Does There Need To Be More Federal Regulation Or Private Insurance In The Electric Fatbike/Crowdfunding World?

Federal regulations are put in place to protect the consumer from advertisers who falsely advertise their products and make misleading claims. They can also protect consumers from flat-out fraud where they purchase something, but never receive the product they ordered or receive something very different from they thought they were going to get. Before you throw your hands up in the air and say “The last thing in the world we need is more government regulation” just hear me out.

20150210181347-Storm-eBike_Campaign_intro

The Sondors Electric Fatbike

 

There are three areas that seem to need addressing

  1. Some way to guarantee that a crowdfunder will make a best effort to deliver the product they are selling in the time-frame that they are claiming.
  2. Assurance that the specifications of the product that the crowdfunder is advertising matches the actual specifications of the product they will produce
  3. Some kind of consequence besides just bad karma if a crowdfunder purposely and fraudulently claims to do something then ‘takes the money and runs’

Indiegogo has stood by their motto of ‘we don’t say no’ since their inception. Even when campaigns were clearly fraudulent such as the Healbe wristband they still let the campaign close and wired the $1.1 million dollars to a Russian bank account.

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Last December Indiegogo started testing out selling insurance to certain campaigns to protect the consumer from failed projects or ones that didn’t deliver. For the $129 wearable Olive, an additional $15 would get you your money back if the project failed. Although crowd-funding insurance seems like a possible solution to all 3 of the problems stated above, it seems to me to be a huge conflict of interest from Indiegogo to be selling insurance on their own campaigns. The amount of money they are making much higher with the insurance, in fact they are making over 4x as much as if you don’t buy the insurance for the Olive. Why should Indiegogo be making 4x as much money for doing what they are supposed to be doing in the first place? Protecting their campaign sponsors from scams.

The problem is most deeply rooted in who Indiegogo and other crowd-funding sites pledge their allegiance to. They consider themselves to be serving the campaign managers, not the funders. The funders have no protection except whatever protection they chose to offer them. It’s a ‘buyer beware’ market with millions of uninformed consumers clicking and buying ‘perks’ with the idea that they are shopping on Amazon or Newegg. Nothing could be further from the truth.

I think crowd-funding has it’s place in our society, it allows creative people to get large influxes of capitol to do projects that they otherwise wouldn’t be able to accomplish. The problem is that it has grown and matured into bigger, faster, more expensive perks with no end in sight. The recent Sondors ebike campaign has sold around 7000 bikes at $499/599/699 each with an additional $194/250 or less to be collected for shipping at the campaign’s conclusion. This means that a total of $4.75 million dollars is going into the personal bank account of Storm/Ivars Sondors who originally set his campaign goal at a far more reasonable $75,000.

Prodeco Storm Folding Commuter

Prodeco Storm Folding Commuter

Storm/Ivars, Jon and his Agency 2.0 team by all accounts have fumbled through the campaign with constant misleading and inconsistent information on their crowd-funding site. Most people who contributed were not clear about what they were even going to get, how powerful it was going to be, what the range and weight were or what the actual color choices were. They got a cease and desist order from Prodeco for trying to sell an ebike with the same name as one they had been selling for a while and had to change their entire campaign name from the ‘Storm’ electric bike to the ‘Sondors’ electric bike. Although the general consensus by the campaign donors is that the misinformation is due to negligence not maliciousness. It still boggles the mind that over 6177 people can plunk down $499 or more ~$194 shipping for the promise of an electric bike without being very clear on what it was that they even were buying.

Most of these concerns were put to rest at the Demo Days event where Storm/Ivars demoed what he assures us will be the actual bike that people will receive from the factory to over 100 people. This brought some measure of relief to thousands of backers, but most of them will not be happy until the product is at their door.

One of my close friends from growing up, Shanna Germain, literally wrote the book on crowd-funding. Her online book ‘Kicking It‘ is mandatory reading for anyone planning a crowd-funding campaign in the future. Shanna and her partner Monte Cook have run a number of wildly successful campaigns including the Numenera ($517,255), The Strange ($418,478) and their most successful campaign Torment Tides of Numenera ($4,188,927) which continues to break a whole bunch of crowd-funding records.

Numenera: The best desktop RPG game I've ever played hands down

Numenera: The best tabletop RPG game I’ve ever played hands down

Shanna maintains in her book that the two biggest components of a successful crowd-funding campaign are trust and stretch goals. Since Monte and Inxile already have a huge fan-base they can tap those people for funds quite easily and there is little or no apprehension on the part of the donor. The stretch goals create a referral effect where people are out there telling their friends to buy the product or support the game so that the stretch goals can get met. Simply put they want to get more for their money. Their campaigns often sell their product at the normal ‘retail’ price and shipping, but people get in line to buy their games because they want signed copies and they want to be the first to get it. Monte’s games are awesome, I can speak from experience as I am a big supporter of his work.

The Sondors Ebike Campaign by contrast could not be more different. Storm/Ivars Sondors had no fan-base, in fact he is a total unknown. It would appear that he has even had a name change to avoid a lawsuit settlement. On top of that the campaign for the Sondors ebike had no stretch goals at all. Without trust and a fan-base how could he raise so much money?

referal

The Referral Program

Indiegogo has a built-in referral tracking system, you share links on your blog to their site and in the URL is embedded a special code that tracks how many people you send to their campaign. To date I’ve redirected a total of 199 people to their website and helped Sondors sell $3173 worth of ebikes and batteries. That is nothing compared to the number of hits I’ve had to this blog, which has gotten as high as several thousand a day. In fact readers have shown overwhelmingly that they have no interest in any article I write except content on the Sondors campaign, which it seems people just can’t get enough of.

This referral program in a sense replaces the stretch goals by creating a monetary reward for helping to publicize the Sondors Ebike. A little more misleading than just creating the stretch goals and letting people promote it on their own. By creating a direct monetary reward it can lead to people promoting a product that they aren’t really sure of, thus creating more trust for something that may not be appropriate considering the circumstances. For me it creates even more anxiety about this campaign being as scam as it would then mean that 6 people bought a product that I was promoting that may or may not ever come to fruition.

An excellent article by Dan Tyman on supporting crowd-funding is here and I would consider it mandatory reading for anyone considering to donate to any campaign.

This part of the article really hit home:

Don’t think of it as shopping; it’s really more like gambling.

Gamble On.

Update: Ironically the same day I published this Shanna also wrote a really amazing post on trust which can be found here. It really resounded with how I have been feeling lately.

7 thoughts on “Does There Need To Be More Federal Regulation Or Private Insurance In The Electric Fatbike/Crowdfunding World?

  1. I wonder if we are on the cusp of “Crowd Funding” falling out of favor? All it will take is a few failed campaigns where funders lose their investment and the successful, honest campaigns will lose their “investors” also. The world could be such a different place if crime and greed wasn’t such a big part of it.

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  2. As this drama has unfolded, it has occurred to me several times that this is the stuff of a really thorough documentary. And since funding documentaries is very difficult, the obvious place to go would be to (drum roll) Indiegogo. IGG calls to mind Indie Rock or Indie Film, and I guess that figured in the original idea. If it’s pure creative stuff, there’s a logic to it. Where was IGG when Mozart needed a few bucks?

    What is Storm doing? As best I can determine they pool a lot of money. Then they take the money, go to China, and buy bikes at wholesale, Alibaba type prices. Normally an enterprise doing that would be an importer, but I understand they will try to avoid being on that hook by sending the bikes directly from China, so each individual is an importer. I have to assume that one advantage of this is that Storm barely has to exist as a company — No insurance, no business licenses, no pesky inquiries from the CPSC if a pedal falls off.

    The reason you can do this, by wrapping yourself in the ‘developmental’ mode, is that Storm is not selling anything. So he avoids all the pitfalls of a buy and sell contract, like liability laws. Plus there are basic standards in commercial law, like ‘fitness’ standards. But, you didn’t buy something, you received a developmental product as a reward for backing our efforts to circumvent every consumer protection out there. No need to thank us. (This is the cynical view.)

    Still, to his people, Storm is sort of Robin Hood. It’s the cult thing, the hero status, that is worthy of a documentary. I think the ad agency wanted to create this, but they were successful beyond measure. If 9 months went into developing this product, eight and half went to the campaign.

    Basically, everything cuts both ways. Give someone flexibility, you give someone license. Remove accountability and things can change in good ways, or bad ways. If Storm comes through with what he has shown, it could make Indiegogo the place to sell ‘wholesale from China’ ebikes, maybe all bikes. And people might accept the lack of normal protections, in search of that deep discount. It’s not too different from building a kit with China parts, after all. If it doesn’t work out? Not so good. Maybe they shut things down, at that point, with a law restricting the practice to ‘works of art’, something like that.

    What are the guys at Accell thinking? They own a huge portion of the ebike market. This is, um, disruptive to their model. Accell knows how to lobby, how to spread industry money around.

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