Author Topic: Indigogo campaigns...ugh  (Read 4587 times)

Freedom2016

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Indigogo campaigns...ugh
« on: February 25, 2014, 11:36:48 AM »
I've had 3 friends use Indiegogo campaigns to raise money for various purposes. One I was okay with, but the other 2 left a bad taste in my mouth.

The first friend wanted to raise money to pay for adoption costs. She raised what she needed (around $10,000) but when the adoption fell through, she volunteered to give the money back. I feel the most okay about this one, particularly because of the refund offer.

The second is a lawyer friend who wanted to fund a medical research startup focusing on a rare brain cancer. He wanted to raise $150,000, which I thought was totally unrealistic from a few different perspectives: (1) medical startups cost WAY more than that so it wasn't nearly enough; (2) he had no business plan and only vague descriptions of what the company was actually going to do; (3) he had no seed funding, matching funds, or grant applications pending from any institutions which said either he's not serious about this, or there is just not going to be enough support or interest from the research community to keep this going once it's started; and (4) he really thought he would raise that kind of cash from his friends and family? Insane! As it is, we contributed something like $25 or $50 - to not be asshole friends - and I was not surprised AT ALL to learn that he raised less than $5000 total. Which made me wonder how he used the $5k. Guess what I got in the mail a few months later? A freaking awareness bracelet. Useless. (And btw shouldn't he have ethically returned that money to his "investors"? How on earth did $5000 get him ANYWHERE?) By the way we're not in touch anymore, on our end particularly because of this episode.

The third is a friend in the music recording business who wants to raise $2000 to buy an Apple laptop to make it easier for him to travel to, and record, his clients on-site. I think this is, arguably, the most questionable of the three campaigns. If this is a profit-seeking business you want to start/support, then put some freaking skin in the game and either purchase the damn computer yourself, or get a business loan and plan to repay it from your proceeds.

What do others think about crowd funding?

soccerluvof4

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Re: Indigogo campaigns...ugh
« Reply #1 on: February 25, 2014, 12:28:45 PM »
Stay away. You only make enemies....

matchewed

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Re: Indigogo campaigns...ugh
« Reply #2 on: February 25, 2014, 12:31:09 PM »
I feel neutrally towards crowd funding. It can be good, it can be bad. Use your judgement and understand your risks. With the advent of the internet there are more methods of funding outside of traditional models, this is a "good" thing but isn't always good. That isn't to say that it is always bad.

Sorry for a wishy washy answer but it's probably the most accurate.

Tyler

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Re: Indigogo campaigns...ugh
« Reply #3 on: February 25, 2014, 12:32:27 PM »
I worked for one company (briefly) and had a second acquaintance who raised about $1mm total with two Kickstarter products that never shipped.  I choose not to name & shame -- they've both received press on their failures.  Both were definitely shady, though.

I've worked in product development for many years, and I would personally never donate to a crowdfunding site with the expectation of ever receiving a product.  Yes there are a few notable examples of success stories, but those are exceptions to the rule.  In general, if an entrepreneur has his act together with a killer idea and a plan to execute, he wont need crowdfunding -- investors and bank loans will be easy to come by.  The people who depend solely on crowdfunding sites are too often noobs who have no idea what they're getting into, "lazy creatives" who can't get a loan with such a weak business plan, or con artists looking for a quick buck. 

If I wanted to help people get a good idea off the ground, I'd be far more inclined to look at micro-lending.  Make a loan to someone you believe in with clear repayment terms in place.  They're much more committed to their own success than some kid on Kickstarter or Indiegogo asking for handouts. 

Freedom2016

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Re: Indigogo campaigns...ugh
« Reply #4 on: February 25, 2014, 12:36:53 PM »
Yeah, I suppose it's ultimately a mixed bag. I'm just finding it really hard not to judge those two friends. Which is kind of weird, because I now recall a fourth friend who crowd sourced funding for his band's next album. Hubby and I actually quite happily gave to his campaign, so I'm trying to figure out why I feel so differently about that one compared to others. I think it's that:

--The band friend gave lots of "perks" to contributors (I got to sit in on a rehearsal once, and we got invites to an 'exclusive' show they did)

--They've already been successful (prior albums out), and they're clearly on the rise (Boston Music Awards, glowing reviews in popular media outlets, touring in packed venues). Past results as a predictor of future results, maybe?

Freedom2016

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Re: Indigogo campaigns...ugh
« Reply #5 on: February 25, 2014, 12:38:57 PM »
I worked for one company (briefly) and had a second acquaintance who raised about $1mm total with two Kickstarter products that never shipped.  I choose not to name & shame -- they've both received press on their failures.  Both were definitely shady, though.

I've worked in product development for many years, and I would personally never donate to a crowdfunding site with the expectation of ever receiving a product.  Yes there are a few notable examples of success stories, but those are exceptions to the rule.  In general, if an entrepreneur has his act together with a killer idea and a plan to execute, he wont need crowdfunding -- investors and bank loans will be easy to come by.  The people who depend solely on crowdfunding sites are too often noobs who have no idea what they're getting into, "lazy creatives" who can't get a loan with such a weak business plan, or con artists looking for a quick buck. 

If I wanted to help people get a good idea off the ground, I'd be far more inclined to look at micro-lending.  Make a loan to someone you believe in with clear repayment terms in place.  They're much more committed to their own success than some kid on Kickstarter or Indiegogo asking for handouts.

Ah, thank you! I think this is at the heart of my discomfort with it - the bad ideas and lazy creatives. Thanks for explaining so clearly. :)

ShortInSeattle

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Re: Indigogo campaigns...ugh
« Reply #6 on: February 25, 2014, 12:45:09 PM »
I hear ya. 

I did a kickstarter for a small independent film I was excited about.  Then after they got the money there was radio silence for six months, followed by a 1.5 year delay in us getting a copy of the film. There were some reasons for the delay, but the truth seems to be that the filmmakers got distracted with other personal stuff and we had to wait for an extra year for them to find the time to get it out to us. Deeply annoying. 

I did a kickstarter for another small film I was excited about, and I think the filmmakers had amazing communication, but the final project was pretty crummy.  This one I actually don't feel too terrible about - at least they delivered what they promised and they gave it a good go.

I know a very wealthy woman who did a kickstarter for her startup costs for her first book.  I found myself getting annoyed at her behavior (I did not contribute). She is tweeting about how hard it is to choose the right shade of marble for her kitchen and the challenges of working with an interior designer, all while expecting others to fund her startup costs.  Tacky.

On the one hand, contributions are entirely voluntary and so there is no harm here.  On the other hand, I find certain categories of crowdsourcing pretty obnoxious.

1) Asking others to take the risk for *your* business. 
2) Rich people asking others to give them a paycheck for ventures they can (and should) fund themselves.
3) People who get you all excited then fail to deliver.  Flakes!

When I find myself getting annoyed, I just click "close" on the browser.  :) Life is too short.

matchewed

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Re: Indigogo campaigns...ugh
« Reply #7 on: February 25, 2014, 12:47:51 PM »
I worked for one company (briefly) and had a second acquaintance who raised about $1mm total with two Kickstarter products that never shipped.  I choose not to name & shame -- they've both received press on their failures.  Both were definitely shady, though.

I've worked in product development for many years, and I would personally never donate to a crowdfunding site with the expectation of ever receiving a product.  Yes there are a few notable examples of success stories, but those are exceptions to the rule.  In general, if an entrepreneur has his act together with a killer idea and a plan to execute, he wont need crowdfunding -- investors and bank loans will be easy to come by.  The people who depend solely on crowdfunding sites are too often noobs who have no idea what they're getting into, "lazy creatives" who can't get a loan with such a weak business plan, or con artists looking for a quick buck. 

If I wanted to help people get a good idea off the ground, I'd be far more inclined to look at micro-lending.  Make a loan to someone you believe in with clear repayment terms in place.  They're much more committed to their own success than some kid on Kickstarter or Indiegogo asking for handouts.

Interesting points. Correct me if I'm wrong but you seem to question the success rates of crowd funded projects vs traditional investor/loan based funding. Are there any numbers to suggest that they're really different? Haven't investors and banks been left out in the wind by "lazy creatives" prior to crowd funding? Or in other words, how is what you say any different for crowd funding vs other traditional forms of capital raising?

MustachianAccountant

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Re: Indigogo campaigns...ugh
« Reply #8 on: February 25, 2014, 12:53:04 PM »
If you think IndieGoGo is shady, check out gofundme.com. They have even more relaxed rules on who can ask for funding. The stuff on their front page could generally be considered "worthy cause," but dig in a little and, well....

Heyyyyy.... maybe I can finance my early retirement this way...

Tyler

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Re: Indigogo campaigns...ugh
« Reply #9 on: February 25, 2014, 12:56:48 PM »
Interesting points. Correct me if I'm wrong but you seem to question the success rates of crowd funded projects vs traditional investor/loan based funding. Are there any numbers to suggest that they're really different? Haven't investors and banks been left out in the wind by "lazy creatives" prior to crowd funding? Or in other words, how is what you say any different for crowd funding vs other traditional forms of capital raising?

I don't have any stats.  Just speaking from personal experience.

Banks and venture capital groups are in the business of getting a safe return on their investments, so they will scrutinize a business plan before lending out a dime -- especially to a startup with no history.  Even established businesses have to jump through many hoops to get lines of credit.  As just one example, I can pretty much guarantee that the OP's friend wanting to create a medical research startup on only $150k would be escorted out of the lender's office empty handed.  Also, when businesses fail (and they do) the lenders have legal recourse to get their money back. 

Crowdfunding sites do a cursory review of the projects to make sure they're not obvious scams, but they don't get into nearly the same level of detail.  And when projects go belly up the money is just gone.  People raising money love this for that exact reason -- penalty-free failure, where all the risk is assumed by someone else.


« Last Edit: February 25, 2014, 01:04:53 PM by Tyler »

warfreak2

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Re: Indigogo campaigns...ugh
« Reply #10 on: February 25, 2014, 01:06:06 PM »
Hold up, how did your lawyer friend get any of that $5,000 if he didn't reach his goal? If he needed $150,000 and didn't reach it, nobody should have been charged. Kickstarter does it that way, which is absolutely right.

Freedom2016

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Re: Indigogo campaigns...ugh
« Reply #11 on: February 25, 2014, 01:19:11 PM »
Hold up, how did your lawyer friend get any of that $5,000 if he didn't reach his goal? If he needed $150,000 and didn't reach it, nobody should have been charged. Kickstarter does it that way, which is absolutely right.

Apparently Indiegogo doesn't work the same way Kickstarter does - ANY funds raised are collected, even if they fall short of the goal. Or at least that was the case with my lawyer friend's campaign.

ketchup

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Re: Indigogo campaigns...ugh
« Reply #12 on: February 25, 2014, 01:22:33 PM »
A friend of mine tried Kickstarter to get his business off the ground.  He did pretty well. https://www.kickstarter.com/projects/1523379957/oculus-rift-step-into-the-game

Freedom2016

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Re: Indigogo campaigns...ugh
« Reply #13 on: February 25, 2014, 01:24:07 PM »
Interesting points. Correct me if I'm wrong but you seem to question the success rates of crowd funded projects vs traditional investor/loan based funding. Are there any numbers to suggest that they're really different? Haven't investors and banks been left out in the wind by "lazy creatives" prior to crowd funding? Or in other words, how is what you say any different for crowd funding vs other traditional forms of capital raising?

I don't have any stats.  Just speaking from personal experience.

Banks and venture capital groups are in the business of getting a safe return on their investments, so they will scrutinize a business plan before lending out a dime -- especially to a startup with no history.  Even established businesses have to jump through many hoops to get lines of credit.  As just one example, I can pretty much guarantee that the OP's friend wanting to create a medical research startup on only $150k would be escorted out of the lender's office empty handed.  Also, when businesses fail (and they do) the lenders have legal recourse to get their money back. 

Crowdfunding sites do a cursory review of the projects to make sure they're not obvious scams, but they don't get into nearly the same level of detail.  And when projects go belly up the money is just gone.  People raising money love this for that exact reason -- penalty-free failure, where all the risk is assumed by someone else.

To build on this point, "real" lenders make decisions on the business merits, whereas people who start campaigns rely more on making an emotional appeal to friends and family. Honestly I hate that we gave any money to our lawyer friend given how huge of a FAIL I knew it would be; I let myself feel guilted into it because we were "friends" and don't friends support each other?

matchewed

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Re: Indigogo campaigns...ugh
« Reply #14 on: February 25, 2014, 01:42:40 PM »
Interesting points. Correct me if I'm wrong but you seem to question the success rates of crowd funded projects vs traditional investor/loan based funding. Are there any numbers to suggest that they're really different? Haven't investors and banks been left out in the wind by "lazy creatives" prior to crowd funding? Or in other words, how is what you say any different for crowd funding vs other traditional forms of capital raising?

I don't have any stats.  Just speaking from personal experience.

Banks and venture capital groups are in the business of getting a safe return on their investments, so they will scrutinize a business plan before lending out a dime -- especially to a startup with no history.  Even established businesses have to jump through many hoops to get lines of credit.  As just one example, I can pretty much guarantee that the OP's friend wanting to create a medical research startup on only $150k would be escorted out of the lender's office empty handed.  Also, when businesses fail (and they do) the lenders have legal recourse to get their money back. 

Crowdfunding sites do a cursory review of the projects to make sure they're not obvious scams, but they don't get into nearly the same level of detail.  And when projects go belly up the money is just gone.  People raising money love this for that exact reason -- penalty-free failure, where all the risk is assumed by someone else.

To build on this point, "real" lenders make decisions on the business merits, whereas people who start campaigns rely more on making an emotional appeal to friends and family. Honestly I hate that we gave any money to our lawyer friend given how huge of a FAIL I knew it would be; I let myself feel guilted into it because we were "friends" and don't friends support each other?

Even real lenders don't know what they're investing into most of the time. - http://online.wsj.com/news/articles/SB10000872396390443720204578004980476429190

I'm not sure how that is totally the fault of the medium. That seems more of a complaint about the people using it. There will always be scammers, they just might be using different tools.

I think it's more easy to paint crowd funding as bad because it hits that emotional aspect more than the traditional methods.

Tyler

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Re: Indigogo campaigns...ugh
« Reply #15 on: February 25, 2014, 01:44:00 PM »
A friend of mine tried Kickstarter to get his business off the ground.  He did pretty well. https://www.kickstarter.com/projects/1523379957/oculus-rift-step-into-the-game

Nice!  Your friend clearly earned his success.  That thing is cool.

Don't get me wrong -- I think crowdfunding has its place and I like having various options out there for entrepreneurs.  I just believe that on average the risk of losing your money with nothing to show for it is much higher than advertised.  I cringe when friends "buy" a product on Kickstarter and think of it like Amazon with a longer shipping time.  As I mentioned, I've seen even experienced and established companies fall flat on their faces when trying to "see if something sticks" in crowdfunding -- only to find out it did and they weren't prepared to deliver.

EDIT: For perspective, as a consulting engineer I've actually worked with a few Kickstarter startups who, after getting funded, realized they didn't know how to actually produce what they sold and needed to hire someone to do it for them.  You'd be surprised how little thought goes into some well-known campaigns pre-funding.  Often the funds they raised were not sufficient to cover the development costs.  To their credit, the ones who truly believed in their ideas would take out additional loans or otherwise raise new capital and make it happen. 
« Last Edit: February 25, 2014, 02:00:15 PM by Tyler »

Freedom2016

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Re: Indigogo campaigns...ugh
« Reply #16 on: February 25, 2014, 01:47:49 PM »
I think it's more easy to paint crowd funding as bad because it hits that emotional aspect more than the traditional methods.

...and/or maybe because it's exposing some of my friends who use it to be business/financial idiots, which is disappointing.

matchewed

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Re: Indigogo campaigns...ugh
« Reply #17 on: February 25, 2014, 01:57:31 PM »
I think it's more easy to paint crowd funding as bad because it hits that emotional aspect more than the traditional methods.

...and/or maybe because it's exposing some of my friends who use it to be business/financial idiots, which is disappointing.

That's less on the tool though right? I understand where you're coming from, I see that it has downsides, that's why it is crowd-funding and not used as investment. Most (maybe all?) of those sites that arrange crowd funding won't allow profits back to donators anyway, it's sunk cost whether it is successful or not.

jba302

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Re: Indigogo campaigns...ugh
« Reply #18 on: February 25, 2014, 02:05:45 PM »
One of my friends donated to a kickstarter for a local band. She got to go to a house party that the band threw, which included them playing their new CD all the way through while at the party, plus a copy of the CD. Cost her like $30 or $50 I think.

That's basically the perfect intent for a crowdsourcing idea in my mind.

Freedom2016

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Re: Indigogo campaigns...ugh
« Reply #19 on: February 25, 2014, 02:06:39 PM »
Matchewed, I can see where you're coming from too.

Some part of me does though have some concern about the potential for abuse that I don't think is present in more traditional financing methods. Okay, there's some minimal screening by Indiegogo or Kickstarter to be sure campaigns aren't an outright scam, but they're not vetting them for likelihood of success. And the campaigns can solicit funds from anybody, including for example innocent old grammy who is also the kind of person to get scammed by an email from a Nigerian prince, and who would therefore not even think twice if her grandson asked her to contribute to his fund to start an eskimo-pie-delivery-on-rollerskates company. In that case, there's no protection for Grammy from getting (basically) conned by her own grandkid, particularly if the campaign doesn't require full funding for any funding to go through.
« Last Edit: February 25, 2014, 02:08:17 PM by course11 »

matchewed

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Re: Indigogo campaigns...ugh
« Reply #20 on: February 25, 2014, 02:12:21 PM »
Matchewed, I can see where you're coming from too.

Some part of me does though have some concern about the potential for abuse that I don't think is present in more traditional financing methods. Okay, there's some minimal screening by Indiegogo or Kickstarter to be sure campaigns aren't an outright scam, but they're not vetting them for likelihood of success. And the campaigns can solicit funds from anybody, including for example innocent old grammy who is also the kind of person to get scammed by an email from a Nigerian prince, and who would therefore not even think twice if her grandson asked her to contribute to his fund to start an eskimo-pie-delivery-on-rollerskates company. In that case, there's no protection for Grammy from getting (basically) conned by her own grandkid, particularly if the campaign doesn't require full funding for any funding to go through.

Well you bring up some interesting questions. How much of this is the responsibility of the platform? The entrepreneur? The donator? I would argue that beyond a certain amount of investigation there has to be some buyer beware. What that amount is, I don't know.

I'm assuming if they (the platform) don't do enough then they loose the donators, no donators means no entrepreneurs, no entrepreneurs means no platform and the whole model sinks.