A Cautionary Tale of Crowdfunding
Kreyos illustrates the challenges and risks involved in crowdfunding. In 2013, the company successfully garnered over $1.5 million on Indie GoGo to develop a more advanced smartwatch. However, a year later, only a handful of customers received their devices, leaving many frustrated and discontent. Ultimately, the company shut its doors at the end of the previous year.
CEO Steve Tan attempted to attribute the project’s failures to the manufacturing partner, admitting that the team had minimal technical or manufacturing expertise. "We are a marketing team with very limited hardware experience," he detailed in a blog post about the venture.
Regrettably, Kreyos is not an isolated case. Numerous other crowdfunded projects have faced similar fates, with some successful ones, like the Pebble smartwatch, experiencing significant delays due to production hurdles. A common issue arises when creators underestimate the complexities of hardware development.
"Every time someone says ‘hardware is the new software,’ I cringe," notes Bunnie Huang, co-creator of the open-source Novena laptop and a founder of the now-defunct hardware startup Chumby. "People don’t appreciate how hard it is to move atoms from point A to point B."
Crowdfunding offers a platform for aspiring entrepreneurs, artists, and makers to launch products that might not attract traditional investment. However, the frequency of failures, coupled with the ever-increasing number of campaigns, could discourage potential backers from participating. A company based in Portland, Oregon, named Crowd Supply aims to remedy this by assisting creators in navigating common obstacles.
Crowd Supply is designed for tangible products, currently offering over 50 items ranging from another open-source laptop, jackets, and a premium coffee press, to gourmet hot sauce and a compact open-source computer reminiscent of Google’s Chromecast. Beyond facilitating fundraising, Crowd Supply aids creators in developing and delivering their products, functioning as a combination of consultancy, e-commerce platform, and crowdfunding service.
The Kreyos example highlights that many creators are unfamiliar with product development. Some encounter unforeseen engineering challenges, while others miscalculate manufacturing expenses or shipping costs.
Oculus serves as another pertinent example; the company raised $2.4 million on Kickstarter for its Rift virtual reality headset and later sold to Facebook for $2 billion. Many backers felt like investors and viewed the sale as a betrayal of the crowdfunding ethos. It wasn’t merely the exclusion some felt during the acquisition process, but the realization that the Rift would likely have progressed without their financial support. At present, it’s not uncommon to witness crowdfunding campaigns for various products—films, video games, smartwatches—led by established entities that could secure conventional funding.
In contrast, Crowd Supply’s projects rely on funds raised through its platform, and the company is committed to ensuring that the products offered do indeed reach customers. To achieve this, Crowd Supply assists creators in finding manufacturers, estimating costs, marketing campaigns, managing orders, and shipping products.
A Boost to the Crowdfunding Landscape
Due to the extensive services provided, Crowd Supply maintains a selective approach regarding partnerships. Unlike other platforms, creators must apply before launching their campaigns. Once approved, the Crowd Supply team collaborates with creators to establish realistic funding goals, costs, and pricing structures. They also assist in crafting the crowdfunding campaign, designing the funding page, and producing professional photographs of prototypes.
Though Crowd Supply may lack the brand clout of more prominent platforms, reports indicate that their projects are roughly twice as likely to reach funding targets and raise double the average amount compared to those on larger crowdfunding sites.