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.

 

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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 Amazon.com 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: http://www.smithsonianmag.com/innovation/trouble-crowdfunding-next-big-tech-gadget-180951754/#hkZShp3eveZQe5qX.99
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