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Is That Crowdfunding Campaign Really Just a Scam?

Dan Tynan
Yahoo Tech

Crowdfunding platforms such as Kickstarter and Indiegogo have changed how tech products come to market, but not always for the better.

Sometimes they let people with great ideas find backers who help turn the ideas into realities. But many would-be tech entrepreneurs make promises they simply can’t keep, and naive investors who think they’re getting a great deal end up getting the shaft.

Related: 10 Things You Need to Know Before You Invest in That Crazy Crowdfunding Scheme

When you decide to fund a product that doesn’t yet exist, you’re essentially placing a bet on the people behind it — one that often fails to pay off. While there are ways to minimize your risk (see below), it’s often hard to pick the winners from the losers, especially at the outset.

Today’s lesson in crowdfunding failures: the Soap router.

Washout

Soap was going to be the ultimate Wi-Fi router. It would talk to every connected device in your home and let you control them from your phone. You’d change settings on the fly using its built-in touchscreen. It would thwart hackers and stop malware in its tracks. Easy-to-use parental controls would keep your kids safe from the dark side of the Net. And it would cost just $200.

A mockup of the Soap router on its wireless charging pad. (Photo: Indiegogo) 

Soap was such an attractive idea that its inventors, Alex and Brandon Jones of Monument, Colo., raised just over $142,000 for it on Kickstarter in January 2014. A few months later, the brothers launched a virtually identical crowdfunding campaign on Indiegogo, this time raking in $260,000 from more than 2,200 backers.

Then doubts about the campaign began to surface. Shortly after the Kickstarter campaign ended, Alex Jones filed for personal bankruptcy. After the Indiegogo campaign concluded, he allegedly posted a picture of his new BMW convertible on Facebook and then deleted it. (Yahoo Tech located an archived copy of the photo but was unable to confirm its authenticity.)

Here’s the BMW photo that Soap co-founder Alex Jones allegedly posted to Facebook two days after his second crowdfunding campaign concluded. (Photo: Facebook)

In January 2015, Alex Jones published a lengthy “press release” detailing his bankruptcy, addiction to Vicodin, run-ins with the law, and current efforts at recovery. He also announced that his company would no longer be building a router; instead, it would market a mobile app that would allow users to control their smart-home devices. Jones then launched another Indiegogo campaign for the app; it raised a paltry $2,029. 

Funders who had been promised a Soap box would instead receive an off-the-shelf Wi-Fi router and a home automation hub “that would do 90 percent of what we pictured Soap to do,” according to a campaign update. A relatively unsophisticated Soap app appeared in the App Store in April. 

Nearly 300 angry backers signed a petition asking the Colorado Attorney General’s office to investigate Soap Inc. for fraud. Judging by comments recently left on Soap’s crowdfunding campaign sites, many of the backers have yet to receive any hardware or any refunds.

Here’s one of the many angry comments from a funder of the Soap router crowdfunding campaign. (Photo: Indiegogo)

Attempts to reach the Jones brothers via email and phone were unsuccessful at press time. Kickstarter spokesperson David Gallagher says the platform does not comment on individual campaigns; Indiegogo declined to comment.

(Credit for digging up most of this information goes to Julie Jacobson, editor at large for CE Pro, who has been following this Soap opera from the beginning.) 

The seven Rs of crowdfunding

The vast majority of crowdfunding failures aren’t deliberate scams, says Andrew Dix, co-founder and CEO of Crowdfund Insider. They fail because the project’s creators are overly ambitious and inexperienced, they’ve grossly underestimated the time and effort required, or they may have gotten taken for a ride by their own suppliers.

Still, that makes little difference to people who forked over hundreds of dollars only to receive nothing but empty promises. How can you avoid this fate? Here are seven ways to scope out a crowdfunding campaign before you make a costly investment. 

1. Research the platforms.

There are hundreds of crowdfunding platforms, each with slightly different rules. Kickstarter requires creators of hardware projects to demonstrate a working prototype before it approves a campaign. The creators receive money only if the campaign achieves its goals, and then only after the campaign is over. This gives funders plenty of time to change their minds and withdraw contributions.

By contrast, Indiegogo does no upfront vetting of projects, doesn’t require a prototype, and allows creators who elect for “flexible funding” to take the money at any time, even if they don’t make their goals. Any funder seeking a refund has to contact the project’s creators and ask for it directly.

The photo gallery from Soap campaign No. 2. (Photo: Indiegogo)

The more vetting a platform does, the better; the existence of a working prototype is also a hopeful sign. Even then, though, it’s no guarantee that the project will succeed. The creators of Soap posted copious photos and videos of prototypes, but the project still failed to deliver on its promises. 

2. Run your own background check.

No crowdfunding site checks to make sure that a campaign’s creators are telling the truth or making accurate claims. You’ll need to do your own research, says Heather Delaney, who vets scores of crowdfunding campaigns each year for Dynamo, a public relations firm based in London.

“You’d be surprised how much you can find out by Googling the founders and checking their LinkedIn profiles,” she says. “You can see what experience the team has and whether they’ve worked on similar projects in the past. That can give you a sense of whether they know what they’re talking about and, more importantly, whether they can deliver. If they have a history of failing to deliver products — or no history at all — that’s a big red flag.”

3. Run your own reality check.

Some crowdfunded projects, like the Soap router, really are too good to be true. If a campaign’s creators are overpromising on specs or features, either they’re highly naive — and almost certain to fail — or they lack the skill set to succeed, says Crowdfund Insider’s Dix. Either way, you should approach with caution.

An extremely limited Soap app became available in the App Store in April. (Photo: App Store)

4. Read the comments.

Every major crowdfunding platform lets contributors post comments and ask questions. If the creators are actively answering the questions, that’s a sign they’re acting in good faith, says Kickstarter’s Gallagher. If the creators are MIA or suddenly disappear, then something’s probably amiss and you should stay away.

Related: A $500 eBike? Not So Fast.

The downside is that this can mean sifting through thousands of comments, many of them from trolls. And since many creators hire PR agencies to manage their crowdfunding campaigns, there’s no guarantee that the responses you’re seeing are coming from the people responsible for actually building the thing.

5. Research the product category.

Just because someone claims to have invented a new product doesn’t mean he or she actually did. Some crowdfunders may be buying products cheaply on the Chinese market and reselling them in the U.S. at a profit, says Dix. A search engine such as Alibaba can help you find out if the product is already being sold overseas.

A quick search on Alibaba can tell you whether that crowdfunding project is already available for sale in China. (Photo: Alibaba)

6. Relax, you’ve probably got time.

Most successful campaigns start out with at least 30 percent of their goals already funded by friends and insiders, notes Dix. So it’s a good idea to wait and see how well the project is doing before you dive in. You might miss out on a few perks, but you’re less likely to lose your investment entirely.

7. Remember the cardinal rule.

Bottom line: When you give money to a crowdfunding campaign, you’re not actually buying a product; you’re funding a company or an idea. Success is far from guaranteed, and refunds are rare.

Crowdfunding is really more like gambling: Make sure you bet only as much money as you’re willing to lose.

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