Crowdfunding, or minimising risk?

[Joseph_Pestell]

1 hour ago, njee20 said:

In progress, and Ben and Mike have been open about the challenges the project has faced and have provided a recent update on it.

 

I may have missed that last update. But it's not (as Ben has recognised), a 100% record at the moment.

[njee20]

So far? I.e they’ve not failed to deliver a project. A bit harsh to say the 321/KFA/92/MMA/HOA/Sturgeon are failures just because they’ve yet to be delivered!

 

I’m fine with Ben’s definition. I’m sure he won’t mind me saying (as they’ve been upfront) that the 321 has been challenging and they’ve taken learnings away for future projects.  

[Revolution Ben]

1 hour ago, Joseph_Pestell said:

 

I may have missed that last update. But it's not (as Ben has recognised), a 100% record at the moment.

 

Can I just clarify things here!

 

Revolution has not needed to cancel, or failed to deliver, on any of the projects so far for which we have taken money.  We have a 100% record of delivery on models that have completed the cycle.

 

Some models are undelivered purely because they are in production or development; but I am 100% confident they will be delivered in due course.  There have been some delays in projects that have already been delivered, and some that are still in development, but we have been as clear as is practicable with how and why these have taken place, and where necessary what measures we are taking to mitigate this.

 

cheers

 

Ben A.

[jjb1970]

I still think that the whole crux of this matter has little to do with crowd funding and everything to do with whether a company has the competence to project manage and run a business enterprise. Obviously it alters the risk exposure for customers by moving it from proprietors and banks onto those wanting to buy product but whether or not things work will be determined by factors which are common whether or not a business seeks crowd funding or a bank loan.

 

 

[PMP]

7 hours ago, Joseph_Pestell said:

 

I may have missed that last update. But it's not (as Ben has recognised), a 100% record at the moment.

 

Well RevolutioN have at least produced a percentage of their proposed projects, rather 100% of nothing...

 

 

[Widnes Model Centre]

 

I have been giving a lot of thought to the principles of Crowdfunding and whether it was something we would look at. But what is the benefit of doing so? I have to be honest and point out that this would be strictly for Profit. What business is going to set about such a process if it is only for kudos or anything similar? Guidelines suggest that you need to produce a product that is very sellable or even niche. Put the project out to a group or friends and then get them to spread the word. Further advice is to keep in touch with your Crowdfunders and consider the use of Social Media to promote your idea and keep customers up to date.

 

So how would I make a profit on such an idea?

 

If a business received a quote for tooling of £100k and raised £120k through funding then they theoretically have a £20k profit at that stage (if they appeared in the same year's accounts) but could start the process of claiming a writing down allowance against the tooling asset at 18%; therefore £18K coming off the profit leaving a corporation tax liability on £2k. If a business had borrowed the £100k from a bank then there would be charges of course which would swallow the rest but we can view the crowdfunding as 'free money' which has been recycled into a tangible benefit to the business in terms of reducing tax liability and ownership of the asset. That does, of course, work on the assumption that the tooling has actually been paid for and evidenced by payments out. Would the average crowdfunder, who only thinks in terms of whether he gets his model on time be bothered by that? Probably not. The benefit to the business does roll on beyond Year 1 of course; especially when multiple crowdfunded projects are underway but it would need a tight visibility kept on everything which isn't the strong point of some it seems.

 

If a director draws a salary from the business (say £20K in the simplified case above) then of course any PAYE tax and NI would be due but experience in the wider world shows that many directors of smaller businesses have substantial loan accounts which have to be paid back at a future point but are often outstanding at a business is dissolved and difficult to recover if insolvency is involved.

 

All very simplistic with round numbers to illustrate a principle.

 

In the words of those on Dragons Den... "I'm out"...

 

Any thoughts, anyone keen on taking on such a project?

[dpgibbons]

Most of the so-called crowdfunded projects in our hobby are anything but.  They are operated outside crowdfunding platforms and they have no explicit funding target or deadline, nor refunds if the target is not met. Legally they are treated as would be any other consumer purchase. In fact they differ hardly at all from the way many small model makers, such as those making 7mm brass locos, have operated for years - ie funding all or part of a project via prepayments taken direct from customers, with long lead times between first orders and delivery.

 

Do customers care that the project provides a profit, tax breaks and potentially some IP to the manufacturer? No. Their decision will be based on price, quality and the maker's track record and reputation.

 

Incidentally accounting rules have a lot to say about (prudently) recognising profits on long term projects and you would probably be justified in not crystallising any tax liability until the project was delivered. Whether you could justify capitalising the tooling without the prospect of further production runs would be another issue for the accountants.

[jjb1970]

I don't think it is unreasonable for a project manager to make a profit from managing a crowd funding project, whether that be by drawing a salary or by their business making a profit. However I do think certain claims on this subject by some (not all!) are slightly disingenuous. And in some ways, if crowd funding really is an investment rather than a purchase then it begs the question of whether investors should reasonably expect some transparency and disclosure on how much of their contribution will be used to fund the managers percentage (in the same way that we are given info on pension fund management fees etc).

[Damo666]

I posted this in a separate thread.

 

Getting straight to the point, this is it: BBC Radio 4. Wednesday 22nd May 2019: Crowdfunding

 

Edited May 23, 2019 by Damo666

[AY Mod]

32 minutes ago, Damo666 said:

I posted this in a separate thread.

 

Getting straight to the point, this is it: BBC Radio 4. Wednesday 22nd May 2019: Crowdfunding

 

 

Very pertinent points from 22:35.

[Sir TophamHatt]

The message should be that Crowdfunding should be done properly, with protection all round.

 

I've supported 7 or 8 Kickstarter campaigns and all have come through fine, with no problems.  Some are established in crowd funding, others it was their first time.

 

Would I support through Kickstarter again?  Hell yes!

Would I simple give money to someone who hasn't got any contractual agreements in place?  Not a chance!

 

Yes, I appreciate Kickstarter things can go wrong, but there is a world of difference between a successfully funded (and sometimes 600% over funded!) campaign and little Jimmy saying he'll make something.

[Sir TophamHatt]

On 09 May 2019 at 13:01, raymw said:

Not many kickstarter projects are in the £100,000 range.

 

For what?

The asking for £100,000 or the getting £100,000?  There's loads that cover both.

 

Peak Design Travel Line Bag:
Asked for: $500,000
Got: $5,206,612

They have a Travel Tripod at the moment, asked for $500,000, have so far got $3,814,992

 

Suburbia Collector's Edition Game:
Asked for: $10,000
Got: $1,806,651

 

Villagers Game (UK!)

Asked for: £7660

Got: £482,171

 

Ultimate Lens Hood (UK!)

Asked for: £8000

Got: £186,658

That's over £150,000 more money than what was originally asked for.

 

Crowd funding can be an excellent way to get something to market that's good.  If something fails to get funding, it just isn't that good a product, or it wasn't advertised in the right places.

Advertise in the right places, it'll be a runaway success.

[AY Mod]

6 minutes ago, Sir TophamHatt said:

Advertise in the right places, it'll be a runaway success.

 

That's far too simplistic.

 

I could launch a project for an 8K drone with FPV glasses for £500 and pay to splash it all over Facebook. Brilliant idea, great price with my £10K development target massively 'oversubscribed' - it doesn't mean anyone will ever get it.

[The Stationmaster]

On 23/05/2019 at 08:37, AY Mod said:

 

Very pertinent points from 22:35.

Agree, and I liked the bit at 05.28     Apart from which the whole programme has brought a lot of useful information to this thread.

[dogbox321]

I think the key thing here is "Caveat Emptor" - Let the buyer beware!  (Sorry but I don't think there is probably Latin for Crowdfunding).

 

I think there are a few issues - firstly "Crowdfunding" has been used as a buzz word for a good few people trying to enter the model railways market with very little capital.  This poses problems as for each stage of development, theoretically you need all those subscribing to give you their money on time before the next stage commences.  

 

Secondly, accurate models take considerable time to go from initial concept, to research, design, CAD production, prototype (eg 3D print), tooling, 1st Engineering Sample, Testing, Livery Sample and Full Production.  If people are crowdfunding from initial concept to assess viability, then there is going to be a long lead time of a couple of years, plus.  Its whether modellers have the trust to part with cash, and the resolve to see models through, which has an effect as models progress.  Longer time - more itchy feet!  There is also the danger, that someone else is already working a a project of the same vehicle too, and they may get to market before your product.

 

Thirdly, crowdfunding (in all its shapes and forms) is not for everyone. hence some companies permit retailers to stock their products, but of course there is a higher price to be paid.  Via crowdfunding, each individual needs to assess the risks of each venture, and whether they are prepared to accept them, along with the potential reward of getting a model of "X" for their layout/display case!

 

I think Revolution have met their commitments in a most exemplary manner.  Yes, projects have suffered delays (possibly due to correcting errors, awaiting production capacity etc.), and some have not made production through lack of support, but when order books have been opened, models have progressed, and those that have been concluded so far, I believe have satisfied their respective crowdfunders/modellers.  Likewise the quality has been superb, in the case of the "OO" TEA's that I ordered.  Hence against this background, personally I would quite happily support further projects via this company, as I perceive it as very low risk, as long as I am prepared to wait to get my hands on a quality product.  

 

As I stated at the beginning - each modeller needs to be aware, and ultimately assess the risks of any project that they choose to take part in crowdfunding with.  Crowdfunding, and all its derivatives rely on trust, transparency, good communication, reasonable timescales and the delivery of a high quality detailed product combined with good customer service. 

 

Best Regards,

 

C.

[34theletterbetweenB&D]

On ‎24‎/‎05‎/‎2019 at 22:45, dogbox321 said:

I think the key thing here is "Caveat Emptor" - Let the buyer beware!  (Sorry but I don't think there is probably Latin for Crowdfunding).

I'd guess wildly at something like 'mobfiscus'.

 

Buyer beware indeed. Should there be a project I was interested in, if it were of any complexity, my first thought would be 'is there a team on the job?'. Two or three people are much more than the simple sum.

[dogbox321]

12 hours ago, 34theletterbetweenB&D said:

I'd guess wildly at something like 'mobfiscus'.

 

Buyer beware indeed. Should there be a project I was interested in, if it were of any complexity, my first thought would be 'is there a team on the job?'. Two or three people are much more than the simple sum.

 

I would agree that more than one person whose strengths compliment each other, is optimal, but by the same argument is an army of people in Barwell and in a factory in China, but it still took 5 years or so for the Class 90 to come out.

 

Regards,

 

C.

 

[jjb1970]

Sadly it looks like we will now get answers to the various questions about what happens if it all collapses. 

[34theletterbetweenB&D]

On ‎01‎/‎06‎/‎2019 at 22:20, dogbox321 said:

I would agree that more than one person whose strengths compliment each other, is optimal, but by the same argument is an army of people in Barwell and in a factory in China, but it still took 5 years or so for the Class 90 to come out...

For that comparison to have any integrity, you have to consider the productivity per head over the long term, among other factors. New businesses often look very impressive in their achievements early on, before 'the drag' builds up. Maintaining the rate of new introductions alongside continuing availability of what is an expanding range of products, with post sales support for all of it, requires more people; so you have to give resource to recruitment, training, facilities and management in a way that was never required when it was just 2, 3, 4 people who all knew exactly what they were about and could work from their 'desk' in Costa Coffee or wherever...

 

Small businesses had a 'half life' of roughly six years, last time I looked, partly as a consequence of these effects.

[Roy Langridge]

19 hours ago, 34theletterbetweenB&D said:

For that comparison to have any integrity, you have to consider the productivity per head over the long term, among other factors. New businesses often look very impressive in their achievements early on, before 'the drag' builds up. Maintaining the rate of new introductions alongside continuing availability of what is an expanding range of products, with post sales support for all of it, requires more people; so you have to give resource to recruitment, training, facilities and management in a way that was never required when it was just 2, 3, 4 people who all knew exactly what they were about and could work from their 'desk' in Costa Coffee or wherever...

 

Small businesses had a 'half life' of roughly six years, last time I looked, partly as a consequence of these effects.

 

I run a small business and I wish that the half life was as high as 6 years - it is currently 5 years and falling.

 

The latest figures I have are 30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first 10. Only 25% make it to 15 years or more.

 

We have had tough times and it was only through sound management, prudent spending and refusing to borrow money that we didn't have that we survived those years. We are now 14 years old and hopefully achieve the 15 years safely!

 

One other comment, two of us own and run the business. I would hate to do it alone - the overheads of running a business are high at times and it could kill the business by having no time to do business after all the paperwork* etc. You also need that other person to talk things through with, tell you things will be ok when they are tough, share the burden when its tough and enjoy good times with.

Roy

 

*As an example, one of our customers got investigated for possible fraud related to VAT. We ended up spending days providing evidence that we had been no part of it - time away from earning money and for which there is no financial recompense.

 

 

Edited June 5, 2019 by Roy Langridge
Clarity

[Damo666]

1 hour ago, Roy Langridge said:

 

I run a small business and I wish that the half life was as high as 6 years - it is currently 5 years and falling.

 

The latest figures I have are 30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first 10. Only 25% make it to 15 years or more.

 

We have had tough times and it was only through sound management, prudent spending and refusing to borrow money that we didn't have that we survived those years. We are now 14 years old and hopefully achieve the 15 years safely!

 

One other comment, two of us own and run the business. I would hate to do it alone - the overheads of running a business are high at times and it could kill the business by having no time to do business after all the paperwork* etc. You also need that other person to talk things through with, tell you things will be ok when they are tough, share the burden when its tough and enjoy good times with.

Roy

 

*As an example, one of our customers got investigated for possible fraud related to VAT. We ended up spending days providing evidence that we had been no part of it - time away from earning money and for which there is no financial recompense.

Wish you all the best towards reaching your 15th anniversary, it you've got this far you must be doing a lot right.

 

I remember those early days; sleepless night, chasing invoices, wondering if it's only the staff who will get paid this month and not the partners, where the next project will come from, loosing bids, trying to demonstrate experience when you have little.

 

Now approaching 23½ years, but I'd never be complacent to say it's all plain sailing. Just keep doing what you've been doing, it's worked so far.

[adb968008]

I am not convinced by prepayments in model railways unless the timescale, quality and cost are clearly provided, proven and supported not just by the promoter, but the Chinese manufacturer too.

 

unfortunately only one company comes anywhere close to this, but even then the Commissioner dropped the ball.

 

Ive participated in advanced payments now on 15 models, and found myself off piste on the following:

 

1. Delays to promised timescales: 4 (worst was greater than 12 months beyond promised date at the time of payment), another required me contacting an MP to resolve it !!

 

2. Quality not as good hoped : 4 (2x poor running, 1 sloppy detail error, 1 bad paint).

 

3. Still outstanding delivery : 3 (showing ontime, on budget and to quality today).

 

4. Ontime, to quality and cost: 4

 

to save the blushes i’ll only name the ones hitting the spot squarely... 10201/10202/Cemflos/HUOs, and my 3 in advance I have confidence (2x55 and PFAs)

 

As a result of my experiences, and that of the discount restrictions on non-prepaid models that my spending habit has changed, ive forgone pre-ordering in 2019... last year i had over £5k in pre-orders... in 2019 I have only placed around £500 worth of new orders... in many ways its unfair to the good guys that ive withheld, but I feel it prudent.

 

 * I want proof of life before I part with my cash. *

 

In my mind to be successful in this hobby, comissioners need to out more skin of their own in the game.. and a CAD doesn't cut it. When I see a commissioner with something at risk, its more likely they are going to make a stronger effort, and I am more likely to join that particular ship on that particular journey.

 

whilst commissioners like to keep manufacturers close to their chests, I feel it would install more confidence if they were seen as a joint partner in development, with a sense of ownership in the project, afterall they are a subcontractor doing the work and their reputation then becomes their mark.. Right now errors/delays lie solely at the Commissioner, which maybe unfair.

 

our industry is a little behind the times in being more open on suppliers and its had tremendous benefits in other industries.. the old chestnut of secrecy doesnt wash.... I can find 10+ model railway manufacturers in china on Alibaba in 5 minutes... with a bit of effort I can ID the good from the less good... but today if (and until) the box arrives I dont know if it will be in the 33% i’m happy with or the 66% i wasn't.. knowledge which has a direct bearing on me avoiding one particular crowd funded project right now.

 

prepayment can work, but it needs to regain trust... Time, Quality, Cost as a partnership between Customer, Comissioner and Supplier.

Edited June 5, 2019 by adb968008

[truffy]

On ‎03‎/‎05‎/‎2018 at 20:23, The Stationmaster said:

But one recent example appears to expect us to give money to someone using a name that isn't theirs and they have no past track record by which to judge the trust we can place in them.

 

On ‎04‎/‎05‎/‎2018 at 10:23, chris p bacon said:

Personally,  I've become a little uneasy at how some projects have started up. The latest by someone with a false name and a limited company using payment processes which give no protection to the customer takes the biscuit.

 

On ‎04‎/‎05‎/‎2018 at 12:36, bill_schmidt1 said:

The other crowdfunding project where the guy was hiding behind a false name would put me off giving any money over straight away!

 

Is there a link to this project? For those of us who might otherwise take it at face value?

[woodenhead]

3 minutes ago, truffy said:

Is there a link to this project? For those of us who might otherwise take it at face value?

It may have been removed from the forum

 

It was a chap proposing to do an O gauge version of the LMS twins - but he only wanted cash and he wasn't using his real name.

 

Didn't get very far on the forum, he did have a web page as well.

[woodenhead]

Actually, I've found it 

The associated website has gone, not surprising.