Crowdfunding 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.
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.
The Pirate3D printer took in almost $1.5 million in 2013, shipped out 40 percent of its orders, and then stalled. It’s still in operation and trying to raise additional funds, but the likelihood is low that most backers will receive a product.
While Zano included a project video that doesn’t seem to match the capabilities it had at the time it launched the campaign, it doesn’t appear to have engaged in actual fraud: the company had a staff, was developed software and hardware, and there’s a warehouse with hundreds of thousands of unassembled parts. Fraud does happen: one of the creators of the Peachy Printer campaign, which raised over Cdn$650,000, alleges the other stole a hunk of the funds and built a house for himself.
And Kickstarter and Indiegogo have removed campaigns that don't pass the smell test, reported by site visitors or popping up in the radar of internal teams devoted to making sure projects don’t violate guidelines.
Zano and the others mentioned above, however, seem to be examples of overreach, bad budgeting, and unanticipated manufacturing holdups. Several project creators have told me in the past (some have documented this online) how after a project becomes huge, suppliers suddenly renegotiate contracts or are unable to handle the new quantity. The bigger the project and the more it passes its goal, the more likely this is to happen.
Carving out time for retooling
What’s more typical, however, isn’t utter failure or a murky path forward. Rather, it’s the typical delays that affect any kind of manufacture. Because of how common this is, the question is whether it makes sense to order early, tie up your money, and wait for a successful delivery, instead of just waiting for production versions to ship to retailers.
Both Kickstarter and Indiegogo expressed in interviews that while delays are unfortunate, communication and transparency is key. Indiegogo, in a statement from a spokesperson, notes, “Constant communication to backers on the status of the project is invaluable, especially if there might be delay in shipping for whatever reason.”
John Dimatos, the director of outreach for the site’s two biggest manufactured product categories, design and tech, says the company finds that when a project’s organizers can find a receptive audience among backers so long as they’re upfront. “Even when they’re delayed, there’s something incredibly empathic about the way they come forth,” he says.
Glowforge, a small-scale two-laser cutter targeted at serious hobbyists and small businesses, raised almost $28 million in October for its device, which cost about $2,000 to $5,000 in that early stage. The company built its own crowdfunding software, which it hosted on its site. Its appeal to early adopters was a substantially lower cost than comparable gear shipping from more industrially oriented makers, coupled with cloud-hosted software for design and rendering that’s not available for highly variable quality, similarly priced Chinese imports.
Glowforge originally promised to start shipping units to backers in late December, and built a community around referrals, offering $100 rebates for every sale sent by someone who had already paid for a pre-order. A few months ago, the target was reset to June, and last month it was pushed back again to December 2016. The trouble? Issues with getting a final, acceptable production version of the power supply, a critical component in a device based around a laser. (Disclosure: I know one of the company’s founders and some of the employees. I was a campaign backer, and I’ve had on-site demos of the prototype hardware and software. More details at the end of this article.)
But unique to my experience of crowdfunding campaigns, Glowforge offers a full refund up until the point of fulfillment. Even partial refunds are rare. Zano was unable to collect some of its post-campaign preorder funds from PayPal, which froze them until it could deliver. Coolest reportedly refunded some backers on request in late 2015, but halted those in 2016, based on forum reports. Even with the threat of legal action on indefinitely delayed or defunct projects, there’s usually little or no money left to claim in any case.
Glowforge will lose some backers because of the long shift in time, though many—like me—assumed the original date was aggressive and most units would ship later. However, it raised $9 million in advance of crowdfunding, also unusual. It also continues to accept pre-orders, and as early pledges cancel, later buyers will move up in the queue for delivery.
Even some high-flying projects that shipped all rewards have had less than ideal outcomes for those who bought in early. An independent game console, the Ouya, raised nearly $9 million in mid-2013 and delivered essentially what was expected. However, early reviews were lackluster and it never caught fire. The company effectively disappeared from view as part of an acquisition in early 2015.
Starting in September 2015, the Baubax jacket raised over $20 million between a its first campaign on Kickstarter and then a follow-up on Indiegogo. Jackets shipped months late, and ostensibly all have been delivered, but the firm began selling jackets on retailers’ sites months before it completed delivery to backers. This was due to similar reasons as Coolest; Baubax’s founder said the firm was low on cash and had no additional funding. Reviews are not kind about accurate sizing and quality, something that could be avoided when trying on in a store or purchasing through a retailer that has a returns policy. Some buyers have been able to arrange exchanges and refunds.
These may all seem like cherrypicked examples, but they’re among the top-funded electronics and consumer products. The Coolest, Baubax, Ouya, and Zano places at numbers 2, 4, 6, and 18 for most-funded Kickstarter projects, respectively. Glowforge is the largest 30-day crowdfunding project ever. (Some digital currency and videogame projects with longer timelines or campaigns that never close have raised more.)
In the midst of what seems like a relentless kazoo of failure, there are notable success stories too. Smartwatch pioneer Pebble occupies the first and third positions in Kickstarter’s all-time funding chart. It delivered its products somewhat late, but to spec. (Pebble laid off 25 percent of its workforce in March, but had also secured $26 million in additional funding.) Pebble just launched a third Kickstarter campaign for the Pebble 2, Pebble Time 2, and Pebble Core, and blew past its $1 million goal easily.
The Micro Drone 3.0 from Extreme Fliers raised $3.4 million on Indiegogo for a tiny drone with some of the same features as Zano, and started delivering months ago. It’s a few months behind in delivery, but is posting weekly updates about the order in which shipments are being made, and has received generally quite positive reviews.
A kickoff, not a touchdown
Crowdfunding gets promoted as a way for innovative ideas to become reality without tapping conventional sources of funds for creative projects, whether grants, bank loans, or credit-card advances. Kickstarter alone has over 100,000 funded projects that raised more than $2 billion total since the site first launched in 2009. Hundreds of millions have been raised through other sites.