Indiegogo 'Guaranteed Shipping' Will Ensure Refunds If Campaigns Fail (engadget.com)

Indiegogo will start offering "guaranteed shipping" on some crowdfunding campaigns through a pilot program starting next year. Creators who choose to partake in the pilot will promise to users that their product will be delivered. If they fail to fulfill that promise, supporters will get their money back. Engadget reports: Details on how the guaranteed shipping process will work are still pretty sparse, as Indiegogo plans to experiment with it. Creators will have to opt-in to the program. When they do, they will be given a "guaranteed shipping" badge or icon that will appear on their page to inform potential backers of the pledge. Per Indiegogo, in certain cases, some funds may be withheld from the creator until they can confirm that they will be able to ship their products on time. The guaranteed shipping option will likely be most viable for existing companies using Indiegogo's enterprise platform to test out new products.

Comments

Interesting but where does the money come from

[SuperKendall]

While the idea I could see help to see some campaigns get more money, I wonder where this money would come from.

There have been a number of examples of Kickstarter/Indiegogo projects where the money was all burnt through just trying to get something workable out - and failing. So in that case where all the money has been burnt, where are those refunds from? Is Indiegogo really going to be able to cover that?

I still like Kickstarters system where they just get money above a certain amount, leading to a reasonable chance of success if they estimated well, and the collective mind evaluated the estimation well.

Re:Interesting but where does the money come from

[Reaper9889]

One could do some insurance like scheme for this fairly easily. Thus, e.g. if projects fail with probability x, then for each dollar the campaign would put x dollars aside in case it fails. This way, you would, on average have enough money to cover it.

Re:Interesting but where does the money come from

[Krishnoid]

My first assumption would be an escrow account, where the money would not be released to the creator until something was shipped.

Re:Interesting but where does the money come from

[suutar]

Yeah, if they can get any form of credit an escrow account should be very manageable if they actually have something functional and just need to ramp up production. If they don't have something functional, they probably won't qualify for this program.

Re:Interesting but where does the money come from

[Aighearach]

That would turn it into a pre-sale scheme that would only be open to companies that don't actually need the help, and could just advertise their new product normally, and sell or pre-sell it normally.

The whole point of crowdfunding, the part that makes it different than "shopping" is that the money is given in advance to fund the making of the product.

Re:Interesting but where does the money come from

[alvinrod]

That seemingly punishes good actors more than bad actors though. The outright scammers don't give a damn when their campaign inevitably fails, since there was no intent to deliver anyways. Meanwhile, anyone legitimately trying to make something (whether they can or not is another matter) now really needs to raise even more to cover the insurance for everything that fails.

I'd rather just take the risk that I get nothing if something doesn't work out, rather than have the cost to sponsor projects that I like balloon to cover other fools being parted from their money. Ideally people would learn after getting burned a few times and bad projects or outright scams would stop getting funded. Constantly bailing them out doesn't teach them anything and just means they're even more willing to chase bad ideas since there's no real consequence. It's like bailing out Wall Street. What do you think they really learned from that? It wasn't financial responsibility, it was that if you're declared "too big to fail" that you can do whatever the hell you want since the taxpayer will get stuck footing the bill.

Re:Interesting but where does the money come from

[SuperKendall]

Even if they had something functional and ready to ramp up production I think it would be pretty hard to find lenders to take that risk.

Even if you did, then you would be paying some kind of fairly large fee to bank against that escrow account, so now you need to factor in load fees on top of other (probably already unrealistic) production costs.

Then there are the sticky edge cases, like what happens if they deliver a product but the end result kind of sucks and now a bunch of people are very unhappy. Does the company not get the escrow money even though they technically delivered?

Re:Interesting but where does the money come from

[AmiMoJo]

Some lawyers will get very rich trying to determine if a product actually shipped and the insurance should pay out. What if the product that ships doesn't meet the promised spec? That's happened a lot.

Re:Interesting but where does the money come from

[ShanghaiBill]

My first assumption would be an escrow account, where the money would not be released to the creator until something was shipped.

The point of the funding is to pay for the development and manufacturing of the product. If they don't get the money till after the product ships, then that completely defeats the purpose.

Re:Interesting but where does the money come from

[DrXym]

The bottomless hole that is human stupidity is doing a great deal of harm to these sites. It doesn't matter what dumb, useless or ultimately bullshit idea somebody has, there will always be idiots ready to back it. And not just back it for a % of the profits, no, they back it for a pathetic discount off the final product (assuming there is one) or some other meaningless gesture.

And Indigogo and other crowdfund sites don't care. They get to skim the money flowing in and the money flowing out regardless of that happening.

People with an ounce of sense in their heads would just wait for a tangible product to actually exist.

Re:Interesting but where does the money come from

[AmiMoJo]

The point of the funding is to pay for the development and manufacturing of the product. If they don't get the money till after the product ships, then that completely defeats the purpose.

Guaranteed sales and proof of demand may generate other investment. Few successful projects are purely crowd funded.

Re:Interesting but where does the money come from

[coofercat]

Most probably true.

That said, if (say) I had a business idea and it was going to take £50K to get it into proper production because the minimum order was 1000 units, and when packed up they were 1m3 each, then I for one would feel very nervous about getting a loan on the house or whatever to get it started. I might get the loan, make the order and then have to stack those boxes in every last corner of my house and half a dozen friends houses for months until I sold them.

However, if I knew I was going to sell 500 of them on day 1, and get some amount of my 50K back on that day, then I'd be:

- highly motivated to get the development done and production order in as soon as my loan money arrived
- be very adverse to any sort of production problem that delayed delivery, or compromised the output below the expectations I'd set

I assume that also my bank would be more willing to lend me the 50K in the first place if they knew that I had pre-orders for (say) 40K of it before I'd even been walked in the door of the bank, and that I'd be able to pay them some or all of their money back on a particular date in the future.

It's certainly a change from the regular 'crowd funding' methods we've seen to date, but it doesn't make it entirely useless to the (more serious) people trying to get something made.

Re:Interesting but where does the money come from

[Solandri]

The person or company doing the Kickstarter/Indiegogo project doesn't get all the promised money. Kickstarter/Indiegogo take a percentage. Indiegogo is taking on the role of insurance company, and (based on their statistics for the success of past projects) are betting that they can pay for refunding failed projects out of their percentage cut, and still stay in the black.

It's pretty risky because unlike (say) cars, the liability for any individual project can vary by a huge amount. One big failed project could end up costing them a lot more than their averages say they should've expected. But they're the ones with the years of built-up statistics, not me. So presumably they know what they're doing. They'll probably do a more thorough vetting of each project before letting it through to funding. Which quite frankly is something the industry badly needs since it's become apparent that the individual donors are not doing it, and are treating it like shopping at Amazon only with a delay of a few months between purchase and receipt of goods.

Re:Interesting but where does the money come from

[tlhIngan]

The bottomless hole that is human stupidity is doing a great deal of harm to these sites. It doesn't matter what dumb, useless or ultimately bullshit idea somebody has, there will always be idiots ready to back it. And not just back it for a % of the profits, no, they back it for a pathetic discount off the final product (assuming there is one) or some other meaningless gesture.

And Indigogo and other crowdfund sites don't care. They get to skim the money flowing in and the money flowing out regardless of that happening.

People with an ounce of sense in their heads would just wait for a tangible product to actually exist.

The problem is that many projects will never get the funding or loans required to take a prototype to production. Mass production of an item takes a lot of money.

Even something as well established as printing a book often has minimum orders - you write a book and if you want to self-publish, the printers will generally want an immediate order of 500 copies (if they're a small printer) or more likely, a run of 5000 copies, which requires an immediate investment of up to $20,000 or so. Crowd funding helps get you that amount of money so you can publish your book - most authors wouldn't have $20K or more sitting around in a bank account to fund a print run. (And it can cost more if you want the nicer paper, or nicer ink, embossing, etc)

So a lot of projects simply die after that stage because the next injection of cash is needed to take to production and they can't personally sponsor it.

Investing for profits is also hard - at this point you're going to saddle the company or people with reporting requirements (per rules of the country they're in) which can be quite onerous and eat up tons of funds - it would make any crowdfunding under half a million dollars unfeasible if you have to hire auditors to audit your books every 3 months. Plus tons of rules and regulations ensure that you'll spend a chunk of that money on a compliance officer.

Re:Interesting but where does the money come from

[SuperKendall]

I figured for a project to be able to earn this mark they would also be charged a higher percentage from IndieGogo, as you say so that IG can have enough of a pool to pay out failures.

The risky aspect I see though, is that while they may have stats on failed projects the stats will not really matter much since the projects that apply for this special mark are essentially a random sub-selection of projects they have had before, so the failure rate will be pretty unknown.

That combined with (as you said) the large variability of how much would have to be paid out, seems to make this pretty risky for IG. But I guess they know what they are doing...

Re:Interesting but where does the money come from

[Aighearach]

I agree, it only 99% benefits large business, there is a small window for a small business to benefit too.

Re:Interesting but where does the money come from

[DrXym]

The self publishing business model is to extract cash upfront from the author because they sure as hell won't make up for it in volume sales later. Yes there might be the odd professor, or guy selling some low volume quality book in amongst them, the exceptions that prove the rule, but it's background noise to their main audience - vanity publishers. This is reflected by simply perusing a site like lulu where 99% of it is garbage.

But crowdfunding is similar to self publish they have a very low quality threshold. If your campaign looks superficially kosher they'll list it. Why? Because they rake 5% of the funds raised and most likely get kickbacks from their payment processors (who take another 3%) too. It's in their interests to allow as many campaigns to list as possible, regardless of them being economically viable, or outright scams or not. Campaigns just have to have the trappings of viability / not-scam and that's enough for them.

I don't believe either that they serve a purpose that wasn't served by other forms of funding in the past - self funding, bank loans, investors. A good product, even one available in low volumes is either economically viable or it isn't. If it's viable, it will find funding. If it isn't and it ends up on crowdfunding then it throws into question its viability and the motivations / acumen of the people raising funds for it.

IndieGoGo

[ledow]

They singularly failed to do anything, despite a lot of hot air, about the Retro Computers Limited scandal.

£250k of investment, about 10 prototype units to show for it, and IndieGoGo promised / threatened lawsuits and all kinds and did literally NOTHING about it. They now just close queries from backers of it, and don't issue public statements on it.

If you want to fix yourself, IGG, fix that campaign and go through with your promises. Or you should have shut up and said "You're on your own" to backers from the very start, and at least reply in that respect when they query.

I've never used the platform, but I've used Kickstarter and a few others and they've always delivered and responded for me. I certainly wouldn't touch them now.

The way to judge a company is not by products, prices, or anything else. The only thing that matters is how they deal with established or previous customers. IGG suck in that respect, despite making a lot of noise to the contrary they literally did nothing about someone walking off with £250k when they were threatening them with lawsuits if they didn't deliver. And the guy is still around, still active, still running other companies... it's not like he did a runner to Barbados, like some of the scam Kickstarter-esque things.

Guaranteed without any guaranty?

[kbg]

"Per Indiegogo, in certain cases, some funds may be withheld from the creator until they can confirm that they will be able to ship their products on time"

So how is that actually going to work? I mean if the funds are not withheld in all cases then obviously the money don't exists to refund. So where does that money come from? Will Indiegogo pay out of their own pocket? I seriously doubt that, so obviously the only conclusion that you can come to is that the "guaranteed shipping" is actullay not guaranteed.

"Some funds will be withheld 'til you ship"

[Opportunist]

In other words, as a scammer, you just have to ask for more money to compensate for the loss you have to cut.