the positive side, Oculus Rift, the highly-touted virtual reality system, raised $2.5 million in a Kickstarter campaign in 2012. In March 2014, Facebook paid $2 billion for Oculus VR, Inc. One of my favorite Indiegogo successes is the Bug-A-Salt, a well-made plastic shotgun that uses ordinary table salt to kill pests. Truly, crowdfunding has enabled inventions to reach consumers that would otherwise have died for lack of capital!
But crowdfunded projects don't always have a happy ending. The leading scandal in U. S. crowdfunding is The Coolest Cooler, the geekiest beverage cooler on wheels ever invented. It would have everything, the principals promised: a built-in blender; a Bluetooth speaker; 55 quarts of chilling space; even a built-in bottle opener. Over 62,000 backers kicked in $13.2 million towards the development of this wonder. Most of them were promised one of the first coolers to be produced in exchange for their donations.
They’re still waiting for their coolers, even though the “Coolest Company” is selling the Coolest Cooler on Amazon to the general public. Somehow, the principals burned through all those crowdfunded millions and still had to raise capital by pre-selling to the public, just to keep the doors open. And now, the company is telling early backers they must pay another $97 to receive their coolers along with Amazon shoppers, or go to the end of the shipment line! Many backers are hopping mad, and rightfully so.
Personally, I am most disappointed by the seeming failure of the Skarp Laser Razor. I was really looking forward to shaving with a laser beam instead of a blade, and never having to buy overpriced blades again! Over 25,000 other people shared my hope, kicking in $4 million to the Kickstarter campaign. And then Kickstarter canceled Skarp’s campaign; the startup never saw a cent of the millions pledged.
Not So Sharp...
It seems Skarp did not have a “working prototype” of its invention, one of the few requirements that Kickstarter imposes upon fundraisers. Cnet got a hands-on demo of the Laser Razor in November, 2015, and it was pretty pathetic. The razor veeerrry sloooowwwly burned through just two hairs on the back of the editor’s hand!
Undaunted, Skarp has moved to Indiegogo, where apparently anything gogoes, and has raised over $477,000 to keep its campaign alive. The original ship date was March 30, 2016; no word now when this thing will materialize, if ever.
Airing, another high-profile Indiegogo project, promises to be the first hoseless, maskless, micro-CPAP. It has raised over $1.2 million, but there's no working protoype yet, and it won't be available until at least mid-2017. If this thing materializes, it will be hugely popular with sleep apnea sufferers. If not, all the investors will be the suffering ones.
Over in the UK, Rebus is the biggest crowdfailure so far. The company raised £816,790 (about $1.12 million USD) in an equity crowfunding campaign in 2015. Rebus Investment Group sold 6.3% of itself to 109 investors. Rebus has just declared bankruptcy. The irony is that Rebus’ principals claimed to be in the business of assisting “investors who were misled into buying ‘flawed complex financial solutions’.”
Some crowdfunding campaigns are blatant scams, even copycats of scams that thrived in the 1990s. Crystal Wash 2.0 is one such recycled scam; it claims to get clothes cleaner by altering the molecular structure of water. Nearly identical snake oil was quashed by the FTC decades ago. You can also find perpetual motion machines (though they aren’t called that any more). How about helping to fund a floating city that can be propelled and steered anywhere - assuming any country will let it resupply.
I've invested in a handful of Kickstarter and Indiegogo campaigns, and so far have not been burned. Most the the projects I've backed were started by people I know personally, which is one way to mitigate the risk of participating in crowdfunding.
Crowdfunding is a two-edged sword. Be careful what you invest in, and always remember that you are investing, not buying a sure thing. As with any investment, there is a possibility that you will get nothing in return for your money.
Your thoughts on this topic are welcome. Post your comment or question below...
This article was posted by Bob Rankin on 21 Apr 2016
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Article information: AskBobRankin -- [FAIL] Don't Get Burned By Crowdfailures (Posted: 21 Apr 2016)
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