With the recent announcement of another startup, camera drone maker Lily, biting the dust before it even got out of the gates or shipped a single unit, I'm even more convinced than ever that consumers should avoid funding products on crowd funding sites such as Kickstarter and Indiegogo and avoid pre-ordering products that have no history of successful manufacture or commercial beta testing.
Too many companies can create slick videos of "prototypes" which might not even exist, launch a campaign and then watch the money flow in from an unsuspecting public who want to believe and support the fantasy. To be fair, I'm sure some of these companies truly believe they can launch a successful product if they only had additional investment, but I also believe that far too many people have learned that selling a fantasy or vaporware is an easy way to get peoples' money with little to no risk.
I watched the entire Amiigo fitness tracker and other debacles unfold before my eyes and am amazed that these companies can take in so much investment money and pre-order sales and then delay launch for months or years and then simply just pivot or walk away from the project and leave thousands of people without product or refunds.
Venture capitalists serve a critical role. Founders of start-up companies must stand in front of these venture capitalists and sell their business ideas and then answer tough questions while the potential investors scrutinize every aspect of the product, capabilities, backgrounds of the key players, financing, timelines, technology, etc. In short, venture capitalists fully vet a venture before they invest in it because they want to minimize their risk and have some reassurance that the company has a sound concept with the ability to execute and implement a solid plan.
Startups on crowd funding sites, however, only have to communicate one way and create slick materials to pull in pre-orders and "backers" from unsuspecting people who have no way to evaluate the credibility of the offer or the experience of the people behind the offer. Backers have no way of authenticating marketing claims nor examining finances or business plans to better understand the risk.
If a business cannot attract funding from professional investors, then it probably is not worthy of being funded.
If a business cannot attract funding from professional investors, then it probably is not worthy of being funded. If a company has to turn to crowd funding sites or take pre-orders before it has a realistic idea of whether it can actually manufacture and deliver product of sufficient quality and in sufficient quantities, then it is probably taking a much greater gamble with your money than you ever would.
Here are some quick tips:
1. Never order a product that has not emerged from beta testing and is not already in final manufacturing.
2. Don't fund or back companies with no history of previous successful product launches.
3. Wait until there are actual, real customer reviews of the product. Believe me, early adopters and beta testers will quickly write reviews or post YouTube videos about their experience. Wait until there are enough of these reviews to get a better understanding of which ones are real, which ones were written by shills, and which products are truly winning over real customers.
4. Research the founders and principals of the company. If they have no track record of success or look too young to have much real world experience, then the odds are they have no idea how to actually bring a product to market.
5. Be wary of slick videos that depict products that look too good to be true. Those products probably are too good to be true.
See also:
The 5 biggest crowdfunding failures of all time
