What are things you should do before you back that amazing, out of this world project on crowdfunding websites?
Reward-based crowdfunding can be likened to investing. It comes with plenty of risks and investors should always do their homework before contributing to campaigns.
However, even with scams and just-really-badly-executed-ideas all around us, we don’t spend enough time educating people on how they should rethink backing campaigns on crowdfunding websites.
Dema Tio, CEO, Vibease, who launched his company’s flagship sex toy on US-based crowdfunding website Indiegogo, tells this author, “Crowdfunding is not like going to a shop.”
He adds that contributions are more like donations, not purchases. “There is a risk that you will not receive the product, but you get to enjoy the ride and push innovation forward,” says Tio.
Matthew Hochler, a crowdfunding veteran who has backed 39 projects – all of which shipped successfully, agrees that crowdfunding is not without its risks. But this does not mean project owners should just sit back and enjoy the funds raised from supporters, even if they are not able to produce what they promised in the first place.
“If the project provides regular updates and makes every effort to deliver on its promises, but for some reason can’t, I think that’s okay. But if they accept the project money, infrequently update, and never explain or show any effort of the project’s work, then I think they should refund at least a portion of the backers’ money,” he says.
While we can’t make crowdfunding totally risk-free, here are a few tips to make sure you don’t get unnecessarily ripped off or scammed.
1. Look up the people
Before Hochler backs projects on crowdfunding websites, he usually checks if the project owners have a Twitter account or a website, and if they have any previous experience in building the sort of product they are trying to raise money for.
“Though, most often, it’s just the professionalism of the presentation. If they put a lot of effort into the proposal, they’ll put a lot of effort into the project (usually),” he continues.
While this might have worked for Hochler, it did not work for Wicharn Manawanitjarern, who started Thailand-based startup Taamkru. He was one of the many who backed Coin, a device that lets people link all their credit, debit and loyalty cards, that only started shipping within the US five months ago after having hit its goal in 2013.
“I felt really disappointed especially when I thought I wouldn’t get duped by a Y-Combinator graduate,” he shares with this author. Y-Combinator is a well-known US-based startup accelerator, which led to Manawanitjarern’s belief that Coin can’t be too bad.
“Two years ago, it was super cool and I was to try to reverse engineer it,” he says, “[but] today it’s [such] old technology [that] I don’t need it anymore.”
“They rarely update the status [and] international shipping doesn’t start until December, I think,” he laments.
Manawanitjarern shares that he now checks project owners’ backgrounds before buying. “But not in too much detail,” he says, adding that the time spent researching the products and project owners usually depends on how much he’s spending.
“Usually if they have experience making the product before or they are backed by famous or reputable investors, then it should be okay. Now I have learned the hard way about trusting the latter,” he says.
Aside from researching, Patch Dulay, who started The Spark Project, a Philippines-based crowdfunding website, says that backers should try scheduling a face-to-face meeting with the project creator.
Obviously, if the backers are not in the same country — or city — as the creators, they can utilise video conferencing tools like Skype to help them verify the legitimacy of the campaign. There, they can ask creators more questions about the project and see if these people really know what they’re selling.
“Usually, project creators make themselves extra available during the crowdfunding campaign,” says Dulay. They use this time to pitch in meetups and go to different events where they can connect with possible backers.
2. Check out the electronic prototypes
For Tio, projects are not just about beautiful images and amazingly shot videos. Those things do not sway him to back a project. But he does realise that many consumers out there might contribute to a campaign just because the product might look glamourous and almost too good to be true.
“Be cautious if the project is full of beautiful models (of the product) and it does not show an electronic prototype,” he advises. “Often times, this means that the team does not have hardware engineers.”
If the team does not have hardware engineers who can specialise in building electronics, they might think, “Once we have the money, we can pay someone else to manufacture it”, says Tio. This will mean more delays and an increase in manufacturing costs, which non-hardware engineers might not expect.
He references a recent campaign by SKARP that has become the poster child of crowdfunding scams: a laser-sharp razor that was banned from Kickstarter and later jumped onto Indiegogo to raise money from trusting backers. “Any engineer knows that this laser will burn the skin,” says Tio.
It turns out that the prototype used by SKARP to raise money isn’t actually the working prototype. “Unfortunately, Kickstarter wasn’t impressed, for the simple reason that there is no public evidence that the laser-based razor actually exists in the form described — or anticipated — in its marketing materials,” wrote Michael Rundle of WIRED.
“To avoid disappointment, see if they have a working prototype with the electronics inside the shell,” adds Tio, further explaining that if the project does not have an electronic prototype, he would expect the product to only get delivered in the next two years or so.
He recounts that when Vibease launched its campaign on Indiegogo, the company had already manufactured a fully working prototype. “It took us seven months to ship the first 500 units and fulfilled all backers in 12 months,” he shares.
3. Understand that delays are usually inevitable (especially when it comes to hardware)
“I’m pretty cautious with my backing,” says Hochler, who tries to avoid anything that would usually come with what he termed “production cost surprises”. These things include gadgets and video games, which also tend to come with long manufacturing — or engineering-induced delays.
“I mostly stick to simple things like posters, books and photography. I did once back some pretty cute coasters with pugs on them,” he adds.
Tio also notes that backers should manage their expectations. He said that the average shipping delay, especially for tech-enabled products, is seven months. “You can expect to get your product one to 1.5 years from the time you backed the project,” he adds, “and that is considered fast.”
“There are times that you do not get your products on time, and worse not get them at all,” says Dulay.
While backers can do everything they can to make sure they’re funding a great and reliable product, good crowdfunding projects should also leave contact information and update as much as possible.