RMweb Gold The Stationmaster Posted May 19, 2018 Author RMweb Gold Share Posted May 19, 2018 The main thrust of my post was to separate the issue of a project failing, for which the position regarding a credit card refund is clear, and over-running, leading to a participant wanting to withdraw from his side of the implied/informal contract. I feel the terms customer and vendor may be problematic in relation to models produced in this way. The person organising the scheme is neither a retailer or a manufacturer in the accepted sense of either word, but only facilitates the production and eventual distribution of the item (even though he might well have had a hand in its design). The nearest existing term I can think of would be "managing agent". TBH, this is little different to what Hornby do, but the crucial difference is that they don't ask for deposits. Such a transaction differs from, say, paying a deposit paid on an in-demand new car in order to secure a place on a waiting list. The nature and quality of the car is known in advance. Real product exists, and you therefore know exactly what you will be getting once yours has been made. Crowdfunding blurs the line between retailers, manufacturers, and some bloke who is neither, but equally, does one become a "customer" (and "order") or a "partner" (and "invest in") a crowd-funded model that is likely, at best, to consist of partially developed CAD files at ones point of entry? The product itself will remain hypothetical for most of its gestation period. The length of that can vary because of factors outside the control of the "vendor" or "managing agent" who, if he has any sense, will promise a timescale with plenty of "contingency" built in. It would be unreasonable to expect card issuers to make refunds to individuals who bail ahead of deadlines they knew about from the outset, but I can envisage some "customers" not being happy if "balance on delivery" suddenly became due six months sooner than expected......... . John An interesting question in there John and one that goes right back to my OP and the question I posed at the foot of that post - But one question does I think always need to be asked - if somebody is seeking crowdfunding for a project why do they possibly lack a sufficient level of conviction in their own idea to ask us to pay for it instead of being prepared to invest in it themselves? That was in one respect answered indirectly by the post from JJB which followed yours quoting a crowd funding arrangement which was specifically founded by end customers to achieve the manufacture of models which would otherwise be considered 'commercially unattractive' by an established manufacturer. And in which the end customers organise the funding (in many ways seen as 'testing the market') and develop a basic specification which they take to an established manufacturer. Another successful method which has been quoted in this thread concerned somebody who sought crowdfunding for his first model which led to him then establishing a successful business. Both have shown the value of crowd funding and how it can work if well managed. But now I return to my original question and again ask why an established manufacturer should seek crowd funding instead of financing their own business. I can see the sense of it for a start up (with the right safeguards) and I can see the sense for a group of people who are basically end customers after something they wouldn't otherwise get for their layouts. But beyond that I begin to wonder as surely an established business could just go out and 'test the market' by seeking pre-orders, possibly with a small percentage deposit?, along the lines of, say, the Rapido business model. Insufficient orders would equal too small a market to justify their investment and sufficient orders would indicate enough demand to make the project, and investment, viable. In recent years a number of retailers have followed the Kernow lead by doing exactly that or by going even further, as Kernow themselves have done, by simply going ahead and commissioning models for retail sale. No doubt, being retailers, they are close to hearing the sort of things their customers will buy so perhaps their testing of the market has been done before announcement, but even so they have shown their faith in their commercial judgement by investing their own or their lenders' funds. Perhaps a retailer who is less sure of the market might go in for crowd funding, and maybe it could be used to move into a new or different market. But should it be used by a business as a substitute for the more usual methods of business finance? Link to post Share on other sites More sharing options...
dpgibbons Posted May 19, 2018 Share Posted May 19, 2018 I feel the terms customer and vendor may be problematic in relation to models produced in this way. The person organising the scheme is neither a retailer or a manufacturer in the accepted sense of either word, but only facilitates the production and eventual distribution of the item (even though he might well have had a hand in its design). The nearest existing term I can think of would be "managing agent". Legally there is no problem here at all. If I buy a charter flight from a travel agent, my consumer rights and credit card protection are unaffected by the fact that the agent commissioned and sold the flight but doesn't operate it, nor by the fact that it hasn't yet taken off. Link to post Share on other sites More sharing options...
RMweb Premium njee20 Posted May 20, 2018 RMweb Premium Share Posted May 20, 2018 But now I return to my original question and again ask why an established manufacturer should seek crowd funding instead of financing their own business. I can see the sense of it for a start up (with the right safeguards) and I can see the sense for a group of people who are basically end customers after something they wouldn't otherwise get for their layouts. But beyond that I begin to wonder as surely an established business could just go out and 'test the market' by seeking pre-orders, possibly with a small percentage deposit?, along the lines of, say, the Rapido business model. Insufficient orders would equal too small a market to justify their investment and sufficient orders would indicate enough demand to make the project, and investment, viable. You appear assume that ‘established’ (by which you mean ‘have delivered one product’) businesses have unfettered access to funding...? Link to post Share on other sites More sharing options...
RMweb Premium jjb1970 Posted May 20, 2018 RMweb Premium Share Posted May 20, 2018 I think the station master has gone to the heart of the matter in a direct way and asked the question that we have been dancing around to some extent. I think it also begs the consequential question of what is a manufacturer? I think there is definitely a place for crowdfunding if like minded enthusiasts come together to fund something enough of them want but which manufacturers have no interest in providing. That sort of bottom up approach has a place. I can also see a place for a company like Revolution in which a couple of individuals take the bottom up approach up a level to drive products that they clearly want. The question is why a model suppliers in the more conventional sense need to rely on crowdfunding? If it is a means of priming the pump and getting established then I can see a role for crowdfunding. To be a viable business it is necessary to either have sufficient capital or access to credit. If you have sufficient capital or credit then why do you need to rely on crowdfunding? Crowdfunding can fill that void to some degree but it begs the question of why a company needs to fill such a void? A I have already noted crowdfunding is an alternative source of funding but it is not a substitute for the fundamentals of business if the intention is to operate as a conventional supplier. Link to post Share on other sites More sharing options...
Andy Y Posted May 20, 2018 Share Posted May 20, 2018 I think the station master has gone to the heart of the matter in a direct way and asked the question that we have been dancing around to some extent. I think it also begs the consequential question of what is a manufacturer? This is something I comment upon in the Opinion piece in this month's BRM. As Mike has analysed there are instances where crowdfunding can be a positive force but I similarly question the scenario where a 'manufacturer' is seeking crowdfunding when the business should be relatively established by now. Revolution are producing items with personal motivation, they're fully entitled to derive some personal financial benefit but they are not doing it for that. Where I start to feel very uncomfortable is someone drawing a salary from a business where the predominant current cashflow is crowdfunding contributions; that crosses a line, in my view, from honourable motivation in relation to the product to lending someone their salary (certainly rather than them taking any residual financial benefit at the end of the project). 1 Link to post Share on other sites More sharing options...
Junctionmad Posted May 20, 2018 Share Posted May 20, 2018 But now I return to my original question and again ask why an established manufacturer should seek crowd funding instead of financing their own business. I can see the sense of it for a start up (with the right safeguards) and I can see the sense for a group of people who are basically end customers after something they wouldn't otherwise get for their layouts. But beyond that I begin to wonder as surely an established business could just go out and 'test the market' by seeking pre-orders, possibly with a small percentage deposit?, along the lines of, say, the Rapido business model. Insufficient orders would equal too small a market to justify their investment and sufficient orders would indicate enough demand to make the project, and investment, viable. I dont really see the distinction between preorders and crowdfunding , most crowdfunding is in fact a form of pre-order deposit , its not business funding Link to post Share on other sites More sharing options...
RMweb Gold The Stationmaster Posted May 20, 2018 Author RMweb Gold Share Posted May 20, 2018 I dont really see the distinction between preorders and crowdfunding , most crowdfunding is in fact a form of pre-order deposit , its not business funding Read Andy's post immediately above yours. What he suggests there in his final sentence would sound to me very much a form of business funding. 1 Link to post Share on other sites More sharing options...
LBRJ Posted May 21, 2018 Share Posted May 21, 2018 It seems to me that (model railway) crowdfunding is in danger of drifting from being either a "late call" option to make something happen "Hey guys! I want one of these, who else wants to come in with me and do it!?" or a reputable manufacturer clearly saying "we ran the numbers, it wont work commercially for us right now; but, if you guys are willing to come along and join in it can happen...." Both of which are perfectly acceptable (well, to me they are) methods of doing business. Now it appears we are edging towards "Hey! I wanna do this Plan X - Give me some of your money and lets go from there" That's not really the way things should be done 3 Link to post Share on other sites More sharing options...
Junctionmad Posted May 21, 2018 Share Posted May 21, 2018 (edited) "Hey! I wanna do this Plan X - Give me some of your money and lets go from there" The promoters have to eat , quite frankly I commented that I see little distinction between crowd funding , and pre-ordering , crowdfunding is typically in the form of pre-order deposit but in practice it can become business funding , the fact is what the enterprise is doing is searching for financing. It’s not business finance in the strict sense but it’s effect is the same If you look at Kickstarter , you’ll see most are exactly that “ I have a plan , give me some money.....” At the end of the day , it’s all voluntary , and the partiipants are adults and no animals are hurt , I see no ethical dilemmas here, anyone contributing to a crowdfunding project needs to accept that the risk is they get nothing and mightn’t even get their money back, after that “ it’s your money “ as they say. There is nothing to debate here in reality Edited May 21, 2018 by Junctionmad Link to post Share on other sites More sharing options...
Andy Y Posted May 21, 2018 Share Posted May 21, 2018 There is nothing to debate here in reality There has been plenty for all parties to learn from in this topic including legal technicalities both for and against and, for those bothered to read it, is probably one of the most important analysis of the subject matter to have taken place. 2 Link to post Share on other sites More sharing options...
Junctionmad Posted May 21, 2018 Share Posted May 21, 2018 There has been plenty for all parties to learn from in this topic including legal technicalities both for and against and, for those bothered to read it, is probably one of the most important analysis of the subject matter to have taken place. Remember Andy , free advice is just that and free legal advice from the internet , well .... by the way , I just happen to have this bridge I’m selling ...... Link to post Share on other sites More sharing options...
Andy Y Posted May 21, 2018 Share Posted May 21, 2018 Remember Andy , free advice is just that and free legal advice from the internet , well .... by the way , I just happen to have this bridge I’m selling ...... So go on then; you obviously feel that some of the information is incorrect to make such a fatuous and patronising statement - so what is not correct? 4 Link to post Share on other sites More sharing options...
TomJ Posted May 21, 2018 Share Posted May 21, 2018 The thing I feel uncomfortable with the crowdfunding is the transfer of risk, with no reward for the investors. It’s being made clear that for some crowdfunding you are investing. But if the project is a rip roaring success and it turns out lots of people do want a 3mm Fell the company keeps the profit, and the tools to remake it again and so on. A limited edition model isn’t really a return on an investment. And of the project is an unlikely failure it is the investors who carry the risk. That’s why I feel uncomfortable about existing established manufacturers using crowdfunding. If they need investment in the business then perhaps they should look at allowing people to invest in it, and reap the rewards. You wouldn’t get far on Dragons Den if you asked the Dragons for a large sum of cash but no share in the business - just some exclusive models with a certificate. 1 Link to post Share on other sites More sharing options...
Junctionmad Posted May 21, 2018 Share Posted May 21, 2018 So go on then; you obviously feel that some of the information is incorrect to make such a fatuous and patronising statement - so what is not correct? That all the consumer legislation in the world can’t get blood out of a stone , or money from a business failure Link to post Share on other sites More sharing options...
RMweb Premium njee20 Posted May 21, 2018 RMweb Premium Share Posted May 21, 2018 Which has already been said. Link to post Share on other sites More sharing options...
Junctionmad Posted May 21, 2018 Share Posted May 21, 2018 (edited) The thing I feel uncomfortable with the crowdfunding is the transfer of risk, with no reward for the investors. It’s being made clear that for some crowdfunding you are investing. But if the project is a rip roaring success and it turns out lots of people do want a 3mm Fell the company keeps the profit, and the tools to remake it again and so on. A limited edition model isn’t really a return on an investment. And of the project is an unlikely failure it is the investors who carry the risk. That’s why I feel uncomfortable about existing established manufacturers using crowdfunding. If they need investment in the business then perhaps they should look at allowing people to invest in it, and reap the rewards. You wouldn’t get far on Dragons Den if you asked the Dragons for a large sum of cash but no share in the business - just some exclusive models with a certificate. I think you miss the whole point , crowdfunding, as were are discussing it here, is similar to crowdfinancing , ie loans from people that contribute to the loan fund , sometimes called community funding . In every case the reward is scaled to the risk , a venture capital fund, may be putting in millions and will expect shares , a crowdfunded loan , may expect a beneficial interest rate, you putting in £100 get a model . Given your risk is small, so is your reward I simply don’t see what we are discussing here. Ps dragons den in a tv programme Edited May 21, 2018 by Junctionmad Link to post Share on other sites More sharing options...
Junctionmad Posted May 21, 2018 Share Posted May 21, 2018 (edited) Having been involved in crowdfunding ( as a recipient , but I was not one of the principals/promoters ) Advantages No collateral 0% finance dilution of risk amongst 1000s of investors Lack of complex legal processes No dilution of shareholding or management inference Concrete evidence of demand Disadvantages Signicant time in interacting with many small “investors”, many of whom are not professional investors Fundraising can be limited leaving you in a quandary Significant overhead in refunds if still solvent Advantages for “investors” You help a project you’d like to support You get something tangible at the end , that couldn’t be got elsewhere Disadvantages for investor You can wait a long time You can loose all your money What more is to be said here Ps , I have direct experience through a close friend , who raised over 2 million, through private equity and two crowdfunding campaigns , despite his best efforts and two years of work and considerable money of his own , it failed and very little money remains The individual amount contributed by crowdfunded preorders was close to 900 quid Edited May 21, 2018 by Junctionmad Link to post Share on other sites More sharing options...
RMweb Gold Dunsignalling Posted May 21, 2018 RMweb Gold Share Posted May 21, 2018 (edited) Legally there is no problem here at all. If I buy a charter flight from a travel agent, my consumer rights and credit card protection are unaffected by the fact that the agent commissioned and sold the flight but doesn't operate it, nor by the fact that it hasn't yet taken off. No, but the charter operator will have contracts in place for the provision of an aircraft and crew to fulfil the contract made with you. A refund would normally only become necessary if those arrangements broke down on either side. There's no issue with credit card refunds occurring in the event of a crowd-funded scheme failing altogether but, at the beginning of a crowd funded scheme, those sort of advance arrangements are unlikely to exist. They clearly must with the way Kernow and Hatton's do things, but if anyone without the backing of an established business could do likewise, where would be the need for crowd-funding? The difficulty lies in defining the point at which it becomes reasonable for a potential buyer to reclaim a deposit unless there is a cast-iron deadline built into the offer at the outset (as there is with your Charter flight example). In the absence of a defined delivery timescale stated at the beginning, it may be reasonable for someone to decide "This is taking too long, I want to cancel my order", whereas (depending on the terms of the original offer) it may not be reasonable for him to say "This is taking too long, I want my deposit back from the credit card issuer". A parallel may be, using ones credit card to bet on a horse in the Grand National, the risk is defined, the timescale known, but you will only have a claim against the credit card issuer if the horse wins and the bookmaker goes bust, not if the nag fails to finish. John Edited May 21, 2018 by Dunsignalling Link to post Share on other sites More sharing options...
RMweb Gold chris p bacon Posted May 21, 2018 RMweb Gold Share Posted May 21, 2018 There is nothing to debate here in reality I simply don’t see what we are discussing here. What more is to be said here Reminds me of a record I scratched. Link to post Share on other sites More sharing options...
Andy Y Posted May 21, 2018 Share Posted May 21, 2018 Reminds me of a record I scratched. He's the front runner for my DotD badge but it's barely 10.00. Link to post Share on other sites More sharing options...
woodenhead Posted May 21, 2018 Share Posted May 21, 2018 He's the front runner for my DotD badge but it's barely 10.00. It's Diesels IN the Duchy DitD, why would he want a badge for that........ohhhhhhhhhhhhhhhhhh 1 Link to post Share on other sites More sharing options...
RMweb Premium jjb1970 Posted May 21, 2018 RMweb Premium Share Posted May 21, 2018 I do think a lot of this goes back to risk and reward, and what degree of interest we feel entitled to take in a business. I know we all love talking about the performance of model companies (especially Hornby……) but those companies can quite legitimately say that the internal workings of their business and how they go about producing models are none of our business unless we happen to be a shareholder. They borrow the money or use their own cash, they carry the risk and they lose if they get it wrong. They offer a product, we decide whether or not to buy, they either make or lose money out of the product. If they risk their own money (including borrowed money) and carry the risk then I don’t begrudge then making whatever profit they can out of things, just as I don’t feel any remorse about them losing money on it if the product ends up as one I wouldn’t buy. In the case of equity crowdfunding then use of the term “investor” is correct as those investing have a stake in whatever they’re investing in. Reward crowdfunding is not an investment, it is a purchase and I really don’t see how it can be presented as an investment, it is a purchase but one for which the purchaser extends funding to the supplier for product realisation rather than the supplier using their own capital or seeking a bank loan or similar. Any longer term benefits from the project stay with the supplier, such as ownership of tooling and design IPR. In the case of a bottom up approach where enthusiasts effectively commission a model that suppliers would not otherwise make because it isn’t worth their while then I don’t think anybody is questioning the utility of crowdfunding. Equally in the case of the Revolution trains model I don’t think many question the role of crowdfunding as it is a couple of passionate enthusiasts helping the bottom up enthusiast approach to happen. The scenario which is troubling people is the one where an established manufacturer relies on crowdfunding. If we become “investors” and the supplier effectively becomes a project manager, and that project manager is working for the investors. In that scenario then a higher level of transparency is necessary and the financial arrangements of the project manager become germane. We are effectively expected to replace banks as a source of finance, banks would expect a certain degree of disclosure and transparency before agreeing to offer a business development loan (not to mention detailed T&Cs). 2 Link to post Share on other sites More sharing options...
RMweb Gold chris p bacon Posted May 21, 2018 RMweb Gold Share Posted May 21, 2018 My subs copy of BRM came today and I took time to read the article penned by Andy Y, I thought it good balanced article although I'm sure some will disagree even without reading it. 1 Link to post Share on other sites More sharing options...
RMweb Gold The Stationmaster Posted May 22, 2018 Author RMweb Gold Share Posted May 22, 2018 My subs copy of BRM came today and I took time to read the article penned by Andy Y, I thought it good balanced article although I'm sure some will disagree even without reading it. Yes, a very well thought through, and obviously pertinent, article. I would recommend anyone who is genuinely interested in this subject to read it. 1 Link to post Share on other sites More sharing options...
droitwichspa Posted May 25, 2018 Share Posted May 25, 2018 I confess to not having read all of the comments on this topic, so I hope this isn't repeating or going off topic. When talking to manufacturers at shows and exhibitions, I always get the same replies "there's no call for it" or "N gauge is to small a market" yet many of the Crowdfunding and society kits are then produced by the manufacturers, and then go on to be reissued at a later date by them, which okay saves them the initial risk but also proves them totally wrong about the market that they operate in. I would rather not crowdfund a project, i would prefer to be able to see it on the shelf of my local model shop, but if that's the only way to get something I want then so be it. 1 Link to post Share on other sites More sharing options...
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