The Solution to Crowdfund Scammers

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Kreyos.

It’s a name that sends shudders down the spines of many rewards-based backers. This company raised $1.5 million on Indiegogo during the smartwatch funding craze that happened in 2013. Deliveries were supposed to happen by the end of the year. It didn’t happen. By 2014, only a few customers had received their watches. Most hadn’t.

By the end of 2014, Kreyos was out of business for good. Steve Tan, the CEO of this failed business, placed the blame on the manufacturing process for the failure of their smart watch. In a blog post later, however, Tan would admit that his team was great at marketing and not so great at the hardware component of designing a smartwatch.

Unfortunately Kreyos isn’t the only name that sends shudders down spines. Many start-ups don’t understand the logistics of what crowdfunding demands. It is more difficult that many realize to move from Point A to Point B.

Crowdfunding Has Shifted Its Perspective

To avoid the flakes and the scammers, backers are finding themselves investing more into the rewards that are being created by larger companies. Oculus is a prime example of this. After raising $2.4 million through crowdfunding, Facebook went out and purchased the whole company for a cool $2 billion.

Oculus was, in fact, the turning point of what crowdfunding from a rewards-based perspective would be. Many people put money down on Oculus because they felt like they were investing into the business. When it sold to Facebook, they felt like they should have had a share of that cash. Instead they realized that the virtual reality platform was going to be made whether they had gotten involved with it or ignored it.

Video games, movies, music production, and plenty of technology products are following this same path. These items are getting made. What crowdfunding is being used to accomplish is to create a foundation of pre-orders to prove a concept so that the concept can be sold to an even bigger company for a huge profit.

Has Crowdfunding Betrayed the Small Business Startup?

It’s easy to see why many sole proprietorships, partnerships, and small business startups are saying that modern crowdfunding has betrayed them. There are always the occasional rags to riches stories that filter out of Kickstarter or Indiegogo or crazy viral campaigns like the infamous Kickstarter potato salad, but for the most part, medium- to large-businesses are using crowdfunding to shortcut their testing and validation phases to hit the $2 billion payday that Oculus received.

A company based in Oregon wants to change this perspective. Called Crowd Supply, the goal is to create a site for physical products that startups can present to the general public. More than 4 dozen projects have been successfully funded so far, from hot sauce to an open-source laptop. What makes Crowd Supply different is the fact that instead of helping a company to raise money and then leave them hanging, campaigns receive product consultations and an e-commerce store.

Small Businesses Get a New Chance

Crowd Supply takes a cut off of the money raised, just like most other crowdfunding platforms. What they won’t do is demand an equity share or a cut of the intellectual property rights of the products being represented. Ongoing sales happen through a retail relationship that is very traditional: the products are bought at wholesale and then sold at retail.

This even led Crowd Supply to lead with this blog post: “Crowd Supply Is a Store.”

Manufacturing and selling are the two most difficult components of a successful crowdfunding campaign. If organizers and startups are struggling with the initial marketing of a campaign, then imagine what will happen if a miracle occurs and the fundraising goals are raised. Crowd Supply makes this challenge a little easier to handle. Why? Because they handle fulfillment.

The products created and crowdfunded on Crowd Supply probably aren’t going to change the entire world. They can, however, change the world one idea at a time while taking care of some of the biggest problems that entrepreneurs face today. With this new platform, all it takes is a small group of dedicated people to reach a specific goal. There’s no need for the big company to provide security in the rewards-based crowdfunding atmosphere.

There will always be companies like Kreyos that wind up taking money and then running away with it, either deliberately or through incompetence. Thanks to Crowd Supply, this risk is minimized so that small business startups still have a chance to be competitive.