The Trouble with Crowdfunding

By Liz Logan,

n the past several years, crowdfunding has evolved from a weird Internet fad to a critical resource for innovation. Now, Richard Branson and other power players are investing in Indiegogo; Facebook recently acquired Oculus VR, the result of a hugely successful Kickstarter campaign; and crowd-equity seems like it’ll be the next frontier—just as soon as the SEC releases the rules pertaining to the practice.



But there’s also troubling news emerging from the crowdfunding sphere: The first consumer protection lawsuit was filed against a Kickstarter campaign in early May by Bob Ferguson, the Attorney General of Washington State (where some of the defendant’s campaign’s backers live). Ferguson says his office has seen an increase in crowdfunding-related consumer complaints since the lawsuit was filed.

For product design experts, the lawsuit seems like just the beginning. There are several overly ambitious technology projects on crowdfunding platforms that will soon have to make amends to their disappointed backers, who are already complaining—if not demanding refunds.

“I believe we’re dealing with a ticking time bomb. A high-profile project is going to fall totally flat on one of these platforms and there’s going to be a big, public fallout,” says Simon Enever, founder and designer at the product design company byDefault. Enever raised initial funding for byDefault on Indiegogo.

Don Lehman, founder and designer at More/Real, says he also frequently sees design projects on crowdfunding platforms that are overpromising and in his opinion will never be able to follow through for their backers. His Kickstarter campaign for a touchscreen stylus in 2011 was an early product design success story for the site.

Part of the problem may be crowdfunding’s growing audience. A few years ago, Kickstarter was frequented by designers and technophiles who had expertise to help them judge whether or not projects were bogus. Now, the audience of such sites has broadened to include average consumers, and some of those consumers treat crowdfunding like an for products that don’t yet exist.

Of course, the crowdfunding audience has supported a wide array of projects: movies that premiered at Sundance and beyond; exhibits at major museums, including the Smithsonian’s Freer and Sackler Gallery; non-profits; and artistic works in all different fields. But high-tech hardware may be particularly susceptible to fraud, because the production process is so complex. It involves programming, prototyping, and manufacturing, which often take place in factories overseas and rarely go smoothly. The average consumer isn’t in a position to evaluate whether or not a team is capable of making it through all these steps successfully; even experts say that it’s a risky, expensive and time-consuming business no matter who is doing it.
Dubious projects have always appeared on these sites—a project for a home quantum energy generator even scored funding recently. But it’s striking to see how much funding is being raised to make “smart rings,” despite the fact that some of the projects seem too good to be true. Smart rings are the latest generation of wearable tech, a growing area that includes Google Glass, the aforementioned Oculus Rift that’s an immersive virtual reality headset, and smart watches, such as Pebble and the rumored forthcoming watch from Apple. These rings promise to let you control your phone remotely in various limited ways, such as writing a text message in the air or unlocking your phone.
“I don’t believe it will ever ship,” Enever says of Smarty Ring, and he calls the media coverage of the product “irresponsible.”

Read more:
Give the gift of Smithsonian magazine for only $12!
Follow us: @SmithsonianMag on Twittr

Tags: , , ,


ForbesHow Crowdfunding Can Supercharge Your Campaign In 2016ForbesThey say that there are about 7.45 billion people living in this world right now. Imagine that if you could get each of these seven-and-a-half billion people to contribute one cent to your project, well, you know what I [...]

ForbesHow Crowdfunding Can Supercharge Your Campaign In 2016ForbesCrowdfunding has helped a lot of businesses recently. Want to join the queue? Here's how to raise funds for your projects.and more » [...]

The Jewish Press » » Funny Jewish Women's Crowdfunding Video ...The Jewish PressThe Women's Performance Community of Jerusalem and OU Israel are creating harmony among the women of Greater Jerusalem through the creation of a ...and more » [...]

BdailyAndy Murray has invested in UK startups WeSwap and Perkbox through the Seedrs crowdfunding platformBusiness InsiderTennis star Andy Murray has backed two more early stage UK tech companies on crowdfunding platform Seedrs, bringing his startup portfolio up to 17 companies. The wo [...]

Corporate Counsel (registration)FTC Hears From Company Leaders as Crowdfunding Grows ...Corporate Counsel (registration)"You're going to see people developing an expertise and really move on from this initial stage of everyone kind of exploring crowdfunding in a more general [...]

Singularity HubHow Crowdfunding Has Changed the Startup Game - Singularity HUBSingularity HubThe development of innovative technology — from virtual reality headsets to space exploration to solar-powered roadways — is no longer the province of ...and more » [...]

KNWACrowdfunding Sends NWA Family to Wrigley - Story | NWAHomepageKNWAThis World Series matchup features the two franchises with the longest world series title drought, a combined 176 years without a championship.and more » [...]

BillboardCrowdfunding for His Life: How GoFundMe Helped Save a Punk Legend's LifeBillboardSo on the advice of a close friend, Julian -- like an increasing number of aging musicians without a lucrative record contract -- turned to crowdfunding, launching a campaign on the No. 1 pl [...]

Minneapolis Star TribuneSEC releases new, relaxed rules on investment crowdfundingMinneapolis Star TribuneNew rules announced this week will make it easier for small companies to raise capital from small-time investors, another step forward for Minnesota's fledgling investment cr [...]

The GuardianCrowdfunding: the new buzzword for academics needing research moneyThe GuardianArchaeologist Dr David Petts, from Durham University, has also used crowdfunding, raising almost £25,000 to fund a project on Lindisfarne, off the Northumberland coast. The dig, in June, led to [...]

CFB Finance

Press Release

CrowdFund Beat News

Hello @CrowdFundBeat's 17363 followers - thank you so much for following! Wishing you all a happy Thursday! >>

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |