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Why are so many tech crowdfunding projects such a mess?

“Overpromise, and underdeliver” has become a running theme of crowdfunders

By Aimee Pearcy , written on May 20, 2020

From The Crowdfunding Desk

Tech is moving faster than we can keep up with it. The biggest developments are often made by the smallest companies, who are unburdened by complex regulations and move quickly. Unfortunately, many of these companies struggle to get enough funding to get their idea off the ground. This is where crowdfunding comes in. 

In recent years, the popularity of crowdfunding has skyrocketed. By 2025, the global crowdfunding market size is expected to reach U.S. $28.8 billion

Kickstarter is the most well-known online crowdfunding platform for new gadgets. As of Feb 2020, its website claims that over U.S. $4.75 billion has been pledged to Kickstarter projects so far. But the platform has changed considerably since its launch in 2009.

Crowdfunding benefits everyone...in theory

Customers get the opportunity to become the first to try out brand new inventions before they’re released to the mass market. In exchange, creators receive funding upfront, allowing them to make their idea a reality without having to fork out hefty initial costs themselves or give away their equity. 

One of the most well-known examples of a successful crowdfunding project is the Oculus Rift, which was introduced to Kickstarter in 2012. It raised over U.S. $2.4 million, before ultimately being acquired by Facebook in 2014 for U.S. $2 billion. 

Some of the platform’s other successful projects include the Pebble Time smartwatch, which raised over U.S. $20.3 million, and ‘Coolest Cooler’ - a modern cooler, which raised over U.S. $13.2 million. However, Coolest Cooler received a flurry of bad press in Dec 2019, with claims over 20,000 backers are still waiting for a product they ordered as early as 2014, while the company continues to sell to new customers for a markedly lower price.

Unfortunately, having one of their ‘most funded’ products branded a ‘disaster’ by the press doesn’t bode well for Kickstarter.

“Overpromise, and underdeliver” has become a running theme of crowdfunders

The budget was severely underestimated. There are manufacturing delays. The product doesn’t work as smoothly as everyone thought it would. The product doesn’t work at all. There is no product, because the founder never actually planned to make it in the first place.

For customers who have already had to endure a significant waiting period, this can get irritating quickly. It only takes one person to start speculating about why they haven’t received any updates recently, and all of a sudden rumors are spreading about the entire thing being a huge scam. Kickstarter does claim to screen campaigns - but only to make sure they meet the product guidelines. The platform does not issue guarantee projects or issue refunds. 

For first-time entrepreneurs trying to raise funds through crowdfunding, product creation can end up dragging on for significantly longer than expected - especially when it complex tech. Communicating with angry customers and trying to reassure them can be exhausting. Even after the product is shipped and the buyer receives it, there is no guarantee that it will be any good - or even that it will work at all.

The Federal Trade Commission warns of the risks of crowdfunding

In May 2019, the Federal Trade Commission (FTC) issued a warning about crowdfunding scams, following a lawsuit against iBackpack - a backpack that claimed to incorporate wires to charge electronic devices on the go. 

Unfortunately, the company’s CEO was found to have pocketed a large proportion of the U.S $800,000 raised by the campaign for personal use. According to the FTC, he had even "allegedly threatened some of them [the backers] – adding that he knew their addresses and other personal information”. 

The FTC encouraged all potential backers to do their due diligence before investing in future projects, including doing thorough research on the creators of the project, gaining an understanding of which part of the development phase the product is currently in, and trying to gauge if the proposed budget matches the complexity of the manufacturing process. 

Many people are trying to raise money for ‘tech innovations’ that already exist

Want to make some quick cash? Just think of a product idea, give it a name that sounds like it’s just been tossed out of Silicon Valley, shove a few generic marketing buzzwords into the description, and it seems like you’re good to go. 

Unfortunately, some creators seem to be under the illusion that crowdfunding platforms are nothing more than fancy dropshipping opportunities. Many of the most ‘innovative’ Kickstarter and IndieGoGo campaigns turn out to be nothing more than cheap resold pieces of plastic from Alibaba that have been repackaged under a different name.

So far, Kickstarter campaign Pro Charger has reached $2,231 of its $3,550 goal as of Feb 2, 2020. By pledging at least $22, backers will receive a power bank for themselves. However, the same power bank appears to be listed on the popular Chinese importing and exporting website, Alibaba - and for a quarter of the price. Even the images appear to have been plagiarized from a third-party website. 

Not sure if your product actually works? Just publish your own paper to validate it...

There’s a reason that wellness products have become so popular. We’re constantly told to do more work, to sleep more, to exercise more, to eat more healthy food, and to worry less. With so little free time, it’s hardly surprising that we turn to new technology in the hope that it will finally be the miracle cure we’ve been waiting for. 

Unfortunately, it’s quite easy to convince people of pretty much anything - as long as it sounds legitimate. For instance, Open Access Library (OALab) Journal will allow anyone to submit a paper - as long as they’re willing to pay the U.S. $99 fee. It doesn’t matter what the whitepaper says - as long as there’s a whitepaper. Face it, most people won’t read it anyway. 

This means creators can claim virtually anything about their product and back it up with ‘evidence’, as long as they’ve got a professional-looking whitepaper. This seems to be exactly the method used in the IndieGoGo campaign for NeoRhythm, a self-proclaimed ‘breakthrough in science’ headset that claims to help users sleep better, de-stress, and focus. It raised over $617,000 in January 2020, overshooting its $25,000 goal by a huge margin.

The crowdfunding system is broken, but there is little incentive to fix it

The idea behind crowdfunding has always been to support small investors and creators of interesting, innovative products. However, the rise in paid advertising and investor-backed campaigns has completely shifted this dynamic. As a result, the projects that get noticed are rarely the ones with the most unique concepts - they’re the ones who can afford to throw money at ad campaigns to get noticed. 

To get back to the roots of crowdfunding, we must shine a spotlight on projects that show potential - regardless of how much or how little funding they have already received.

Unfortunately, there is little monetary incentive for the million-dollar platforms to fix this.