The Importance of Smart Investments in (Un)Traditional Ways
Wouldn’t it be great if communities could fund products and services they want to materialize? Consumers could directly influence and support companies during an early stage, and the companies in turn could benefit from an early injection of cash. Sounds like a win-win to me.
At this point some of you readers might raise the objection: this already exists. And you would be right! I have so far described a system called “crowdfunding,” in which strangers can come together and pool their money to help a company, group, or person raise funds to accomplish an objective. While it has existed for decades, the idea entered the public eye in the late 2000’s with the creation of popular crowdfunding websites such as IndieGoGo, Kickstarter, and GoFundMe. Over the years, each of these sites has produced some incredible stories of people banding together to help fund successful and popular products like Exploding Kittens (a card game that raised over $8 million in less than a month on Kickstarter). Not to mention, the Oculus headset funding resulted in the creation of the company, later bought for $2 billion by Facebook.
However, crowdfunding has also had its fair share of failures. Incidents range from inability to deliver on time to company backers (i.e. ship their product out to the people who paid enough money to guarantee themselves a product) to fraudulent posts made with no intention of fulfilling campaign promises. One example of fraud can be seen in Jennifer Cataldo’s posting on GoFundMe to raise money for her cancer treatment bills. With almost $40k raised, this case seems like a touching story about kind strangers extending a helping hand, but then again, she never had cancer!
Even if a company ships their product, it doesn’t mean that the product meets backers’ expectations. For instance, Triton Scuba Mask’s page on IndieGoGo claimed that its creators had developed a device to extract breathable oxygen from seawater, allowing users to literally breathe underwater. Unfortunately, while it allowed people to scuba dive, it only did so through built-in liquid oxygen tanks. In the end, the product was no pioneer of sci-fi technology and instead was simply clever packaging of existing tech. All $800k it raised through the site was refunded.
By now, I’m sure you are at least a little wary of backing a crowdfunding campaign. I think this is absolutely the correct reaction, but I also don’t believe that these cautionary examples should dissuade us entirely from shelling out cash on ideas we want to make a reality. For its many failures, crowdfunding is still a powerful concept.
So how do people ensure that their hard-earned money doesn’t end up in the hands of scammers, backtrackers, and the incompetent? They follow the same method investment firms have done: due diligence. I cannot stress this enough: please, please, please always look into the companies you support. Look into the founders or employees and decide for yourselves if they are trustworthy. There are also certain rules of thumb one should follow when considering becoming a backer. First off, don’t ever back personal projects (e.g. medical bills) because it is very difficult to establish the veracity of their claims. Second, if a company doesn’t have a demonstrable prototype, verified by another party (videos can be faked after all), then it is probably too good to be true. Third, look at a company’s past projects and the founder’s credentials- past performance is always a strong indication for the future. Finally, accept the fact that you could lose your investment or not get your money’s worth. So don’t invest an amount you aren’t prepared to gamble away.
If you follow these rules and take the time to rigorously examine all aspects of a crowdfunding campaign, you should (hopefully) be able to avoid its pitfalls. I hope that you won’t give up on crowdfunding though. There are some really great projects out there waiting to get discovered- the next Oculus could be right on that next webpage.