Crowdfunding tech can serve backers poorly, even when the thing gets made

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MacWorld | | May 27, 2016

Coolest CoolerCrowdfunding has always been risky, but several recent high-profile failures, delays, and significant shifts—including the CST-01 smartwatch, the Zano palm-sized drone, the Coolest Cooler, and the Glowforge laser cutter—reveal how fragile manufacturing-backed campaigns really are.

If your interest in a project isn’t so much “I want this thing to exist in the world” as it is “I want to place an early order,” it’s certainly wiser to wait until hardware products launch on the open market. But that seems especially so for projects that raise hundreds of thousands to millions of dollars.

As a percentage of all projects launched, the vast majority of crowdfunding projects achieve their promised goals, according to a substantial research project conducted last year. But hardware projects raise disproportionate sums, and so when a small percentage of them fail, they fail big, losing more money and disappointing more backers than sheer numbers of campaigns would indicate.

Other crowdfunding categories, like fashion or food, have their share of incomplete ignition or complete self-destruction, too. But those projects typically involve a lot less money and feature rewards that are often squishier, sometimes allowing a significant portion of rewards to be sent out, even if the main project doesn’t happen. Or, they were designed more like patronage, to let the creator advance his or her career, and a failure to deliver doesn’t necessarily make backers feel like their contributions went to waste.

There’s a gap been love and desire. If you don’t love the project, or at least like the creator, and you simply want the thing, you might become a backer for one of more of three reasons: to get an early crack at something other people will have to wait for; to get a discount off the ultimate list price; or to get a special edition or exclusive extras that won’t be available after the campaign.

With a number of prominent projects, even when they ship, only the “exclusive edition” factor gets met. Ultimate retail pricing may be discounted through sales channels and wind up not far off the “early bird” discount, and some prominent projects have put products for sale through retailers before all (sometimes any) backers received their goods.

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Bigger projects also probably don’t need your support. After they pass a goal stage and start running a total that’s 1,000 percent or even 10,000 percent of the target, your pledge doesn’t make a difference. For smaller projects, that’s more of a concern—but then, your motivation is more likely closer to patronage, too.

Before I get into the issues around backing, let’s start with some nitty-gritty about the state of a number of big crowdfunding projects.

The latest entrants in the tattered parade

Just last August, our sister site TechHive wrote “The FitNatic Nourish, and other cautionary crowdfunding tales,” in part to explain why TechHive had backed off further from covering crowdfunding campaigns. The article lists several major electronics projects that had failed to deliver, most in the $100,000s, and one in the neighborhood of $1.5 million.

Since then—less than a year—projects totalling nearly $50 million, about half raised at Kickstarter, have had creating firms go bankrupt, teeter on the edge of partial failure, or have seen a significant delay. And that’s just a tally of some of the highest-profile ones, not a comprehensive look at the entire field.

The two biggest collapses are the CST-01, a watch with an e-ink display, and a tiny drone called Zano. The company behind the CST-01 raised over a million dollars in early 2013 from 7600 backers, said it couldn’t fulfill the product in mid-2015, and recently filed for bankruptcy, noting it had $30,000 in assets.

The Zano drone crashed and burned faster. Its maker crowdfunded £2.3 million (about $3.5 million) in early 2015 and accepted another £600,000 ($900,000) in pre-orders. By November, the Welsh company was put into a form of bankruptcy, with £1 million ($1.5 million) in debt. It did ship some units that worked poorly and stopped functioning after required cloud services shut down. Kickstarter paid for an independent investigative report of Zano’s implosion, which appeared in January 2016. (I was paid directly by its writer for editing services.)

The Coolest Cooler raised over $13 million in mid-2014, with a delivery date of February 2015 for most of the units. Coolest is a wheeled cooler with a built-in Bluetooth speaker, USB charger, and ice-crushing blender. Most backers—about 50,000 out 62,000—paid about $200 for the cooler and U.S. shipping.

After Coolest pushed back the delivery date by months between its choice to upgrade some features and typical production delays, the company began shipping some units in July, even as workers went on strike at the factory originally contracted to make the blender’s motor. This led to months of work to find and test a replacement motor. In November, the company put the cooler up for sale at Amazon for $500 (now $400) when fewer than half the backers’ units had shipped. The company’s founder said it needed the infusion of cash from Amazon sales, and it would need $15 million to complete production for units owed. (Reviews are mixed: At press time, 50 percent were five stars, while 30 percent were one star.)

In April, Coolest asked backers representing the 36,000 coolers remaining to ship for another $97 for each unit to push them earlier in the shipping queue. The company says about 10,000 backers ponied up. It’s extremely unclear what the future for Coolest is, although it’s apparently restarted shipments with that infusion.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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