Crowdfunding: A bubble about to burst

Originally, this publication was intended to be a pros and cons Page related with Crowdfunding.

We have always discouraged people from considering Crowdfunding as a way of financing their projects.

  • Below, we explain why.

 

We were getting information about different Crowdfunding platforms’ statistics, when we saw a “new Messianic product: A refillable bottle of water. A simple Thermos.

“Enough!”…. We thought…

We won’t mention the name of the project since we don’t want to “harm” it in any way (although we don’t have lots of users by now).

  • We sincerely wish them the best.

Crowdfunding bubble example: A bottle that cleans the world

What is this project about? It is supposed to be a bottle that “cleans” the world.

  • Despite it has a laser sensor, a Bluetooth signal and different LEDs that indicate your Hydration level (really… does anybody need to know this?).
    • We are not sure that all these components are very environmentally friendly.

 

Its laser-sensor detects each time you drink.

Each drink of this bottle turns into “credit” that guarantees one bottle being collected and recycled (they don’t specify where, how it is funded, in which countries, how will they measure it…).

 

We are sure that the people that developed this project are professionals with genuine good intentions.

 

However, if you want to help the world, start an NGO. Don’t sell $80 bottles with a laser sensor that it is connected to your Mobile phone and pretend you’re saving the planet.

  • I personally use a refillable glass bottle. Mainly, because bottled water is expensive and heavy to carry from the supermarket… That is all (I don’t need any sensor or laser attached to it).
    • I bought this bottle in IKEA for 1.5 euros ($2 approx).

Its main competitor: $2 in IKEA.

 

Now, let’s make some numbers:

Assuming an average person drinks 2 liters of water per day and, an average drink of water is 5 cl (approx..) it means that we would drink those 2 liters of water in 40 drinks (40 x 5 cl = 2 liters).

 

It means that 1 person helps getting rid of 40 bottles per day.

  • 40 x 30 = 1,200 bottles per month.

 

We forgot to say that, they claim “its sensor is capable of recognizing human behavior”, so you can’t fake the drink.

  • I’ll mention that a $300 smartwatch gets confused constantly.

OK, we’ll assume they have a better-than-average sensor and since it is just “drinking water” it would be more difficult to get confused.

Let’s suppose that, to collect 1,200 bottles, it would take a full workday for one person (8 hours).

  • 1,200 / 8 = 150 bottles per hour, or 2.5 bottles per minute (150/60).
    • If you have to get down to get a bottle, that is a decent ratio.

Of course, if those bottles are stuck very close together, they could be processed faster with a shovel or a machine but, if there are hundreds of plastic bottles together, the people handling them would want to make a profit out of them (by recycling or processing them).

  • Only when bottles are found one by one, are not interesting enough for recycling companies.

 

Ok. Then we have that, one person buying a one bottle would imply 1-day job (8 hours) per month.

How much would they pay them?

Let’s assume a very reduced salary for those people. For example, $10 for those 8 hours (in some countries, that would be a decent amount of money, but remember: they have not specified in which countries would they collect those bottles).

 

If the bottle company directly gave away the price of each bottle to bottle-pickers, in just 8 months they would run out of money.

  • $80 for a bottle / $10 per month (for picking those 1,200 bottles) = 8 months.

 

All that Blockchain technology sounds fantastic but… where is the money coming from?

  • How are they going to pay those workers that only want their salary?
  • Are they going to design a recycling Ponzi scheme?
    • Financing the recycling activity with new customers instead of financing it through a solid business model.

Even if our numbers are completely wrong (surely our assumptions can be very inaccurate) we don’t see a plausible business model that would allow the company to fulfill their “promises”.

  • If they paid just $5 per 8 hours, it would take them 16 months to get rid out of money.
  • If the bottles collected were much more, it would take them even more time to run out of money, but in the end, they would.

All this happen because this project doesn’t seem to have a strong product or a long-term profitable business model.

Good businesses last.

We really hope this project succeeds and helps cleaning our oceans.

But this project reminded us of other projects we saw in the past: Magnificent projects that raised millions of dollars and faded away some years later.

 

Many of them followed the same “script”:

Common guideline for a Crowdfunding project

  • Add some electronics; sensor, Bluetooth or Cloud storage, to a conventional Tool (a bottle of water, a Tupperware, a Juicer, a coffee machine…).
  • Present it as if you were changing the world.
  • Spend thousands of dollars in promotion in internet.
  • Talk about everything but the product you sell in those commercials.
    • Feelings, world change, environmental issues, etc).
    • You gain extra points if now you promise to stop climate change.

As we mentioned earlier, we investigated what happened with many of those “wonderful” projects that raised millions of dollars.

 

We’ll now analyze the 10 biggest Crowdfunding projects so far, and what happened to them.

  • Then, we’ll be able to explain you why Crowdfunding is a “dangerous” Tool.

We are not choosing the worst or the best ones, just the Top 10 regarding the amount of money they raised.

The 10 largest projects financed with Crowdfunding.

1. Star Citizen

  • What is it? It is a Video game that takes place in different planets
  • Money Raised: more than $200 million dollars since 2012.
  • Release Date: Not released yet.
  • Project Status: Still in progress after 8 years (we write this in January 2020).

The developing company is planning to release a version in late 2020.

However, the “gamer community” is skeptical about its release since the “beta” versions released still have lots of problems.

Some “gamers” say it has been a big waste of money (and time) since they tried to research new features not really valued by the average gamer instead of developing a deeper storyline.

2. Coolest Cooler

  • What is this project about? A portable cooler equipped with: USB, a blender machine, separate compartments and good wheels. It was supposed to be an improved cooler.
  • Money Raised: $13 Million.
  • Release Date: 2015.
  • Project Status: The company closed in 2019.

Despite being the second biggest project ever funded with Kickstarter, it faced several delivery problems.

What we (Consuunt) find surprising is how disastrous this project was, when it raised $13 million and the product didn’t seem particularly complex.

The idea was simple and good.

3. Pebble watch

  • What is this project about? A customizable smartwatch.
  • Money Raised: $10 million.
  • Release Date: 2013.
  • Project Status: The company closed in 2016.

We guess that, as soon as Apple, Samsung and other companies started to release their products (the first Apple watch was released in 2015) Pebble watch started to decline.

4. Exploding Kittens

  • What is this project about? A funny card game with unusual kitten designs.
  • Money raised: $8.7 million.
  • Release date: 2015.
  • Project Status: Successfully released. The company still exists.

The company had a target of $10,000 and they got more than $8 million.

Currently they develop different card and table games.

5. OUYA

  • What is this Project about? It is a TV game console based on Android that wanted to make things easier to developers.
  • Money raised: $8.5 million.
  • Release date: 2013.
  • Project Status: in 2015, the company shut down.

The goal of the company was to reach $900,000, which they achieved in few hours.

However, its best-selling game just sold 7,000 copies.

6. PonoMusic

  • What is this project about? It is like a “high-resolution-sound iTunes” with its correspondent music player.
  • Money raised: $6.5 million.
  • Release date: 2014.
  • Project Status: The company closed in 2017.

All the project relied on the quality of its sound.

However, people were not willing to pay “again” for music they previously owned (you had to purchase their “high-quality music” in their platform).

7. -The Veronica Mars Movie Project

  • What is this project about? Veronica Mars was a TV show that got cancelled. Some time later, its fans raised money through Crowdfunding in order to produce a movie.
  • Money raised: $5.7 million.
  • Release date: 2014.
  • Project status: Although it was successfully released, it earned just $3.5 million.

Compared to the $5.7 million raised, economically speaking, it was a disaster.

8. Reading Rainbow

  • What is this project about? It is a project that aims to help children improve their reading skills through a Tablet Application (if we understood it correctly).
  • Money raised: $5.4 million.
  • Release date: 2014.
  • Project Status: The project died in 2017 due to different legal issues related with its Brand name.

Reading Rainbow was a TV show, and this Crowdfunding project planned to revive it.

9. Torment: Tides of Numenera

  • What is this project about? A Role-playing Video Game.
  • Money raised: $4.2 million.
  • Release date: 2017.
  • Project Status: Successfully released in different platforms (Windows, Xbox One, PS4, etc).

10. Project Eternity

  • What is this project about? A Role-playing Video Game.
  • Money raised: $4 million.
  • Release date: 2015.
  • Project status: Successfully released in different platforms (Windows, OSx and Linux).

Let’s summarize:

Top 10 Crowdfunded projects - Summary

Among the 10 biggest projects ever funded with Crowdfunding:

  • Just 3 of them succeeded.
  • All those 3 successful projects were “games”.
    • One of them was a very simple project: a card game.
  • The other 7 project had a lifespan of less than 4 years or have not been released yet.

What happened?

How is it possible that a project that raises $13 million with a simple and defined product fails? (Coolest Cooler).

Why Crowdfunding projects fail

There are lots of different variables affecting a project’s success, obviously.

 

However, there is one important reason that explains why lots of Crowdfunding projects don’t success, according to our experience:

Crowdfunding projects lack of authority and direction.

The team developing a Crowdfunding project doesn’t usually have strong deadlines or other external authority that confronts their goals, product approach or marketing plan.

If you ask for a Credit, an external authority (the bank or venture capital company) will assess your project from a professional perspective.

  • There is a “professional” filter or… professionals that filter.

 

In Crowdfunded projects, the Development Team normally just have: An Idea and Money.

But nobody is demanding or asking for experience, background…

  • People funding them (backers) are not professionals.

Other financing Tools (basically Banks and Venture capital companies) “force” you to have:

  • A Business plan.
  • Nice professional presentations (business-plan based).
  • Forecasts.
  • Market analysis.
  • Marketing plan.
  • Deadlines.
  • Etc, etc.

In Crowdfunding you can have situations like the one we observed in the “Star Citizen” project:

  • 8 years developing the project and they don’t have a 100% playable beta yet.
  • According to the “gamers”, the developers have spent lots of resources in features not really “valued” by the final customer.
    • They give the example of the mouth motion detector; nice, but not necessary.

 

Then, when should you consider Crowdfunding?

When is Crowdfunding a good idea?

Whenever:

  • You have a professionalized Team.
  • The money you ask for is not excessive (check que Exploding Kitten example).
    • Manage big amounts of money is not easy.
    • You can lose focus.
  • You already have the resources for developing the product, but you just need to start “mass producing” it in order to reduce the costs.
    • If you need to figure out how to manufacture your product, forget about it.
  • You have asked for professional advice.
  • Your Business model is profitable in the long term.
  • You have already succeeded in the past raising money through Crowdfunding.
    • And your project had a long-term success.

 

Of course, this list could be modified in many ways. We just want you to understand the Main Idea:

  • Idea + Money is not enough.

 

Most of the projects financed with Crowdfunding are based on:

  • Promises.
  • A nice promotional video.

 

And again: that is not enough.

Summarizing

  • You only should consider financing your project through Crowdfunding if you have a professional well-advised Team.
  • Ideas + Money are not enough.
  • Long term profitability is and should always be your main goal.
  • Before launching your product, you should have designed a strong product with a viable long-term profitable business model.
  • Banks and Venture Capital companies can be useful for assessing your project and its viability.

And remember: The worst thing that could happen to you is receiving a huge amount of money… and don’t be prepared to manage it properly.

©2020 - consuunt

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