Why Zano Is A Learning Point, Not a Game-Changer for #Crowdfunding

Zano NotA recent Juniper report suggested that the failure of the Zano campaign was a game-changer, signalling a move away from Kickstarter-style reward crowdfunding toward an equity (and mixed) model. Given the regulatory costs and other issues this is naive at best. Apart from the fact that rewards crowdfunding continues to grow, unaffected.

Isn’t it odd that when equity deals go south every day of every week, because of the uncertainties and risk involved in innovation and startups, no one bats an eye, and certainly not the press. But a very different approach applies to crowdfunding with people scanning the horizon and seizing on the, relatively very few failures, as if this means the jig is up – and are then seem surprised when it isn’t.

As someone said #RealityStillApplies.

Innovation is still uncertain and risky and so are startups. The wonder is really how well crowdfunded ventures are doing – with a 91% delivery rate in a study on Kickstarter, for example. Isn’t it unrealistic to expect these risk not to exist and normal rules not to apply – ie perfection?

Disaster Thud KaboomToday Mike Harris, the journalist commissioned by Kickstarter to review and report on the  Zano failure, published his report.  He chronicled the Zano debacle, where £2.3M (around $3M) was pledged by and collected from around 12,000 backers, and summarily spent with most of the supporters never getting their Zano – as it proved to be over-ambitious. The team could not get it to work – and spent the money trying and failing, he says.

He also  says “all crowdfunding platforms need to reconsider the way they deal with projects involving complex hardware, massive overfunding, or large sums of money. He wants them to look at bringing in mentors to advise projects like Zano which suddenly find themselves taking on far more than they had planned. He also wants Kickstarter to be far more explicit about the nature of the risk backers are taking – and more active in weeding out weak projects before they are funded,” according to this BBC report.

Yes and no.

Some of these suggestions would undoubtedly break the model, by adding too much upfront costs and even more friction. It sounds good but how would such mentors, for example, be found, vetted, allocated etc? It’s just not a practical suggestion.

British Pounds Money £10Tighter curation is not a complete none-starter, but does have it’s difficulties as it also has it’s costs (and friction). Which is why Kickstarter has understandably been dialing it back as they’ve scaled.

This is not to say that there is no room for learning and refining. Zano took an awful lot of money (ie pre-sales) – most of which they didn’t need and was way beyond their initial target. This helped create the mountain they could not then climb.

There could be various approaches to prevent this which would limit both the load, the uncertainty and the damage when things go wrong. For example

Platform policy could close uber-successful campaigns, with honours, at the point they reach say 20x their target (or say $1m – whichever is the greater) to avoid undue strain on the project team. (This may be unattractive to platforms as it would limit their earnings on stellar campaigns. In which case…).

FailSince they’re earning big fees, with a big success on their books, at this point the platform could take a mentoring or risk-assessment role, in some form, if the team do want to continue – only allowing campaigns to continue where they are sure of the ground.
I’m sure there could be other approaches too. Crowdfunding entrepreneurs have proved adept at adapting and I’ve little doubt will again – Kickstarter included.

it’s right and good that we should look to minimise such risks and failures – but let’s keep them in proportion. Compared to what’s gone before Crowdfunding has proved wildly successful in this regard – as well in many others such as supporting entrepreneurs and innovation.

Pebble Time SteelAccording to the report Harris suggest “If we want an alternative to banks and venture capital as a funding source for high-risk tech start-ups, he says, we may have to accept the occasional Zano alongside the Pebbles and Oculus Rifts.”

One thing is a certain: innovation will remain uncertain and risky. What seems to have been missed here: Sad though it is that contributors did not get their Zano, crowdfunding has proved an astonishingly clever and efficient way of both mitigating, and sharing those risk with those who willingly take this on and contribute small amounts from their disposable income.

Of course we should continue to seek to learn and improve. But we should not lose the plot, perspective, the big picture.



barry-jamesBarry James is a serial tech entrepreneur and technologist, founder, writer and conference creator Barry created TheCrowdfundingCentre, now a global resource for #Crowdfunding, and VentureFundingHubs an innovation to support entrepreneurs globally. He has a long history in #Fintech stretching back to the late 1970s. Founder of the UK’s first national conference, Crowdfunding:Deep Impact, he has been at the forefront of the development of Fintech and crowdfunding in the UK, and internationally, since its earliest days helping found the UK’s All-Party-Parliamentary-Group on the subject and influencing the nature and direction of regulation. As a pioneering systems and eco-system architect, he and his team remain active in creating new models and new technology, including the creation of more than 70 funding hubs worldwide.

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