Crowdfunding, or minimising risk?

[The Stationmaster]

16 minutes ago, woodenhead said:

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.

And it was one of the things which prompted me to start this thread.  But as ever it comes back to trust and in many cases wider information as well - winess some of the comments above in this recent post -

 

51 minutes ago, adb968008 said:

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.

 

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

I apologise for heavily snipping the post but as it is just above I'm sure that won't inconvenience anybody.  The points made are useful but then, as so often, questions emerge from questions.  For example if you were told a particular factory in China was involved to what extent would that influence your decision?  Would you, say, buy a model because it was being made in the same factory as Kernow's Bulleid diesels or would you have greater confidence (=trust) if you knew the model would be made by Rapido?   Think that one through for a moment - for example Kernow's heavily delayed D6XX (the reasons for that delay have largely been explained) comes from a factory which has been heartily 'rubbished' by another party in the UK marketplace - how can we judge who is right except perhaps by the example of a model we have recently bought?

 

Having had a bit of involvement in developing a model which was made in China it was very plain to me that an awful lot depended on the UK original commissioner putting in a lot of work to get details correct but equally it depended just as much on the designer at the factory giving a similar level of attention to the project, and the factory being paid in a timely manner for its work.  In other words a need for trust there as well as expertise and application.   But again a question of where does that take us - do we similarly apply the same question of 'which factory?'  Hornby will be using for a particular project - assuming we are otherwise satisfied with Hornby's own in-house development skills?  Equally what would your views be if you were (honestly) told that in some respects - say choice of motor - the model will be built down to a price?  Do you even want to know that?

 

I don't disagree at all with the proposition that trust must run through the whole relationship between buyer (particularly when pre-paying and especially so if crowdfunding), commissioner/UK 'manufacturer' and the factory which will do most of the work and actually make the thing. but you might need more information on past performance to help with that decision.  But I would say at this point that inec vitably timescales have to be very 'flexible' for a variety of reasons. 

 

However when it comes to crowdfunding - which I am extremely wary of in any event notwithstanding Revolution's high reputation - I wouldn't put in a penny let alone hundreds of £s without seeing a detailed breakdown of where that money will be going and a fully costed business plan for the entire development and production process.  With that information, in a form which I could trust, I could make an informed decision about where my money would be going and what it would achieve, without the information you can forget it.

[truffy]

Thanks, @woodenhead!

 

On a slightly lighter note, I was given a crowdfarming share in an olive farm for my birthday. And 6 bottles of lovely olive oil await my return to Truffy Towers!

[rue_d_etropal]

2 hours ago, truffy said:

Thanks, @woodenhead!

 

On a slightly lighter note, I was given a crowdfarming share in an olive farm for my birthday. And 6 bottles of lovely olive oil await my return to Truffy Towers!

Possibly one of the better uses for crowdfunding.

My understanding is that crowdfunding started after the 2008 bank crisis as a lower risk method to fund new projects. Similar in some ways to how intial funding for cooperatives is done(I was involved in one at that time). Trust is bilt into the system, with moneu=y held in secure accountsso that it can be repaid if the crowdfunding is not successful.

Once the initial target has been reached, the money is released and if the is a next step to the project, all protection for the inital crowdfunding is lost. Thus for a project to create a new product such as a model, then initial crowdfunding might only cover design and some pre manufacturing, but would not cover atual manufacturing, so if that has not bee well planned it still might fail.

Overall crowdfunding is safer than more traditional funding schemes, which come with many risks, but for more complex multi stage projects is not risk free.

Maybe the best way is to set the barrier much higher tocover all costs including initial manufacture, but once the target amount has been reached, then it would still be necessary to have some insurance built in in case there are problems. All that needs to be built into the funding calculation at the sart, so might be less likely to reach its target and therefore fail, but l least everyone should get their money back.

[Hitchin Junction]

My concern with crowdfunding has always been the incredible high risk (and cost) funding someone who has no prior accurate design and model or kit building track record nor any relevant  industrial qualifications and experience of specifying and managing the complex and expensive stages of a design through manufacturing process of a  highly detail injection moulded product. (and it's mechanism). (sorry for the long sentence- but such projects are a long and many stage process too).

 

Add to that the cost of tooling has to be divided among the limited number of models actually paid to be made and you end up with a likely much higher model cost that one produced through an established model manufacturer/supplier. And if the crowd funding also is to also establish the crowd funders as a business, then you have to add their take to the project costs as well.

 

There have been a huge number of short run brass and/or white metal kits of the more obscure UK prototypes over the past 70 years. None of which were produced by crowdfunding AFAIK. But most produced by modelling entrepreneurs who knew their prototype and were keen, skilled (and thrifty) enough to produce their own drawings and the subsequently far less expensive tooling.

 

If there is some unavailable model I'm desperate for, I'll draw it myself, do a combination of etching some parts and buy a suitable 3D printer for making what used to be castings,  and make it for myself for a fraction of the cost. That will soon be something any 14 year old will be able do and afford.

 

Tim

 

 

 

 

[jjb1970]

I don't think that the DJM collapse will be an issue for Revolution as they have established a good record and are running their business in a competent and professional manner. 

I am very much with those who think that the reason a company will thrive or dive are not down to whether or not they use crowdfunding but whether or not the business is competently managed and led. 

Ultimately I think buyers have to take responsibility too. It is very easy to blame those in charge of a wreck but I have to question why people would pay into crowdfunded schemes in cases where it is pretty obvious that those running things are clearly not competent to be attempting to run a company. If there are multiple red flags including for example :

 

-failure to manage company accounts;

-asking customers whether they know how the company website works and if they might perchance fix it;

-Issues with payment platforms freezing accounts and requiring refunds be issued;

-Poor communication and an unwillingness to address difficult questions;

-Broken relationships with the manufacturers that they had been using;

-Announcing more projects when there is already a backlog of projects going nowhere;

-A list of former clients that have terminated relationships and walked away;

-A propensity to find a scapegoat to blame whenever something goes wrong (eg. Inept accountants, dishonest Web designers, nefarious Chinese factories, evil payment platforms);

-Poor, none existent or legally non-valid terms and conditions 

 

And other red flags, if people still want to take a leap of faith then that is their choice but really in such cases I would view it as throwing money away and if the product appears then it is a bonus. As consumers we also have a responsibility to apply due diligence and for our own choices. 

 

Another thing I would say is that a business relationship is a business relationship and the fact that the product is a model train people might want or that the company proprietor likes to make matey posts on Internet forums doesn't alter the fact that it is a company wanting your money and it is strictly a business relationship. And remember a lesson that you probably learned long long ago- if you touch something that burns then think about whether it's sensible to touch it again. 

 

[Ravenser]

18 hours ago, rue_d_etropal said:

Possibly one of the better uses for crowdfunding.

My understanding is that crowdfunding started after the 2008 bank crisis as a lower risk method to fund new projects. Similar in some ways to how intial funding for cooperatives is done(I was involved in one at that time). Trust is bilt into the system, with moneu=y held in secure accountsso that it can be repaid if the crowdfunding is not successful.

Once the initial target has been reached, the money is released and if the is a next step to the project, all protection for the inital crowdfunding is lost. Thus for a project to create a new product such as a model, then initial crowdfunding might only cover design and some pre manufacturing, but would not cover atual manufacturing, so if that has not bee well planned it still might fail.

Overall crowdfunding is safer than more traditional funding schemes, which come with many risks, but for more complex multi stage projects is not risk free.

Maybe the best way is to set the barrier much higher tocover all costs including initial manufacture, but once the target amount has been reached, then it would still be necessary to have some insurance built in in case there are problems. All that needs to be built into the funding calculation at the sart, so might be less likely to reach its target and therefore fail, but l least everyone should get their money back.

 

I fear there is a danger of us seeing crowdfunding as what we would wish it to be, rather than as it is .. "It works in theory, don't worry about the practice"

 

In model railway crowdfunding we have seen payments requested into personal Paypal accounts or personal bank accounts - not even company bank accounts

 

It is not clear that crowdfunding monies are "held in secure" - ie 3rd party - bank accounts. Those for the DJM 74 were held by Kernow - and eventually Kernow stepped in , as there seemed no prospect of the project reaching target , and enforced repayment. I am not familiar with  RevolutioN's procedures.

 

But the reality is that in model railway projects monies do not seem to be withheld until the target is reached. I can't see anything to stop someone starting development work and spending the funds before the target is reached....

Edited June 6, 2019 by Ravenser

[chris p bacon]

3 minutes ago, Ravenser said:

I can't see anything to stop someone starting development work and spending the funds before the target is reached....

 

I think that that is the case at present. Insufficient expressions of interest have been turned into firm orders and progress should have been halted until such time as there was enough.

[The Stationmaster]

1 hour ago, chris p bacon said:

 

I think that that is the case at present. Insufficient expressions of interest have been turned into firm orders and progress should have been halted until such time as there was enough.

I think we may well find that is a very pertinent comment in one particular case.  What also always needs to be made clear is how the money will be spent, particularly if it is a 'manufacturer' who is using crowdfunding to, in effect, finance their business (and income?) rather then simply cover the cost of the actual processes involved plus a recognisable (and clearly declared) amount/percentage for administration.

 

And again we come back to trust and where we are likely to place our trust and for that we must - in my view - always consider the track record of the organisation we are giving our money too.  JJB has highlighted a particular list which for all we know might or might not be complete but in reality almost any one of those items should be raising a storm warning while almost any two or three of them together should really cause folk to think very hard indeed about what they might be buying into.  Caveat emptor applies as much, if not more, to crowdfunding as it does to any other purchase but especially so when an established concern seems to have no other way of financing its product development.

[Roy Langridge]

Here are my thoughts, some of which match those of others..

 

My fear, expressed on another thread is that the failures of crowdfunding ventures that we have seen will cause people to be reluctant to take that path in the future, however well managed / reputable the crowdfunding supplier may be.  I would be very surprised if RevolutioN etc. do not lose a few orders that they would have otherwise got - and through no fault of their own. Given that for many of these ventures the number of orders required is relatively small, those orders may be the difference between a model going ahead, or not.

 

I am not overly keen on this concept of expression of interest, although, if I am honest, I don't know what the alternative is. There are many people who see an expression of interest as being completely different to a commitment (and I can understand why as they want to see more). The problem being that those expressions don't turn into firm orders and that can leave a problem later on.

 

Even when the minimum number of firm orders has been reached, we have seen problems. Leaving aside the reasons why and the lack of management, after DJ had to refund the initial deposits many people walked away, leaving those who remained somewhat "up the creek".

 

Having lost out in two crowdfunding ventures now to the tune of over £400 (so that is 100% failure rate), I for one am unsure whether I will dip my toe in those waters again. Had the newly announced RevolutioN OO offering been in my era, I would have had a very hard time pressing the order button, especially having had to justify the above to SWMBO.

 

Roy

 

Edited June 6, 2019 by Roy Langridge
typo

[Ravenser]

I can see the attraction of crowd-funding - as it has been implemented by some - to the promotor.

 

You could use your own money. Or you could go to the bank for a loan - and they will demand security, and they will insist on a business plan, and detailed costings and they will want the money back regardless of whether the project works, and they will demand detailed financial statements as you go, and they will charge you interest for the privilege..

 

Or you can crowd-fund. You get the money for nil cost, interest-free, for as long as you need/want. And if the project fails - you don't have to pay the money back. Any losses are for the crowd-funders : none of them falls on you. Indeed you can take a "management fee" out of the project - and if the project fails and nothing is delivered you keep that fee. You are effectively playing with other people's money at zero financial risk to yourself.

 

Furthermore you don't have to provide any costings, financial plan or other supporting information to anyone. You just say "The cost will be £X in 4 instalments of £Y". You don't have to provide your "investors" with any kind of information about the finances of the project, ever. Delivery can be - at any time before the Sun dies. There is no timetable. No deadline for anything. You can keep soliciting new "stage-one" crowdfunding for as long as you like - 3, 4, 5 years...You don't even have to give any update information about the project at all.. You can refuse to allow non-crowdfunders access to information while continuing to solicit new "stage-one" crowdfunding. You can denounce anyone who questions or criticises the project as a troll

 

The crowd-funders have in practice zero rights while bearing all the risks

 

We have - apart from the current high-profile instance - two examples of crowd-funding , involving  Gauge O LMS twins, and someone in Canada , where I'm not clear if there was even an incorporated company, and in one case the party was inaccessible and overseas. 

 

I'm not clear that in either of these cases monies would have been paid into a "safe account" held by someone else, and only released to the promoter once the funding target was actually met, and phase 1 funding raised. Would there have been any time limit, after which the plug would have been pulled, and the project declared aborted??

 

It seems to me that the practice of crowd-funding by instalments is very high-risk , since people may drop out at the second or third round , leading to the failure of the project. Similarly letting the funding drag on over several years risks costs accelerating away from the promotor.

 

All of these things need to be considered - and it seems in model railway crowd-funding they are routinely being ignored.....

 

 

[Steamport Southport]

2 hours ago, chris p bacon said:

 

I think that that is the case at present. Insufficient expressions of interest have been turned into firm orders and progress should have been halted until such time as there was enough.

 

I blame wishlisting myself. Every thread has calls of "I want this", "I want that",  "I would buy ten!".

 

Just look at all the comments in the KR Models thread of people asking for the W1, original Hush Hush, streamlined P2s, WR gas turbines and even Fell. In every gauge known to man....

 

 

 

Jason

[Revolution Ben]

7 hours ago, Roy Langridge said:

I would be very surprised if RevolutioN etc. do not lose a few orders that they would have otherwise got - and through no fault of their own.

 

Roy

 

 

Hello Roy,

 

As I said when you made this point yesterday, we've seen no evidence of any appreciable impact so far.  Certainly following the bizarre DJM IP statement on May 1st we received numerous requests to reopen the 92 order book, did so, and saw a surge of orders.

 

We have also received several emails over the last 48 hours from people asking whether they can order 92s and if we can help we will.

 

In general terms, our orders do not come in at an even rate and at any given time what is available to order can be limited.  We tend to find surges when we open an order book, when we send out a newsletter, and when there's a deadline.  So gauging any consequence to us may not be simple.

 

All the feedback we are getting is that people are perfectly able to distinguish between suppliers so I would be fairly surprised, and a little disappointed if I am honest, were there to be any appreciable impact on Revolution.

 

cheers

 

Ben A.

 

 

Edited June 6, 2019 by Ben A
Correcting typo

[woodenhead]

I too would be surprised if RevolutioN lost any orders as a result of what is happening currently at DJM - different operating model and a list of successfully delivered projects under this model should give confidence to backers.

 

I can think of one other company with a crowdfunding offer that might make some people rethink their plans but equally it may not have any impact on it because if people really want a model they will take the risk just as they did with DJM despite the red flags..

Edited June 6, 2019 by woodenhead
too many uses of the word model

[Vistisen]

3 hours ago, chris p bacon said:

 

I think that that is the case at present. Insufficient expressions of interest have been turned into firm orders and progress should have been halted until such time as there was enough.

It certainly can't have helped that a lot of payments were made via PayPal who then blocked the money, Some/most/all (?) of it got returned, but I suspect that not all of it then was repaid  via other means. There are 'professional' crowd funding sites that might cost more but at least they look after all the admin regarding payments that DJM obviously did not do . 

The other thing about them is that there must be a clear cut target for binding commitments. If it is not reached then the whole project stops, Which mean that the sort of 'we'll start and hope that more join in' approach is not allowed. It might mean fewer projects start, but i would expect a higher proportion of them get to the finish line.

[The Stationmaster]

2 hours ago, Roy Langridge said:

Here are my thoughts, some of which match those of others..

 

My fear, expressed on another thread is that the failures of crowdfunding ventures that we have seen will cause people to be reluctant to take that path in the future, however well managed / reputable the crowdfunding supplier may be.  I would be very surprised if RevolutioN etc. do not lose a few orders that they would have otherwise got - and through no fault of their own. Given that for many of these ventures the number of orders required is relatively small, those orders may be the difference between a model going ahead, or not.

 

Roy

 

(snipped back a bit to the most important point)

 

This I think is where trust comes in and looking at the red flags (or in some cases counting them)  becomes an important part of the personal decision process.  While I realise the 'eyes bigger than your wallet' (or count of red flags) syndrome will come into play for some people the crux of the matter is judging past performance and delivery, looking at how an organisation manages the funding and explains how it is spent at which stages, and getting at least an idea of their plan for progressing the project.   A look too at those involved is also worthwhile and I think it's fair to see that fairly well known BBC tv journalist is hardly likely to get involved in something in any way dodgy or underhand  (apologies for being personal Ben A).

 

Somebody appearing out of the woodwork with lots of glossy ideas and not much else is another thing entirely - and one reason why I started this thread.  'Manufacturers' having to seemingly run their established business by means of crowdfunding is another thing which sounds alarm bells for me as i immediately ask why should I take all the risks of their business away from them, and how much are they charging me for doing so?    Crowdfunding to get something underway as a new start up is another area where you need to suss out what your money will do for you before leaping in and it is in my view possibly chancy - I'd sooner give that person a secured loan thanfan unsecured crowdfunding 'loan'/'deposit', which could turn out to have been a gift if things go wrong.

 

The warning signs for DJM have been there, and gradually growing in number, for some years.  There have as far as I'm aware never been any such warning signs in respect of Revolution so I would regard them as a good crowdfunding organisation - and what's more they aren't doing it to pay their mortgages or put the Sunday joint on the table.  I think with a 'manufacturer', especially one short of capital, there might perhaps always be a temptation to shuffle money between projects or even use it in other ways (for example DJM warns that it could be used for 'advertising' - what on earth does that mean; couldn't the business fund its own advertising and why should a project need to be advertised if it has sufficient subscribers?).

 

So overall I doubt anyone who cares to think about, or make a few enquiries, is likely to regard Revolution as a bad risk and they won't be put off from joining their projects.

[Roy Langridge]

1 hour ago, Ben A said:

 

Hello Roy,

 

As I said when you made this point yesterday, we've seen no evidence of any appreciable impact so far.  Certainly following the bizarre DJM IP statement on May 1st we received numerous requests to reopen the 92 order book, did so, and saw a surge of orders.

 

We have also received several emails over the last 48 hours from people asking whether they can order 92s and if we can help we will.

 

In general terms, our orders do not come in at an even rate and at any given time what is available to order can be limited.  We tend to find surges when we open an order book, when we send out a newsletter, and when there's a deadline.  So gauging any consequence to us may not be simple.

 

All the feedback we are getting is that people are perfectly able to distinguish between suppliers so I would be fairly supplied and a little disappointed if I am honest were there to be any appreciable impact on Revolution.

 

cheers

 

Ben A.

 

 

 

I am glad that you see no impact at the moment, you guys have worked hard and deserve the plaudits that you get. I honestly hope that it stays that way. Perhaps I was wrong to use the RevolutioN name, but I was trying to contrast the mess than DJ became with a crowdfunding supplier at the other end of the organisation/management spectrum, attempting to demonstrate how the recent episodes may actually damage the hobby more widely than just being limited to those companies.

 

I jumped in to crowdfunding with my eyes open and knowing the risks, but also doing my own assessment that the risks were fairly small. As you will do doubt have seen on other threads, some people have taken the decision that the crowdfunding route is not for them, however desirable the model, some have opted for the crowdfunding route but with great reluctance.

 

So, now I have had my fingers burnt twice, any future model that is available through crowdfunding will get equally assessed, but the risk bar has moved, and I will wish to convince myself that the risk is even smaller than it was for my two previous attempts. For a 14-car APT I was basically looking at £1K, and I can't spend that amount without domestic approval, at the time I was thankful that my wife was supportive (now I wish she hadn't been). That too will be a factor in my assessments. 

 

I believe from the various comments that have been made on various threads, that I am not alone in reappraising the risks.

 

All that said, as I said above, I consider you at the other end of the scale and, whilst I am not at the point of wanting any of your models yet, should you announce something of interest to me*, I am confident that you would pass my personal risk assessment. 

Roy

 

* say a Class 321 or APT in 00

 

 

 

 

 

Edited June 6, 2019 by Roy Langridge

[Colin_McLeod]

15 minutes ago, Roy Langridge said:

 

 

So, now I have had my fingers burnt twice, any future model that is available through crowdfunding will get equally assessed, but the risk bar has moved, and I will wish to convince myself that the risk is even smaller than it was for my two previous attempts. For a 14-car APT I was basically looking at £1K, and I can't spend that amount without domestic approval, at the time I was thankful that my wife was supportive (now I wish she hadn't been). That too will be a factor in my assessments. 

 

I believe from the various comments that have been made on various threads, that I am not alone in reappraising the risks.

 

 

 

 

 

Like you, I paid the first payment for a 14 car APT. While we could have done without losing £250 at least we have now saved the £750 that was still to come. 

 

With hindsight I should have walked away when I got my Paypal refund but too late now.  The silver lining is that I have purchased 3 x Hornby 5 car APT's for £369 and am looking forward to a "cut and shut" modelling project to make up a 10 car train. Combined expenditure is still much less than the original DJ Models cost; I'll do some actual modelling; and the APT will actually fit in my station with a short hidden extension beyond the buffers.

 

Apologies for going slightly OT but I thought it would do no harm to have a look on the bright side at this sad time for DJ Models.

 

 

[Roy Langridge]

33 minutes ago, The Stationmaster said:

(snipped back a bit to the most important point)

 

This I think is where trust comes in and looking at the red flags (or in some cases counting them)  becomes an important part of the personal decision process.  While I realise the 'eyes bigger than your wallet' (or count of red flags) syndrome will come into play for some people the crux of the matter is judging past performance and delivery, looking at how an organisation manages the funding and explains how it is spent at which stages, and getting at least an idea of their plan for progressing the project.   A look too at those involved is also worthwhile and I think it's fair to see that fairly well known BBC tv journalist is hardly likely to get involved in something in any way dodgy or underhand  (apologies for being personal Ben A).

 

Somebody appearing out of the woodwork with lots of glossy ideas and not much else is another thing entirely - and one reason why I started this thread.  'Manufacturers' having to seemingly run their established business by means of crowdfunding is another thing which sounds alarm bells for me as i immediately ask why should I take all the risks of their business away from them, and how much are they charging me for doing so?    Crowdfunding to get something underway as a new start up is another area where you need to suss out what your money will do for you before leaping in and it is in my view possibly chancy - I'd sooner give that person a secured loan thanfan unsecured crowdfunding 'loan'/'deposit', which could turn out to have been a gift if things go wrong.

 

The warning signs for DJM have been there, and gradually growing in number, for some years.  There have as far as I'm aware never been any such warning signs in respect of Revolution so I would regard them as a good crowdfunding organisation - and what's more they aren't doing it to pay their mortgages or put the Sunday joint on the table.  I think with a 'manufacturer', especially one short of capital, there might perhaps always be a temptation to shuffle money between projects or even use it in other ways (for example DJM warns that it could be used for 'advertising' - what on earth does that mean; couldn't the business fund its own advertising and why should a project need to be advertised if it has sufficient subscribers?).

 

So overall I doubt anyone who cares to think about, or make a few enquiries, is likely to regard Revolution as a bad risk and they won't be put off from joining their projects.

 

I'm wishing I didn't mention RevolutioN now - that will teach me!

 

I guess what I was trying to say (badly) was there is a sliding scale of risk from the high-risk (in hindsight DJ) at one end, to the low-risk (RevolutioN) at the other. Where we are happy to take the risk is a personal thing. My risk line has now moved towards the low-risk end, as I imagine many other peoples will have done.

 

Between the two ends are now a host of other crowdfunded companies. As that risk assessment moves, some companies will fall under the risk line, by no action of their doing. As a result, what may have been a viable venture may no longer be. This has the potential to become a cyclic problem as the risk line keeps moving towards the low-risk end.

Roy

[spikey]

2 hours ago, woodenhead said:

... if people really want a model they will take the risk just as they did with DJM despite the red flags..

 

That's been the biggest surprise to me in this whole sorry business.  It really has been an eye-opener.

[jjb1970]

Unfortunately it tends to be the case in all thins that regulation evolves in response to problem cases, if all companies and individuals behaved well and acted responsibly and with high competence then we wouldn't need anything like as many laws and regulations. I do wonder about regulation in the case of crowd funding and the level of corporate governance required of companies seeking such finance.

 

For example, as others have questioned, how do individuals paying into a scheme know that the funds are actually being used for the project they believe they are supporting? Quite aside from the question of whether spending should commence if the funds necessary for completion have not been raised there is a question of whether funds are ring fenced or whether people are just paying into a general pot which a business will use as it see's fit. What level of transparency should be required? For example, what is the management fee? Is it a fixed cost with risk underwritten by the company in the event of inflation and added costs becoming evident during the project, or are those paying in liable for further calls if costs rise? In such a case would people be allowed to withdraw and recover their funds on the basis that the project manager cannot deliver product for the agreed price? It is not inconceivable that money paid in by Peter might be used to pay Paul and it could almost become a form of Ponzi scheme. I think there is also a question of whether things like credit card payment protection is appropriate in the case of using a card to pay for something which is advertised on the basis of customers carrying significant risk.

 

Unfortunately the well managed and professional companies who don't really need regulating end up being swept up in reactive regulations but it was ever this.

[acko22]

Hi all,

 

I look at crowdfunding in much the same way as banking investments with high, medium and low risks.

As other have so well pointed out part of that risk assessment in in the people behind a project, what their plan is, how they will use their funds and track record if there is any!

Outside the modelling world there are plenty of success stories just as there are raging failures who have used crowdfunding and we have proof of this in the modelling world right now.

 

What I think makes crowdfunding actually really difficult in the modelling world is crowdfunding works for the more niche market of which there is a fine like between mass production on one side - niche - not viable in the slightest on the other, and depending on your chosen gauge effects how many companies can really occupy that space, don't get me wrong I think in all gauges there is room for more than one or two maybe but only if managed well, if they aren't they are soon found out but sadly generally some people will and have found out the costly way!

 

I have to say that I have found that when I compared prices for my crowdfunded models, I found that when I did some maths I was saving money compared to the scenario if one of the traditional companies did it instead. But if I want niche I know I will have to pay a premium and have to accept that there is a risk but how well that risk is managed by a crowdfunded project is a factor I we all have to balance on our own RISK Vs REWARD balance

[Ravenser]

On 06/06/2019 at 07:33, jjb1970 said:

I don't think that the DJM collapse will be an issue for Revolution as they have established a good record and are running their business in a competent and professional manner. 

I am very much with those who think that the reason a company will thrive or dive are not down to whether or not they use crowdfunding but whether or not the business is competently managed and led. 

Ultimately I think buyers have to take responsibility too. It is very easy to blame those in charge of a wreck but I have to question why people would pay into crowdfunded schemes in cases where it is pretty obvious that those running things are clearly not competent to be attempting to run a company. If there are multiple red flags including for example :

 

-failure to manage company accounts;

-asking customers whether they know how the company website works and if they might perchance fix it;

-Issues with payment platforms freezing accounts and requiring refunds be issued;

-Poor communication and an unwillingness to address difficult questions;

-Broken relationships with the manufacturers that they had been using;

-Announcing more projects when there is already a backlog of projects going nowhere;

-A list of former clients that have terminated relationships and walked away;

-A propensity to find a scapegoat to blame whenever something goes wrong (eg. Inept accountants, dishonest Web designers, nefarious Chinese factories, evil payment platforms);

-Poor, none existent or legally non-valid terms and conditions 

 

And other red flags, if people still want to take a leap of faith then that is their choice but really in such cases I would view it as throwing money away and if the product appears then it is a bonus. As consumers we also have a responsibility to apply due diligence and for our own choices. 

 

Another thing I would say is that a business relationship is a business relationship and the fact that the product is a model train people might want or that the company proprietor likes to make matey posts on Internet forums doesn't alter the fact that it is a company wanting your money and it is strictly a business relationship. And remember a lesson that you probably learned long long ago- if you touch something that burns then think about whether it's sensible to touch it again. 

 

 

The trouble is that these flags only went up in the last 12-18 months of DJM's existence . They would not have warned anyone signing on for an APT in 2017

 

The whole business model of "crowd-funding by instalments"  worries me more the more I think about it. If a project drifts in delivery then - in the current environment - costs will rise , the calculations won't work any more , and the project will inevitably fail.

 

A big concern I have is that a promoter may be tempted to start spending on design work when they are still short of the numbers funding stage 1 . If you have  850 crowdfunders paid up and need 1000 it must be tempting to start work on the CAD in the hope that posting it will shake the remaining 150 crowdfunders needed out of the trees. But if it only shakes out 75 - what then? You can't cancel the project and return the money - because you've spent it.

 

Reports that DJM was still touting for people to sign up as first stage APT crowd-funders this April hint that this might have been a possible scenario 

 

I would therefore suggest that we need to see:

 

- A clear, reasonable time-frame for people to sign up and pay first stage crowdfunding . (Say no more than 6 months) . If the project is not fully funded at that point, the plug must be pulled and funds returned (possibly less a small deduction for bank charges)

- A public statement of how many crowd-funders are required for the project to proceed. If the promoter is able to give indications of how many subscriptions have so far been received that might help

- First instalment crowd-funding to be paid to a recognised reputable 3rd party and only released to the promoter when the funding target is reached. (Kernow performed that role for DJM on the 74 project). In principle that 3rd party should be UK-based

- A clear statement at the deadline whether the project is proceeding (ie fully funded) or is cancelled 

- Reasonably short - and fixed - intervals before any further instalments . No open-ended drift 

- Arguably no more than 3 instalments - less if possible

 

Requests to pay to personal bank accounts or Paypal accounts or parties outside the UK (not counting Kickstarter) should be a big red flag.

Projects that are allowed to drift on for months or years should be a red flag.

The situation where DJM was promising an "imminent" second instalment demand on the 92 for at least 9 months  without actually sending out invoices should not be permitted. It is hardly surprising if crowd-funders drift away under such circumstances - and costs are probably rising all the time

 

This would at least provide a set of criteria we can use when A N Other pops up announcing he is doing the Fell in 7mm as a crowd-funded project  - sign up here , and his profile says he lives in Malta...

 

- 

[chris p bacon]

37 minutes ago, Ravenser said:

This would at least provide a set of criteria we can use when A N Other pops up announcing he is doing the Fell in 7mm as a crowd-funded project  - sign up here , and his profile says he lives in Malta...

 

We're already there but substitute the North American continent for a Mediteranean island and people still blindly hand over monies with very little to show.

[Ravenser]

5 hours ago, chris p bacon said:

 

We're already there but substitute the North American continent for a Mediteranean island and people still blindly hand over monies with very little to show.

 

 

Hmmm.

 

One issue which picking over the rubble of the DJM crowd-funding projects raises is "Are the costings for this project credible?". Apparently he was proposing options including a 14 car APT in OO, and for this you would stump up £1000 as a crowd-funder.  How many crowd-funders were required for the project is unclear, though the expressions of interest for the DJM  N gauge APT required 400 punters.

 

Now just how realistic is it to tool up a 14 car APT for £400,000 - supposing the number was 400 crowd-funders?  Perhaps it might have been 600 crowd-funders and £600,000. Is that a realistic figure to do the job? Apparently we are not supposed to ask questions like that - at least the promoters don't think we have any right to know

 

Supposing that the APT project failed in itself - and the lack of CAD and failure to move to tooling in 18 months suggests it might have - and was not brought down by a failure elsewhere in the organisation

 

- The project might have failed because not enough people had paid up to  fund it- yet the promoter started development work, used up the available funds and then was stranded , neither able to tool nor able to cancel and refund

 

- The project might have seen costs rise over the last 18 months, and been left stranded without sufficient funds to complete 

 

but also , critically:

 

- The project might have failed because the costings were hopelessly wrong , and the funds were never going to be enough to do the job.

 

Given Dave Jones' background you might have hoped he would get the costs more or less right

 

But A N Other in Malta? Someone we don't know at all.  How do we know that his costing for the Fell makes any sense?  I think on Kickstarter promoters say how much they are raising, and therefore how many crowd-funders they need  . Does Kickstarter advise how many have signed up so far?

 

In model railway crowd-funding , it seems the amount to be raised and the number of people to fund are treated as commercially confidential info , and not disclosed. The so-called "investor" is being asked to invest with zero information as to whether this is a viable proposition in the first place.

 

How can anyone judge the viability of a project with zero information and no costing at all?? In no other form of investment would this be tolerated for an instant.

 

Surely we need more costing disclosure and more transparency from crowd-funding promoters before people are asked to hand over 3-figure sums? Otherwise we are going to have a long trail  of disasters,

 

 

Edited June 7, 2019 by Ravenser

[rue_d_etropal]

Quote

The project might have failed because not enough people had paid up to  fund it- yet the promoter started development work

A fundamental principle of crowdfunding is that the money 'pledged' is secured so can not be spent until the target is reached.

I an concerned that business confidentiality is being used as a excuse not to state how much is required etc. Again having the information up front is an essenial part of crowdfunding. I think some are misusing the original concept of crowdfunding, which was to be open not secretive.

I wonder if proper crowdfunding is not the right way to fund new models. The one crowdfunding project I was involved in, was more typical It was first stage in a new museum project. There was no certainty that the project would continue even if first stage was passed, but for everyone who pledged certain amounts of money, there was a reward, in this case books or prints, mostly I think donated, and the signed book I got was well worth the money Ipledged. That was more typical of the type of project using crowdfunding.