Crowdfunding, or minimising risk?

[jjb1970]

I think everybody agrees that if people like the idea of crowdfunding or see it as a way to make models happen that wouldn't otherwise then there is nothing wrong with that. We all have our own preferences.

[Sir TophamHatt]

Not sure if it's relevant, but I don't have a problem with crowd-funding... so long as it's done properly.

 

Thinking along the lines of Kickstarter. You sign up to invest and don't part with your money until the product is made. It's essentially a promise note that you'll buy the product. Like Model Rail and the J70 - registering interest to garner possible numbers, then risking a bit of cash to start production based on that.

 

If it means Bachmann release only 500 units of their new tooled 158 quicker, sign me up!

 

If companies are expecting me to part with £200 so they can pay their suppliers for something that may never see fruitition, I don't think so.

[chris p bacon]

Thinking along the lines of Kickstarter. You sign up to invest and don't part with your money until the product is made. It's essentially a promise note that you'll buy the product. 

 

 

That's not how I understand it.

 

With Kickstarter you put the money up and if the target is reached they send all the money (less their commission) to the person/company asking for funding. They then play no part at all in the development or any subsequent non supply issues.

 

It's not a 'promise to pay' but a direct investment. 

[Jonboy]

When it goes wrong...

 

http://www.bbc.co.uk/news/technology-44319346

[jjb1970]

I think the reward crowdfunding argument can be summed up with four bullets:

 

1. Is it something you really want and something you consider to have very little chance of being made as a regular release?

 

2. Is the crowdfunded offer suitable in terms of promised product quality?

 

3. Is the crowdfunded offer clear (i.e. transparency, T&Cs, price)?

 

4. Do you trust the entity who will manage the project and receive the money?

 

If the answer to all of the above is yes then go for it. If the answer to any of the above is no then don't get involved, buy something else with your hard (or not so hard) earned. 

[dpgibbons]

And 5. Is there the option to pay the vendor directly by Paypal or (better still) by credit card, which may give you protection in the event of non-delivery.

[Sir TophamHatt]

With Kickstarter you put the money up and if the target is reached they send all the money (less their commission) to the person/company asking for funding.

It's not a 'promise to pay' but a direct investment.

Ah, yes, you're right.

Sorry, I missed out the intermediate steps

 

Once the goal has been reached though, it's likely to be made rather than blindly sending money and who knows if it'll be made or not.

 

 

I've "invested" in a couple of things before but the hype didn't live up to the product which has put me off.

But I have the Kickstarter app and will give it a look through every so often.

 

Just a shame that many of the products never really make it into mainstream stores or become well known household names.

Edited June 2, 2018 by Sir TophamHatt

[jjb1970]

And 5. Is there the option to pay the vendor directly by Paypal or (better still) by credit card, which may give you protection in the event of non-delivery.

 

Indeed, I tend to see 1 & 2 as the reasons why you might get involved, and 3 & 4 as the key gates in deciding whether or not to participate. No matter how much I wanted a model and no matter how enticing the offering in terms of spec, if there was insufficient clarity/transparency on what I was getting involved with and if I just didn't get the right feeling from those asking for cash then I'd walk away, but that's just me.

[The Stationmaster]

I think the reward crowdfunding argument can be summed up with four bullets:

 

1. Is it something you really want and something you consider to have very little chance of being made as a regular release?

 

2. Is the crowdfunded offer suitable in terms of promised product quality?

 

3. Is the crowdfunded offer clear (i.e. transparency, T&Cs, price)?

 

4. Do you trust the entity who will manage the project and receive the money?

 

If the answer to all of the above is yes then go for it. If the answer to any of the above is no then don't get involved, buy something else with your hard (or not so hard) earned. 

 

To which one could sensibly add (in the model railway world if not elsewhere),  and with 5 already taken -

 

6. Will the model be coming from a factory with a known track record of design and manufacturing quality which you can judge from its past products?

 

And, as with certain others in the list, if the organiser of the crowd funding is unable to give a positive answer to that question do you decide not to take the risk.

[jjb1970]

To which one could sensibly add (in the model railway world if not elsewhere),  and with 5 already taken -

 

6. Will the model be coming from a factory with a known track record of design and manufacturing quality which you can judge from its past products?

 

And, as with certain others in the list, if the organiser of the crowd funding is unable to give a positive answer to that question do you decide not to take the risk.

 

Indeed, if you are parting with ££££££'s then either you should be able to trust that the supplier is working with a manufacturer of known provenance in whatever product category is applicable for the project, or it should be made clear that the project is trying a alternative source of supply so that you know that you are effectively funding market entry of a new manufacturer.

[The Stationmaster]

A question occurs to me.  if a company goes into receivership or is dissolved where do crowdfunders stand?   Obviously they stand to lose any money hey have put in (part of the risk of the process in the first place) but as they have committed to fund do they have any liability in respect of outstanding debts attached to whatever they have been crowdfunding? 

[jjb1970]

A question occurs to me. if a company goes into receivership or is dissolved where do crowdfunders stand? Obviously they stand to lose any money hey have put in (part of the risk of the process in the first place) but as they have committed to fund do they have any liability in respect of outstanding debts attached to whatever they have been crowdfunding?

A very pertinent question, another potential twist.

[bécasse]

A question occurs to me.  if a company goes into receivership or is dissolved where do crowdfunders stand?   Obviously they stand to lose any money hey have put in (part of the risk of the process in the first place) but as they have committed to fund do they have any liability in respect of outstanding debts attached to whatever they have been crowdfunding? 

 

If they were "members" of the company and it was a Company Limited by guarantee, they could be called upon to pay their personal guarantee - it is rarely more than £ 5.

 

Otherwise, if they had contracted to make regular or as-called payments to the Company and had failed to make all their committed payments up to the time the Company went into liquidation, they could be required to pay the amount outstanding.

[jjb1970]

Whilst I don't think anybody would expect small model companies to have the sort of corporate governance processes and procedures of a multinational corporation I think people do (and certainly should) expect any company requesting crowdfunding to be managed to a certain standard of competence and probity. In the case of a typical crowdfunding effort I think that essentially comes down to a combination of product delivery for previous projects and intuition, I'm guessing the three main determinants are "do I want this model?", "is the price within what I'd pay?" and "do I trust this company?".

[jpendle]

I’ve been reading these posts with some interest.

 

Here’s my tuppence worth.

 

4 years ago I really wanted an N Gauge Pendolino, but nobody was making one.

 

We tried a Kickstarter with Revolution Trains and it failed.

 

But there was enough interest garnered for Rapido to step in and offer to produce the model.

 

As I live in the US I gave Rapido a 50% deposit for each model, But this was 50% of the cost of the model, not its retail value

 

We got very regular updates on progress and eventually I received my models in April this year.

 

Rapido have indicated that they may do another run with revised liveries and these models will be significanly more expensive as there will now be the usual retail uplifts.

 

I don’t care what Rapido or Revolution do as far as a rerun is concerned.

 

I have my 4 Pendolinos, if it weren’t for “Crowdfunding” I would probably still be waiting for some manufacturer to produce it.

 

That’s the benefit of crowdfunding.

 

Regards,

 

John P

[jjb1970]

I think the Revolution Pendolino was an example of things working well, but there were some significant factors to give people comfort:

 

• the individuals behind Revolution are persons of standing with a professional reputation to worry about which means they're low risk in terms of confidence and trust;
• they were working with a manufacturer with an exceptional reputation for producing models to a very high standard; and
• communications throughout were very well managed

 

The overall impression was of a professional and well managed effort which instilled a sense of confidence and trust. Like I say, personally I'm not a fan of crowdfunding, but if I was going to get involved then companies like Revolution show how it should be done.

[Ozexpatriate]

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?

 

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.

Mike, you affirm two of three scenarios to your question

1. a start up
2. a group of like-minded end customers wanting something special
3. an established supplier

I think the third scenario is a very valid question. Having said that, it does pertain to a specific set of circumstances, rather than the whole topic of crowdfunding.

 

Crowdfunding is clearly fraught with commercial realities. This thread highlights pretty well where it can work, and where there are warning signs.

[Ozexpatriate]

There are a couple of interesting lists in this thread. This one I would separate into order transactions, some of which may or may not be crowd funding

The market has changed so much over the last five years or so with the rise of the commissioners, some of whom are now basically just as much manufacturers as the traditional manufacturers and then the emergence of crowd funding. I think there are three separate concepts being applied by different suppliers:
 
-manufacturing to pre-order as per the Rapido model but without needing to pay up front deposits
-manufacturing to pre-order and requiring initial up front payments to some degree
-crowd funding

We've recently seen several wrinkles in the purchasing process
 
Standard retail ............................................... Full payment on shipment
No deposit retail ... Pre-order with no up-front payment  ..... Full payment on shipment
Deposit ............. Pre-order with up-front payment ......... Balance payment on shipment
Up front payment .... Full-up front payment on early pricing
Variation ........... Pre-order with no up-front payment ...... Full payment prior to imminent shipment
                       (based on early pricing)                  (honouring early pricing)                 

                   OR ......................................... Full payment on shipment

                                                                 (based on final pricing)

 

Crowd funding terms could overlap with several of these. I've not participated in any of the crowd funding efforts so I don't know what people are asking for.

 

(i wish there was a table editor here.)

Edited July 3, 2018 by Ozexpatriate

[Ozexpatriate]

I think the reward crowdfunding argument can be summed up with four bullets:

 

1. Is it something you really want and something you consider to have very little chance of being made as a regular release?

 

2. Is the crowdfunded offer suitable in terms of promised product quality?

 

3. Is the crowdfunded offer clear (i.e. transparency, T&Cs, price)?

 

4. Do you trust the entity who will manage the project and receive the money?

 

If the answer to all of the above is yes then go for it. If the answer to any of the above is no then don't get involved, buy something else with your hard (or not so hard) earned.

And 5. Is there the option to pay the vendor directly by Paypal or (better still) by credit card, which may give you protection in the event of non-delivery.

To which one could sensibly add (in the model railway world if not elsewhere),  and with 5 already taken -

 

6. Will the model be coming from a factory with a known track record of design and manufacturing quality which you can judge from its past products?

This is a useful list, though some of these pertain just as well to 'pre-ordering' and trust, (particularly numbers 4 and  6). This was something which we discussed at length in the past, particularly in regards to Hornby and their QA dip when they started up new factory relationships.

1. Is it something you really want and something you consider to have very little chance of being made as a regular release?
2. Is the crowdfunded offer suitable in terms of promised product quality?
3. Is the crowdfunded offer clear (i.e. transparency, T&Cs, price)?
4. Do you trust the entity who will manage the project and receive the money?
5. Is there the option to pay the vendor directly by credit card, which may give you protection in the event of non-delivery
6. Will the model be coming from a factory with a known track record of design and manufacturing quality which you can judge from its past products.

Just to place an order (with intent to purchase, even when no up-front financial commitment is expected) requires a certain level of trust that the manufacturing entity will deliver the features/fidelity/quality expected. It is part of our 'normal' retail environment irrespective of crowd funding.

 

Notwithstanding that observation, this is a good litmus test. Of course at the end of the day, (with the exception of 5) these are difficult to measure objectively, resulting in a 'gut' based assessment no matter what.

Edited July 3, 2018 by Ozexpatriate

[dpgibbons]

A crowdfunder's liability to make further progress payments would almost certainly cease if the supplier went bust, as no further progress could then be made. In any event company receivers would not usually pursue small claims against individuals as it's not economic to recover them.

[The Stationmaster]

Mike, you affirm two of three scenarios to your question

1. a start up
2. a group of like-minded end customers wanting something special
3. an established supplier

I think the third scenario is a very valid question. Having said that, it does pertain to a specific set of circumstances, rather than the whole topic of crowdfunding.

 

Crowdfunding is clearly fraught with commercial realities. This thread highlights pretty well where it can work, and where there are warning signs.

 

Certainly a specific set of circumstances but equally it is offered to the market place as crowdfunding and as such will (in the UK) legally appear to fall into the situation outlined by Andy Y in a post earlier in this thread in respect of consumer rights.  Here we come to a very interesting question in that if a 'manufacturer' or a commercial commissioner (i.e. someone who conducts a business, say retail, but also commissions models) uses crowdfunding to either capitalise a project or mitigate their own risk and the end product does not match what has been promised in the specification or is not of saleable quality then the customer, in this case a crowdfunder, is entitled to a refund.  

 

This is of course in many respects no different from somebody who has had and paid for a preorder (without or without deposit or pre-payment) or who buys in a the normal retail manner but there would appear to be a critical difference for the concern using crowdfunding to finance the item as they now would have to fully reimburse the dissatisfied customer, presumably at the retail price of whatever it is that has been crowd funded(?).  Which then goes back to why they used crowdfunding instead of the more usual financing routes for a business.  And one might in turn ask if they have sufficient funds or insurance to meet payments to any dissatisfied customer(s)?

 

So still very much crowdfunding in the sense that people have put money in to finance the project but rather different from something like the Revolution model because in this case the funds are being handed direct to whoever would be liable under consumer law if they don't deliver the goods as specified.    Any crowdfunding scheme can fail, or more likely fall by the wayside due to insufficient interest, but generally - unless there are manufacturing problems - the funders aren't too likely to lose money as long as they have picked the right manufacturing partner and have a clear contract with that manufacturing partner.   But if the person they are funding is the 'manufacturer' and they haven't comprehensively checked out that 'manufacturer's business or don't have a clear contract there would seem to be a great likelihood of the funders losing some, or even all, of their money.

[jjb1970]

I find it rather ironic that to date the only real loser from a crowd funded model project going pear shaped was only acting as the order taker to help the project. Kernow have always had a lot of my respect but their handling of the class 74 situation in offering vouchers to those who'd paid into the project rather than them paying banking fees was a very nice gesture.

[woodenhead]

https://thechargebackcompany.com/new-paypal-chargeback-rules-merchants-need-know/

 

Reading this earlier made me wonder if this was why Dave suddenly found his Paypal account locked down to refunds only - Paypal are wary and see it like gambling.

[jjb1970]

Nothing new to add, but just posting to bump it back to the front page.

[dpgibbons]

The Paypal lockdown was I believe an account verification issue and not related to the new Paypal rules linked above, which affect their payment protection terms. 

 

It is unlikely that DJM qualifies as a crowdfunding platform, a term which is usually applied to funding intermediaries such as Kickstarter. And note that whilst Paypal has withdrawn payment protection for crowdfunding platforms, it has introduced it for progress payments, albeit only those made within a 12 month period.

 

However there's not much doubt that the best way to protect yourself as a customer of a UK crowdfunded project is to pay by credit card and I very much hope DJM will offer this option.