How crowdfunded startup products fail so badly so fast

The recent news of Unicorn scooters collapsing without delivering a single scooter got us thinking about failed crowdfunding projects. There have been quite a few of them, but why does crowdfunding often end up in failure?
Oculus Rift
Crowdfunding is a hit-and-miss business. Photo: Sergey Galyonkin via Flickr

While it wasn’t a crowdfunded project, Unicorn scooters effectively did what many crowdfunded projects do – take money from prospective customers and use it to pay for the manufacturing costs of the product the customers were buying.

Or at least that’s what they were supposed to do. In the case of Unicorn, the company took the money customers had paid for scooters, and spent it all on online ads and marketing.

The fact that Unicorn wasn’t a crowdfunded project makes this misuse of funds even worse, as the customers did not hand over their money with an expectation that they might not get it, or the product they paid for, back.

What exactly is crowdfunding?

You’re probably fully aware of what crowdfunding is. If not, the clue is in the name. Crowdfunding literally uses money given by individuals interested in a product and uses it as funding for getting that product to market, usually with the expectation of receiving the product in return once it is ready.

This process is pretty much always carried out online, and there are a number of platforms specifically designed to facilitate crowdfunding, such as Kickstarter, IndieGoGo and GoFundMe.

IndieGoGo HQ
Kickstarter and IndieGoGo have implemented a number of changes to combat scams. Photo: Sebastiaan ter Burg via Flickr

You might already have spotted some fundamental flaws in the crowdfunding concept. While there have been a number of products successfully funded by crowdfunding, such as the Oculus Rift and the Fidget Cube, there seem to be many more which have been spectacular failures.

A couple of notable failed crowdfunding projects

There seems to be a common theme among most of the biggest failed crowdfunding projects. The old saying ‘looks too good to be true’ works pretty well as a rule of thumb when assessing which crowdfunding projects will end in costly failure.

Back in 2014 the Dragonfly Futurefön caught the attention of many people browsing IndieGoGo. The product page showed an impressive looking dual-screen phone with a full-sized laptop keyboard, capable of running run both Windows and Android. All available for the reasonable price of just $799.

The Futurefön campaign raised a total of $6 million in funding, but unsurprisingly the Futurefön itself never materialized. In fact, the Futurefön’s creator was investigated by the FBI over accusations of fraud.

Another ambitious piece of crowdfunded tech which never materialized was the popSLATE 2, a secondary, kindle-style phone screen which could be attached to your smartphone and used as an e-reader.

IndieGoGo HQ
A lack of accountability makes crowdfunding risky for consumers. Photo: Sebastiaan ter Burg via Flickr

This campaign raised more than $1.1 million, but investors were given a brief update about the status of the project in 2017:

“popSLATE has entered into the legal process for dissolution of the company. Your popSLATE 2 will not be fulfilled. There is no money available for refunds. This will be our final update.”

There are countless other examples of projects which have raised huge amounts of money through crowdfunding, only to be cancelled with little more than a written apology.

The major flaw with the crowdfunding approach is the lack of accountability when it comes to posting a convincing product concept, and the lack of accountability when it comes to shutting down a project without delivering what was promised.

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