Crowdfunding, or minimising risk?

[bécasse]

It is all very well talking about the retailer being responsible for the return of funds if the project doesn't deliver but that can only happen if the retailer has sufficient funds, otherwise they just go bust.  Of course, if you paid with a credit card and the amount topped £ 100, you would probably be reimbursed by the credit card company, but yet another retailer would be lost to the hobby.

[chris p bacon]

 but yet another retailer would be lost to the hobby.

 

 

But an unsuccessful one.

 

I have no sympathy when in business, when you set out to make and sell something you do it for money, if you don't,  then you shouldn't be doing it.  If a retailer/manufacturer goes under with one project, then they didn't have enough funding behind them to carry the project through. 

 

I have to question the transparency of the funding for various projects which are current,  There are calls for 'crowdfunders' but there isn't project costs or the number of funders required. The lack of transparency to me means the funders are providing all the funding, with the profit from a successful run taken by the manufacturer/supplier. I don't have a problem with people making a profit but by using 'crowdfunding' the manufacturer/supplier is avoiding the costs of borrowing with little noticeable gain for the funder.

[jjb1970]

It is all very well talking about the retailer being responsible for the return of funds if the project doesn't deliver but that can only happen if the retailer has sufficient funds, otherwise they just go bust.  Of course, if you paid with a credit card and the amount topped £ 100, you would probably be reimbursed by the credit card company, but yet another retailer would be lost to the hobby.

 

That's their commercial risk. I don't think anybody wants model shops to go bust, but if they owe money and are unable to pay then the fact of being a model shop isn't a reason to write off debts.

[The Stationmaster]

It is all very well talking about the retailer being responsible for the return of funds if the project doesn't deliver but that can only happen if the retailer has sufficient funds, otherwise they just go bust.  Of course, if you paid with a credit card and the amount topped £ 100, you would probably be reimbursed by the credit card company, but yet another retailer would be lost to the hobby.

 

And in any event the retailer who held the funds could incur significant costs both in taking the payment and in making the refund and all though no fault of their own.  Their only saving grace would be if the funds in the crowdfunding project were to be rededicated to them for some of their own goods in the event of the crowdfunding project going under.  Fortunately in Kernow's case they have some good alternatives on offer and close to coming to market but otherwise they could be facing costs running to a very substantial amount of money simply as a consequence of being helpful to a crowdfunding scheme manufacturer.

 

I suspect the lesson that will be learned from this particular example of a crowdfunded project failing is that no third party is ever again likely to be prepared to take on the financial risk of carrying out the admin element on behalf of the concern to whom the funds would be directed.  

 

 

I have to question the transparency of the funding for various projects which are current,  There are calls for 'crowdfunders' but there isn't project costs or the number of funders required. The lack of transparency to me means the funders are providing all the funding, with the profit from a successful run taken by the manufacturer/supplier. I don't have a problem with people making a profit but by using 'crowdfunding' the manufacturer/supplier is avoiding the costs of borrowing with little noticeable gain for the funder.

 

This comes back to what I previously identified as a critical aspect of the whole matter of crowdfunding - I would want to see a project plan, business plan, and cash flow plan before going anywhere near such a scheme.   The reward funding element does in my view come into question to some extent if I was simply being asked to bankroll a manufacturer who is ultimately going to make a profit (will it be shared with me as a crowdfunder?).  And rather importantly who is also in the case of a commissioner taking money from the scheme for his element of facilitating or managing it as well as the cost of work carried out by the various third parties such as those who do the scan, produce the Cad and tool and make the model.  A full business plan would (should) surely disclose exactly what goes where, and at what stage, in respect of monies paid in by crowdfunders.

[jjb1970]

I think we should thank the Station Master for starting this thread as it has highlighted quite a few pertinent questions and issues that those thinking of either offering or paying into reward crowdfunding schemes should ponder carefully. This whole topic is more complex and potentially risky than has generally been presented. I think there are good crowdfunding projects and bad, it's not a case of just dismissing the concept by any means but rather being aware of certain questions and considerations.

[Bernard Lamb]

I think we should thank the Station Master for starting this thread as it has highlighted quite a few pertinent questions and issues that those thinking of either offering or paying into reward crowdfunding schemes should ponder carefully. This whole topic is more complex and potentially risky than has generally been presented. I think there are good crowdfunding projects and bad, it's not a case of just dismissing the concept by any means but rather being aware of certain questions and considerations.

 

I think that there is a very strong case for dismissing the idea.

It grew out of a need to raise cash from alternative sources after the financial crisis around 2008.

That crisis grew out of banks lending too much money to unsustainable projects.

A idea that is designed to by pass the checks and balances of the financial system is in my book suspect.

If you want to pre order with full or part payment as a deposit then fair enough.

If you want to invest in the business then OK.

If you want to provide a business that is unable or unwilling to use the standard financial system with cash, with no idea of who will take a share, if any, of any surplus, with different rules in different countries then you are taking a big risk.

I class them alongside snake oil salesmen.

I would dearly love one of them to come on here and explain why he uses the system in preference to the traditional business methods and outline exactly how the system works.

Bernard

[jjb1970]

I’m not a fan of crowd funding and have never joined a crowdfunding project, for reasons I’ve already offered in this thread. However regardless of what I think about it we live in a free(-ish) country and if the concept works for others then fair play to them. I don’t really consider it to be any different to asking for deposits and payment up front for pre-orders in order to ease cash flow. If people are happy with the concept and it works for them then good for them, I think those that supported the Revolution Pendolino are extremely happy with the models they received and Revolution fulfilled their side of the arrangement.

 

I think that this thread has identified certain things that people (both suppliers and purchasers) need to think about, but having considered those things if people still see crowdfunding as a mechanism that works for them then it’s their choice to go ahead or not. I don’t see it as a scam (not liking something is not the same as seeing malfeasance). Is it a business model I like? No. Would I get involved? Almost certainly not (never say never), but it’s not my business to tell anybody not to do it and for example I have the highest of respect for the Revolution guys for their efforts.

[Revolution Ben]

I would dearly love one of them to come on here and explain why he uses the system in preference to the traditional business methods and outline exactly how the system works.

Bernard

Hello Bernard,

 

I already have - see post #29 on the previous page of this thread.

 

To recap - if you model in a niche scale (N), where manufacturer support is not as extensive as in 00 or H0, and for valid reasons the main manufacturers are unable to take the risk on a particular project, and if you are prepared to put in a *lot* of work, then crowdfundung offers an alternate route.

 

This thread has been interesting, and while I understand those who have very real and reasonable concerns about where they spend their money, I would argue that focussing too much on money, financing and "the bottom line" misses the point.

 

Crowdfunding generates a community spirit - yes, people are taking a chance, but what they get for taking that chance is a model that would not otherwise have seen the light of day. It's more than just going to a shop and buying a model. For our N Gauge Pendolino we have sent out regular newsletters, allowed supporters to select the 10 different versions we offered and (so many have told us) made them feel part of something special over the 3 years it's taken from laser scanning the real thing to them receiving their models. If you look on the Revolution/Rapido Pendolino thread you'll see just this morning a happy modeller has posted photos of his Pendolino in the station on his new layout. He knows that without his support that model would not be there now.

 

Since we started Revolution has delivered the N gauge TEA tanker (voted Rolling Stock Model of the Year in N when it came out), the N Gauge Pendolino (some models still to be sent out - the two of us involved have full time jobs elsewhere!) and the N Gauge Class B tankers. Shortly we will receive the 00 TEA tankers that we offered up as a direct result of being pestered by 4mm modellers who'd seen the quality of the N gauge offering and liked it.

 

IZA Cargowaggon twins, a KFA container flat and a Class 92 locomotive are all tooled and waiting their turn to go into production. All these models have dedicated threads on here you can read to see how progress has been documented. The finances are all in place and we are just waiting for a factory slot. Until we get that slot we will continue to take orders - why wouldn't we?

 

If it's not for you that's fine. But if managed carefully and diligently crowdfunding can and does work.

 

Of course, I would always urge anyone considering backing a project to look very carefully at the proposed model, look even harder at those behind it, and walk away if there is anything that makes them uneasy. That is certainly my approach when considering other crowdfunding projects that I might want to back.

 

Cheers

 

Ben A.

Edited May 10, 2018 by Ben A

[njee20]

I think that there is a very strong case for dismissing the idea.

It grew out of a need to raise cash from alternative sources after the financial crisis around 2008.

That crisis grew out of banks lending too much money to unsustainable projects.

A idea that is designed to by pass the checks and balances of the financial system is in my book suspect.

If you want to pre order with full or part payment as a deposit then fair enough.

If you want to invest in the business then OK.

If you want to provide a business that is unable or unwilling to use the standard financial system with cash, with no idea of who will take a share, if any, of any surplus, with different rules in different countries then you are taking a big risk.

I class them alongside snake oil salesmen.

I would dearly love one of them to come on here and explain why he uses the system in preference to the traditional business methods and outline exactly how the system works.

I, for one, am glad that some manufacturers don't share your woefully narrow minded views. I can't even be bothered to pick that apart.

 

I think the key is to appraise each project as has been said, and consider risk and reward. I don't understand why you'd dismiss all crowdfunded projects out of hand, it's actually pretty insulting what you're saying.

 

There does seem to be an idea that crowdfunding is some panacea that will enable us to produce all sorts of esoteric and whacky prototypes with no risk to the proposers, which I guess to an extent is true. I'm pretty sceptical of any project which morphs into a crowdfunded offering at an advanced stage, as that suggests something is amiss - and that you're on to an unforeseen 'plan B' which worries me conceptually - it's basically a manufacturer saying "I thought I could afford this, but I can't, you're up!". But I have no issue whatsoever with a well thought out project, from a credible source, that seeks crowdfunding. I've been extremely happy with my Revolution items, and am 'in' for a fair few more. I've been slightly 'burned' by a non-railway related crowdfunded project, in that it's now 2 years late and still no real sign of delivery, but hey ho, I went in with my eyes open and was totally happy to lose the money, they were not a proven entity so the risk was higher, offset by a more trivial sum of money.

 

My fear is that a huge failure will come, people will lose money and the bubble will burst. But until then I will continue to enjoy the spoils from things we otherwise wouldn't have, and as brands (ie Revolution) further cement their position in the market and make it work I will very happily continue to back them with the utmost confidence.

Edited May 10, 2018 by njee20

[dpgibbons]

Revolution have been a great example of how to crowdfund model rail products and a very positive development in an N Gauge space that's been losing support from traditional manufacturers. I hope others learn from them.

Edited May 10, 2018 by dpgibbons

[34theletterbetweenB&D]

...My fear is that a huge failure will come, people will lose money...

 The interesting aspect that has emerged in this thread is that under UK distance selling regulations, the operating assumption underlying the concept that the risk is borne by those putting up the money, is false. Instead it is those taking the money that are liable for non-fulfillment. So it could get very bloody for those individuals, arising from quite a variety of incidents and accidents over which they have no direct control, and for which insurance cannot provide full protection (especially in terms of meeting schedule, and any consequent knock-on financial effects).

 

... the bubble will burst...

 It may be more of a 'fade away' as the risk case becomes more fully appreciated, relative to other funding methods. It might be that a proven crowd funder - and 'Ben A' has supplied a neat outline -  reappraises their position as a result and moves to an alternative, such as a preorder system and more conventional borrowing.

[njee20]

 The interesting aspect that has emerged in this thread is that under UK distance selling regulations, the operating assumption underlying the concept that the risk is borne by those putting up the money, is false. Instead it is those taking the money that are liable for non-fulfillment. So it could get very bloody for those individuals, arising from quite a variety of incidents and accidents over which they have no direct control, and for which insurance cannot provide full protection (especially in terms of meeting schedule, and any consequent knock-on financial effects).

Of course those taking the money can be liable, but if a project falters and someone declares bankruptcy then the backers are just one (or many) in a list of creditors. There are obviously various safeguards you can put in place, but there is a risk.

 

 

 

It may be more of a 'fade away' as the risk case becomes more fully appreciated, relative to other funding methods. It might be that a proven crowd funder - and 'Ben A' has supplied a neat outline -  reappraises their position as a result and moves to an alternative, such as a preorder system and more conventional borrowing.

 

Yes, possibly, I don't think the risk comes from established players, more from someone jumping on the band wagon at a point when the buying public are more receptive to it as a funding mechanism.

I certainly hope it doesn't happen, and I think there's still a healthy dose of scepticism among customers which means people are wise to any such endeavours.

[dpgibbons]

Crowdfunding is the only way that less commercial models, especially in the less popular scales, are likely to get made. 

 

A properly crowdfunded project should have locked-in customers and full funding and so may well be less risky than a conventionally funded project from a small manufacturer. 

[PMP]

Anyone who thinks crowdfunding started because of the 2008 financial crisis is woefully ill informed, and I’d suggest anything following after a statement such as that should be treated with extreme caution.

 

War bonds were a form of government crowdfunding, help buy your town a tank/spitfire/battleship etc, also, and I’m sure a black t-shirt wearing D&E fan will be able tell us which one, one of the rock bands in the mid 90’s crowdfunded an album/tour on what we’d now call a reward crowdfunding scheme. That was I think due to their label not wanting to fund the album they wanted to make. It fortunately was successful, asking for money back probably would have got the response that it’s in the swimming pool with the Roller...

Edited May 10, 2018 by PMP

[njee20]

Totally agree. Crowdfunding became more popular with the rise of decent internet connections, meaning global marketing was suddenly extremely easy, but to say it came out of the financial crisis is laughable.

[Guest JoeHart2]

So what has a prospective or crowdfunding purchaser actually learned from reading this thread that was not already known?

 

Any crowdfunding scheme should be carefully looked into...

The supplier(s) should have integrity and the necessary experience to deliver the crowdfunded item... 

The scheme should be fully funded either by stage payments or the full amount...

A projected timescale would be required but bear in mind delays could occur...

A business plan is a pre-requisite for the supplier but do the crowdfunders need to know every detail of the business plan for the venture to succeed?  (e.g. Is this not similar to booking a holiday abroad?)

Crowdfunding is risky...

It could fail...

You might not get what you paid for...

You might lose all or part of your investment (staged payment or payments) despite apparent Consumer protection ...

It could succeed...

You might actually receive the crowdfunded item at the price you agreed to pay for it...

There may be a profit/surplus for the supplier that could be considered as an 'incentive' as well as a form of 'payment' for their role in delivering the crowdfunded item...

The supplier might make some money or get his item for free.  Good for him (them)...

 

I could have included the 'supplier' should have a proven track record of delivering crowdfunded items, which at some earlier juncture implies that no proven track record existed... the chicken and egg scenario.

[jjb1970]

So what has a prospective or crowdfunding purchaser actually learned from reading this thread that was not already known?

 

Any crowdfunding scheme should be carefully looked into...

The supplier(s) should have integrity and the necessary experience to deliver the crowdfunded item... 

The scheme should be fully funded either by stage payments or the full amount...

A projected timescale would be required but bear in mind delays could occur...

A business plan is a pre-requisite for the supplier but do the crowdfunders need to know every detail of the business plan for the venture to succeed?  (e.g. Is this not similar to booking a holiday abroad?)

Crowdfunding is risky...

It could fail...

You might not get what you paid for...

You might lose all or part of your investment (staged payment or payments) despite apparent Consumer protection ...

It could succeed...

You might actually receive the crowdfunded item at the price you agreed to pay for it...

There may be a profit/surplus for the supplier that could be considered as an 'incentive' as well as a form of 'payment' for their role in delivering the crowdfunded item...

The supplier might make some money or get his item for free.  Good for him (them)...

 

I could have included the 'supplier' should have a proven track record of delivering crowdfunded items, which at some earlier juncture implies that no proven track record existed... the chicken and egg scenario.

I think this thread has taught us something rather important, namely that if a reward crowdfunding scheme is subject to UK law then any investors/purchasers (select the one you prefer) are protected by the same laws and regulations as for a regular purchase. Therefore the risk is not primarily with the buyer but with the seller. This is contrary to what I think most had assumed. Yes, there is still some risk, but buyers do have pretty good protection rights (including a right to refunds etc). The party carrying the risk is the seller, a buyer may lose a three figure sum is it all goes completely tango uniform and the seller goes bankrupt because a scheme collapses. The seller could potentially face bankruptcy.

[Guest JoeHart2]

I think this thread has taught us something rather important, namely that if a reward crowdfunding scheme is subject to UK law then any investors/purchasers (select the one you prefer) are protected by the same laws and regulations as for a regular purchase. Therefore the risk is not primarily with the buyer but with the seller. This is contrary to what I think most had assumed. Yes, there is still some risk, but buyers do have pretty good protection rights (including a right to refunds etc). The party carrying the risk is the seller, a buyer may lose a three figure sum is it all goes completely tango uniform and the seller goes bankrupt because a scheme collapses. The seller could potentially face bankruptcy.

 

From what you say, it remains obvious that both parties carry the risk, as was always the case.  Bankruptcy and loss of name/reputation are not matters to be sneered at and some might value solvency and reputation above a three figure cash sum!

Edited May 10, 2018 by JoeHart2

[Andy Y]

There is another element which merits consideration and that is on what grounds a customer may, or may not, continue to pay pledged amounts. As an example, if you pay for a hotel or holiday you may forego your deposit or total payment if you do not proceed with the booking depending on their conditions and the point in time which it takes place. Therefore it may be reasonable for a crowdfunder to state that a customer loses their deposit or payments if they withdraw.

 

This is distinctly different from the Consumer Rights for refunds for non-delivery, unacceptable quality or right-to-return under distance selling clauses. Maybe a crowdfunder would have to continue to pay until completion of the contract before they could exercise any right to return?

[jjb1970]

There is another element which merits consideration and that is on what grounds a customer may, or may not, continue to pay pledged amounts. As an example, if you pay for a hotel or holiday you may forego your deposit or total payment if you do not proceed with the booking depending on their conditions and the point in time which it takes place. Therefore it may be reasonable for a crowdfunder to state that a customer loses their deposit or payments if they withdraw.

 

This is distinctly different from the Consumer Rights for refunds for non-delivery, unacceptable quality or right-to-return under distance selling clauses. Maybe a crowdfunder would have to continue to pay until completion of the contract before they could exercise any right to return?

I agree. There are still questions. Unfortunately I fear some of them won't really be answered unless one of these schemes ever goes horribly wrong, at which point I suspect it will be every man (or woman) for himself.

[Guest JoeHart2]

There is another element which merits consideration and that is on what grounds a customer may, or may not, continue to pay pledged amounts. As an example, if you pay for a hotel or holiday you may forego your deposit or total payment if you do not proceed with the booking depending on their conditions and the point in time which it takes place. Therefore it may be reasonable for a crowdfunder to state that a customer loses their deposit or payments if they withdraw.

 

This is distinctly different from the Consumer Rights for refunds for non-delivery, unacceptable quality or right-to-return under distance selling clauses. Maybe a crowdfunder would have to continue to pay until completion of the contract before they could exercise any right to return?

 

The same question(s) might arise as the crowdfunded item passes various stages of design and/or construction (as in the case of a model train).

Once the supplier has disbursed crowdfunded capital on 3D scanning (for example), would a crowdfunder really expect a full refund of all monies paid if he was to withdraw completely from the scheme?  I certainly would not!  It would seem likely that only a few serious life incidents might compel a crowdfunder to withdraw from the scheme; loss of life or loss of employment being but two.

 

Conversely, each successive stage of design and production passed by the crowdfunded item would increase the chance of success of the project whilst promoting confidence in the supplier, as well as reducing the risk of failure and the loss of monies paid. 

[Guest JoeHart2]

I agree. There are still questions. Unfortunately I fear some of them won't really be answered unless one of these schemes ever goes horribly wrong, at which point I suspect it will be every man (or woman) for himself.

 

Relevant case law may already exist...

[jjb1970]

Relevant case law may already exist...

 

If you are aware of such cases I think it'd be very useful to post links or a summary, as it is an emerging area of interest for many modellers.

[Guest JoeHart2]

If you are aware of such cases I think it'd be very useful to post links or a summary, as it is an emerging area of interest for many modellers.

 

If I was aware of any pertinent case law I would already have done so...

[Guest JoeHart2]

Having had a few minutes to spare since my last post, I did stumble across this article...

 

https://www.theregister.co.uk/2018/01/31/crowdfunding_court_case_refund_retro_computers_zx_vega_plus/