Spectacular Crowdfunding Fails And Their Impact On Entrepreneurship

By Nermin Hajdarbegovic, Technical Editor @ TOPTAL

Before I proceed, let me make it absolutely clear that I have nothing against crowdfunding. I believe the basic principle behind crowdfunding is sound, and, in a perfect world, it would boost innovation and provide talented, creative people with an opportunity to turn their dreams into reality.

Unfortunately, we live in the real world, and therefore it’s time for a reality check:

Reality /rɪˈalɪti/

noun

The state of things as they actually exist.
The place where bad crowdfunded ideas come to die.

While most entrepreneurs may feel this mess does not concern them because they don’t dabble in crowdfunding, it could have a negative impact on countless people who are not directly exposed to it:

1. We are allowing snake oil peddlers to wreck the reputation of crowdfunding and the startup scene.
2. Reputational risks extend to parties with no direct involvement in crowdfunding.
3. By failing to clean up the crowdfunding scene, we are indirectly depriving legitimate ideas of access to funding and support.
4. When crowdfunded projects crash and burn, the crowd can quickly turn into a mob.

This is my argument: Entrepreneurs, developers, and enthusiasts have to be committed to weeding out bad apples in crowdfunding, for the greater good of our industry.

But Wait, Crowdfunding Gave Us Great Tech Products!

Indeed, but I am not here to talk about the good stuff, and here is why: For every Oculus Rift, there are literally hundreds of utterly asinine ideas vying for crowd-cash.

Unfortunately, people tend to focus on positive examples and overlook everything else. The sad truth is that Oculus Rift is a bad example of crowdfunding, because it’s essentially an exception to the rule. The majority of crowdfunding drives don’t succeed.

How did a sound, altruistic concept of democratizing entrepreneurship become synonymous with failure? I could list a few factors:

• Unprofessional media coverage
• Social network hype
• Lack of responsibility and accountability
• Lack of regulation and oversight

The press should be doing a better job. Major news organizations consistently fail to recognize impossible ideas, indicating they are incapable of professional, critical news coverage. Many are megaphones for anyone who walks through the door with clickbait.

The press problem is made exponentially worse by social networks, which allow ideas to spread like wildfire. People think outlandish ideas are legitimate because they are covered by huge news outlets, so they share them, assuming the media fact-checked everything.

Once it becomes obvious that a certain crowdfunding initiative is not going to succeed, crowdfunding platforms are supposed to pull the plug. Sadly, they are often slow to react.

Crowdfunding platforms should properly screen campaigns. The industry needs a more effective regulatory framework and oversight.

Realistic Expectations: Are You As Good As Oculus Rift?

Are you familiar with the “Why aren’t we funding this?” meme? Sometimes the meme depicts awesome ideas, sometimes it shows ideas that are “out there” but entertaining nonetheless. The meme could be applied to many crowdfunding campaigns with a twist:

"Why are we funding this?"

This is what I love about crowdfunding. Say you enjoyed some classic games on your NES or Commodore in the eighties. Fast forward three decades and some of these games have a cult following, but the market is too small to get publishers interested. Why not use crowdfunding to connect fans around the globe and launch a campaign to port classic games to new platforms?

You can probably see where I'm going with this: Crowdfunding is a great way of tapping a broad community in all corners of the world, allowing niche products and services to get funded. It’s all about expanding niche markets, increasing the viability of projects with limited mainstream appeal.

When you see a crowdfunding campaign promising to disrupt a mainstream market, that should be a red flag.

Why? Because you don’t need crowdfunding if you have a truly awesome idea and business plan with a lot of mainstream market appeal. You simply need to reach out to a few potential investors and watch the money roll in.

I decided against using failed software-related projects to illustrate my point:

1. Most people are not familiar with the inner workings of software development, and can’t be blamed for not understanding the process.
2. My examples should illustrate hype, and they’re entertaining.

That’s why I’m focusing on two ridiculous campaigns: the Triton artificial gill and the Fontus self-filling water bottle.

Triton Artificial Gill: How Not To Do Crowdfunding

The Triton artificial gill is essentially a fantasy straight out of Bond movies. It’s supposed to allow humans to "breathe" underwater by harvesting oxygen from water. It supposedly accomplishes this using insanely efficient filters with "fine threads and holes, smaller than water molecules" and is powered by a "micro battery" that’s 30 times more powerful than standard batteries, and charges 1,000 times faster.

Sci-Tech Red Flag: Hang on. If you have such battery technology, what the hell do you need crowdfunding for?! Samsung, Apple, Sony, Tesla, Toyota and just about everyone else would be lining up to buy it, turning you into a multibillionaire overnight.

Let's sum up the claims:

1. The necessary battery technology does not exist.
2. The described “filter” is physically impossible to construct.
3. The device would need to “filter” huge amounts of water to extract enough oxygen.

Given all the outlandish claims, you’d expect this sort of idea to be exposed for what it is within days. Unfortunately, it was treated as a legitimate project by many media organizations. It spread to social media and eventually raised nearly $900,000 on Indiegogo in a matter of weeks.

Luckily, they had to refund their backers.