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The Almighty Buck Technology

Another $1 Million Crowdfunded Gadget Company Collapses (techcrunch.com) 109

An anonymous reader writes: In 2012, a company raised over a million dollars on Indiegogo to build a robotic dragonfly. It was originally supposed to be delivered in 2013. Unfortunately for backers, the company seems to be struggling to complete the project. They haven't been able to resolve issues with the drone falling apart after just a few seconds of flight. Unless they locate investors soon, they're going to run out of funds to continue work at full force. They're in the process of uploading all design work and their knowledge base, in case they have to officially cancel the project. They say some part-time work will continue as long as funds allow. The TechCrunch article warns, "This is just the latest example of how consumers need to be more careful with crowdfunding. There are no guarantees with crowdfunding and there is more risk involved than what's advertised."
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Another $1 Million Crowdfunded Gadget Company Collapses

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  • Duh... (Score:5, Insightful)

    by Lumpy ( 12016 ) on Sunday November 08, 2015 @08:24AM (#50887299) Homepage

    They did not even have a working prototype just a bunch of guys with an idea they had on a napkin. Only fools invest in these things.

    • Fools such as the Air Force...

      The Indiegogo project page states the developement had begun (in at least 2012) on a $1m grant from the US Air Force

    • They did not even have a working prototype just a bunch of guys with an idea they had on a napkin. Only fools invest in these things.

      I think this is the really important part. You should be thinking as an investor, even if all you get out of the affair is a product.

      Even big time investors lose their money in a business, but they reduce their risk by first making sure that the company already has an element of something tangible and they also do due diligence. It is probably harder to do due diligence on sites such as Kickstarter or Indiegogo, but you do what you can and then decide whether you can afford to write-off your investment if s

      • Re:Duh... (Score:4, Insightful)

        by moosehooey ( 953907 ) on Sunday November 08, 2015 @09:26AM (#50887487)

        But these people aren't investors. An investor has unlimited upside, so that even if a few projects fail, the ones that do succeed will make up for it. The most these project backers can get is the product they ordered. So it's all of the risk with none of the reward.

        • by ranton ( 36917 )

          But these people aren't investors. An investor has unlimited upside, so that even if a few projects fail, the ones that do succeed will make up for it. The most these project backers can get is the product they ordered. So it's all of the risk with none of the reward.

          Kickstarter investors have unlimited upside from the vast number of products they may someday buy that may have never existed without Kickstarter. Any good purchase ends up providing more utility to the buyer than other things they could have spent their money on. Kickstarter investors are not investing in equity, they are investing in the utility gained from owning the product being invested in. Sometimes that utility will be nothing when product development fails. But as long as a reasonable number of inv

    • Re:Duh... (Score:5, Insightful)

      by west ( 39918 ) on Sunday November 08, 2015 @09:25AM (#50887483)

      I think KickStarter, et al, have perhaps unintentionally blurred the lines between research, development, and order fulfillment.

      Ostensibly these organizations are supporting development, but by essentially treating projects as order fulfillment, they ignore the fact that development can fail.

      Now in this case it appears that, whether they knew it or not, people were funding research, and of course research can (and in fact usually does) fail.

      Obviously greater transparency would help, but I'm not sure that crowd-funding would survive that reality. I suspect the majority of crowd-funding participants want the feeling of actually investing/participating in development, but they don't want any of the associated risks - they just want order fulfillment.

      Personally, I'm waiting for someone like Amazon or Alibaba to optimize the order fulfillment part of they system by holding the money in escrow. The manufacturers have to get a loan based on the money held in escrow, which should be doable if (1) they have the manufacturing contracts in hand, (2) some reputation, and (3) guaranteed payment by a reputable company. Probably means there's a minimum and maximum order size, but the option of guaranteed deliverable or 100% refund would probably cause mass migration, leaving KS and others doing actual crowd-funding, with all the risks it implies.

      • How is a product supposed to be developed and manufactured when the owners don't have the money they raised from the crowd funding?
        • Re: Duh... (Score:5, Insightful)

          by Jarik C-Bol ( 894741 ) on Sunday November 08, 2015 @10:48AM (#50887815)
          Thats his point (i think) His ideal Kickstarter is more along the lines of "Hey, i've been tinkering in my garage for the past 5 years with my own money, and have finally proven that my idea is not only cool, but not actually impossible! I have a functioning prototype that does not explode 5 seconds into use, and am now kickstarting to bring it to manufacturing and retail."

          At which point, millions of dollars are put into an escrow account by thousands of enthused people, and a loan for some amount less is issued to the inventor to actually produce the product. When units start shipping, the money from the escrow account is used to pay off the loan and any balloon expenses, with any extra going to the inventor.

          This would help filter out the people who use kickstarter in the "Hey, I have a neat idea, but i'm going to need about 500K to find out if its even physically possible." but say it in a way that insinuates that the 500K will bring it to your doorstep. Those projects belong on GoFundMe.
          • by TWX ( 665546 )
            So, what happens to the money in-escrow? Do the original contributors get it back? Does the entity that solicited the funding get some to help pay is obligations that it would not have sought had it not thought it would have the funding to cover them?

            The whole point of investing is that the investor takes a risk in exchange for what could be a greater reward. Smart small-time investors do not invest money that they cannot afford to lose. Smart big-time investors spend a lot of time calculating risk a
        • by west ( 39918 )

          How is a product supposed to be developed and manufactured when the owners don't have the money they raised from the crowd funding?

          I guess my point wasn't clear - Call the new company "OF" for "Order Fulfillment". You see something on the OF page and you order, then you get charged if minimum order size is made (and there's probably a maximum order size as well). The money is collected by "OF" and held in escrow. It will be paid once the customer receives the product within a specified time. If the cust

          • So you're moving the risk from the crowdfunders to this nebulous OF company? If someone were able to personally obtain a loan for the product anyway, why would they approach Kickstarter/Indiegogo? Why wouldn't they just sit down at their local bank? You'd have to have a pretty compelling loan program for this to be more appealing than a regular loan or the current state of crowdfunding.

            Honestly, what you're talking about sounds like a marriage of Kickstarter and Massdrop, and probably could be a successf
            • by west ( 39918 )

              If someone were able to personally obtain a loan for the product anyway, why would they approach Kickstarter/Indiegogo?

              The problem is that very few banks will lend you money when you say "I want to manufacture 10,000 of these, and *if* I can sell them, I can pay you back." The service that "OF" provides is that it already has all the funds in escrow. "If I manufacture 10,000 of these, I have a guaranteed payment of $500K" is something that specialized banks finance on a fairly regular basis.

              • The problem is that very few banks will lend you money when you say "I want to manufacture 10,000 of these, and *if* I can sell them, I can pay you back."

                Even fewer banks will lend you money when you say "I want to manufacture 10,000 of these, and *if* I can, I can pay you back." Selling stuff at a profit, where you know the production cost, is the easy part.

                Banks absolutely do not want to lose their capital. If they think there's a 2% chance of not getting paid, then you're not getting your loan. Venture capital, they know they face 80-90% failure rate, but they hope that the projects that fail to fail do so extravagantly. Kickstarter/IndieGoGo are for

                • by west ( 39918 )

                  Even fewer banks will lend you money when you say "I want to manufacture 10,000 of these, and *if* I can, I can pay you back."

                  Agreed. It is why you already need to have the manufacturing contracts in hand. Thus you know the costs, the delivery dates, etc.

                  Kickstarter/IndieGoGo are for projects so speculative that they can't even attract venture capital.

                  The problem with that is that is not how they're seen at this point in time by the vast majority of the customers and many of the sponsors. The howls of outrage when projects fail to ship make it clear that the majority of customers do not distinguish between simple order fulfillment and a speculative venture. Nor does KS et al make any great effort to make the difference betw

      • Re:Duh... (Score:5, Interesting)

        by JoeMerchant ( 803320 ) on Sunday November 08, 2015 @11:20AM (#50887955)

        I've "bought in" to 3 kickstarter like projects... One - an RC paper airplane, came off very much like a long lead time order fulfillment. Another, attempting to compete with Amazon Firestick and Chromecast, perhaps predictably, faltered when they tried to swim with the competition in delivery of "protected content" and ultimately refunded the "investment;" personally, I didn't want delivery of protected content and they weren't going there when I bought in, but I understand why they later decided it was "essential to the product," and from that point, their failure was all too predictable. The third: Jolla Tablet, remains to be seen.

        I've worked in a half dozen startup environment companies where a 33% success rate would be huge, and investors rarely get anything back from failures in "the real world." If you're putting money into kickstarter and similar projects, you have to know that money is at risk, subject to anything from delays to total loss. I view it more as "philanthropic investment" than product purchase. You're tossing these guys a few bucks because you believe in them, and maybe if they succeed you get the first round of cool widgets when they come out. So far, I've always eventually gotten product or a refund - that's a really amazing track record in the world of inexperienced business people.

        If you want to purchase products with hard delivery dates and money back guarantees, stick to Amazon. Startup ventures are something else entirely.

    • Only fools invest in these things.

      Only fools call providing money through crowd funding an "investment".

    • Re:Duh... (Score:5, Insightful)

      by loneDreamer ( 1502073 ) on Sunday November 08, 2015 @09:51AM (#50887567)
      Except that crowfunding has never been an "investment". You get no shares, you get no money back (certainly not more money that you put in) and the risk would be ridiculously high. It has always been about trowing a piece of disposable income for a nice idea that you would love to see realized, in the off chance it happens. ESPECIALLY if the market would never attempt such a thing. Neither the people with the dreams, nor the people that indulge in patronage [wikipedia.org] deserve to be called fools.
      • People voluntarily taking a risk with their own money with the hopes of a return is the definition of "the market".

        • People voluntarily taking a risk with their own money with the hopes of a return is the definition of "the market".

          That is 'a' (rather than 'the') definition for market. It is extremely common nevertheless to expected the return for an investment to be monetary profit, not whatever you get in return. Else even NGOs and other non for profit institutions would qualify as "the market". So I'm ok with my use of "market" if most people get my meaning, which is the entire point of language and definitions IMHO.

      • Mod parent up.

        I've thrown money at crowdfunding projects simply because they look cool and I'd like to see them succeed. Some of them do (someday, when I have land, I'll get a Flow Hive). Some of them don't (the Human Resources game looked cool, but, alas, it was not to be).

        The foolishness is expecting every single crowdfunded project to succeed.

  • ANOTHER one? (Score:5, Insightful)

    by Anonymous Coward on Sunday November 08, 2015 @08:38AM (#50887335)

    You do know that most ventures fail within the first few years, right?

    I mean, 1 MILLION DOLLARS? Even Trump recognizes that's a small sum—for old buildings, let alone a robotic fucking dragonfly.

    You know what, though? The crowd got what it wanted: They crowd was able to participate in helping really smart people spend a few years tinkering away on something interesting to both them and the crowd; that's exciting enough, especially if the world gets access to the fruits of their labor.

    Christ. "Another one"; get real.

    • Re:ANOTHER one? (Score:5, Insightful)

      by Beezlebub33 ( 1220368 ) on Sunday November 08, 2015 @09:07AM (#50887415)

      I completely agree with this sentiment.

      Making a robotic dragonfly is very hard, they had a good idea, and a plan, and were able to sell it. They spent the money trying to do it, did some research, and now they are trying to make sure what they did ends up available to everybody.

      Yeah, it's a failure in that they weren't able to do what they wanted to; but it wasn't a scam, or dishonest, just normal everyday good-effort failure.

    • by stikves ( 127823 )

      Yes. They seem to spent honest amount of effort on their idea, and still have not given up. This is not like some scoundrel who just take the money, and leave without a trace. There was real development, albeit it fell short. And judging by the project scope, it is reasonable to conclude that one million is not nearly enough to run a robotics team for several years.

  • Why more careful? (Score:5, Insightful)

    by mseeger ( 40923 ) on Sunday November 08, 2015 @08:42AM (#50887347)

    This is exactly what crowdfunded projects are supposed to be.Projects can fail.

    This seems to be a 100% genuine failure. I would not even regret having spent money there. Other projects (e.g. Clang!) failed in a more circumspect way.

    Indiegogo and Kickstarter are no warehouses like Amazon.

    • Actually it might not be a 100% failure, perhaps there is something interesting in their research, even knowing something about what doesn't work can be useful. I'm assuming the navy are interested in the idea from an engineering POV. We know very little about building machines on the scale of real insects. Still lots to learn from real dragonflies, such as why don't their wings fall off after a few seconds?. - I hear the navy is willing to pay $1M to find out.
      • by mseeger ( 40923 ) on Sunday November 08, 2015 @09:28AM (#50887491)

        Yep, it is only a failure in delivery.

        Had I spent money on it, I would not have considered the "investment" failed.

        I (co-)founded several companies in my career. The chances of success are rarely better than 1:4, rather 1:10 in most cases.

        So instead of saying "it failed" let's use "We found a 1-million-US$ approach that doesn't work" ;-).

        • This is a non-story. Most ventures fail, this is not news, this is a typical example. As for the engineering, I'm not exactly sure what problem they were trying to solve that conventional rotor wings couldn't over come, but a lot of inventions start out to solve one problem and are actually more beneficial for another. Acrylic was invented this way, among many other things. Its not uncommon to set out to solve X, and turn out solving Y. So, rather than look at this as a failure let's celebrate this as the a
      • by rtb61 ( 674572 )

        In this case the failure is down to just one thing, wing motion. They straight up and down design assumption is simply too difficult for a high speed too rigid wing. A more circular motion would work better, with continual adjustment of wing pitch to achieve desired air flow.

    • Maybe if they had open accounting and I knew exactly how much they enriched themselves.

      At the moment they are a mess of perverse incentives and an invitation to scammers.

      The backers came out of this poorer, how did they starters come out of it?

      • by mseeger ( 40923 )

        That project seems to be rather transparent or at least tries to.

        There are project where I ended up angry (Clang! is an example).

        I did not dig into details, but from my current PoV I probably would not be angry here.

        I (co-)founded startups that burnt more per month and nobody got rich in the process ;;-).

        • Your VCs almost certainly got a look at the books.

          IMO million dollar plus should set some money aside for auditing of the books, if an independent third party says the obligations have been met they get the money, if not there's an audit and we all get to see how they really spend the money.

    • by Greyfox ( 87712 )
      I would expect most projects to fail. Nothing about this model insures any higher success rate than any other model of starting a business. Except maybe you have a clearer idea of how many people will actually want to buy a product you want to make. Investment is entirely about risk and how much of it you want to take on. It seems many investors have forgotten about that, or were never aware of it in the first place.
  • by DaMattster ( 977781 ) on Sunday November 08, 2015 @09:14AM (#50887437)
    It's pretty clear (or should be) that crowdfunding is a risky venture. If you think otherwise, I have a slightly used bridge to sell you.
  • by frnic ( 98517 ) on Sunday November 08, 2015 @09:17AM (#50887451)

    I don't understand, they were pretty upfront with what they had and what they want to try to do. Seems to me that is kind of the point of Crowd Funding, when you can't get real investors.

    Seriously, everyone seems to want guarantees about everything - lighten up people, if you want to have a guaranteed return by Treasury Bonds...

    • by Kjella ( 173770 )

      I don't understand, they were pretty upfront with what they had and what they want to try to do. Seems to me that is kind of the point of Crowd Funding, when you can't get real investors. Seriously, everyone seems to want guarantees about everything - lighten up people, if you want to have a guaranteed return by Treasury Bonds...

      But you have two fundamentally different reasons for lack of "real investors", the market risk and the project risk. For example I backed a Kickstarter to create public domain recordings of classical music, extremely low project risk since such recordings are made all the time but clearly not a good economic investment. The game Elite: Dangerous would be somewhere in the middle, sure it's a new game but within a known genre and without any truly experimental technology. And then there's the ones that promis

    • if you want to have a guaranteed return by Treasury Bonds
      And even that is not a guaranteed return.
  • I mean you bet X bucks, company might or might not manage to do it, if it fails, you lose.
    I'm OK with that.

    The problem is even when one out of a hundred (thousand?) projects is a huge success, e.g. Oculus Rift, backers don't get rewarded for it. AT ALL.

  • by Anonymous Coward

    1. Youth - good, and required, principal ingredient for success and the future of any company. But is 2x-edged sword. Need experience for what is essentially an aerospace project.
    2. Equipment - do not need new stuff. Buy everything from used test equipment dealers. Most older stuff is not only more cheap but is more reliable. The only exception might be o-scopes/analyzers, as the Rigol stuff is dirt cheap and decent performance. Some of their combo scope/logic analyzers are used by my employer as 'throw-awa

  • by tlambert ( 566799 ) on Sunday November 08, 2015 @11:53AM (#50888111)

    "haven't been able to resolve issues with the drone falling apart "

    It doesn't sound like they need more funding; it sounds like they need better engineers.

    • by endoboy ( 560088 )

      Given that engineers a fond of food, clothing, housing and beer, they needed more funding

  • by SkOink ( 212592 ) on Sunday November 08, 2015 @12:45PM (#50888383) Homepage

    It's worth pointing out that Kickstarter would never have allowed this campaign. IndieGoGo is so much scammier that it's ridiculous. I don't think I'd ever 'invest' in a crowdfunding campaign from either site, but if I did it would be Kickstarter because of the following policy differences:

    - With IndieGoGo, you get to keep the money even if you don't reach your funding goal.
    - With Kickstarter, you can only show actual prototype hardware in your videos/campaign site - no mockups or 3D rendering allowed.

    It's pretty easy to see how these differences mean that IndieGoGo is the go-to site for products like:

    https://www.indiegogo.com/projects/robot-dragonfly-micro-aerial-vehicle#/ [indiegogo.com]
    https://www.indiegogo.com/projects/batteriser-extend-battery-life-by-up-to-8x#/ [indiegogo.com]
    https://www.indiegogo.com/projects/anonabox-access-deep-web-tor-privacy-router#/ [indiegogo.com]
    https://www.indiegogo.com/projects/kreyos-the-only-smartwatch-with-voice-gesture-control#/ [indiegogo.com]
    https://www.indiegogo.com/projects/solar-roadways#/ [indiegogo.com]

    just to name a few.

  • Why, exactly, do "consumers need to be more careful" with a $99 speculative advance order of a fancy little toy???

    • You beat me to it. Speculative, relatively small dollar amount, toy. Seems that the possibility of failure is quite well understood.

      Paying for something, in-advance, is always understood to be a risk. That's why we have various forms of eskrow.

  • If I contribute to hardware sometimes it's just because I want the research to be done, even if I give the production of a final result only a 50/50 chance (or worse) of delivering. Some things work to, some things don't, but the beauty of crowdfunding is that at least you are funding development of things that simply would not exist otherwise. You don't need to be more careful; you need to contribute more ambiously and care less if you get something you can hold from it.

  • German machine manufacturer Festo demonstrated an actually flying "Firefly" at the Hannover exhibition in 2013, see https://www.festo.com/group/de... [festo.com] for more information/videos. But of course, some "old economy" company building such is not quite as "hip" with the crowd hipsters as some garage boys are ;-)
  • I'd still invest. If I set money aside for that kind of thing then I'm going to spend it on that type of thing. You have to keep pushing for the future. You never win without failing a few times. That's how you learn to win.

Can anyone remember when the times were not hard, and money not scarce?

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