Failed Inventions Aren't Scams
The laser razor sounded too good to be true. And sure enough, Kickstarter, the leading crowdfunding platform, kicked the budding business off its site this week after backers pledged $4 million. The fundraising campaign continues on another platform, Indiegogo, raising questions about the definition of crowdfunding fraud and even whether it is possible.
The project, called Skarp, promises to deliver a razor with a small laser instead of steel blades. Powered by a single battery, it would deliver "an incredibly close shave without irritating or damaging the skin." The pitch described a "shaving revolution." It also vaunted one of the founders' background in laser-assisted dermatology, boasted a manufacturing timeline suggesting the team had production contracts lined up and provided a seemingly candid list of "risks and challenges." There was even a video that showed a prototype razor shaving off a few hairs with great difficulty -- and a caption explaining that it would be impossible to mount the laser on the cutting edge until a new fiber was produced.
The crowdfunding community bought into the story, but Kickstarter decided Skarp posed too much of a risk and suspended the campaign because, contrary to the platform's rules, it didn't have a working prototype. Indiegogo doesn't have such restrictions, and the Skarp team already has collected more than $274,000 there.
So is it fraud? Will the team be liable for damages if it fails to deliver the laser razors by March 2016, as it promises, or refund the money?
Some people who back projects on crowdfunding sites, and increasingly regulators, believe such failures should be actionable. In June, the Federal Trade Commission reached a settlement with Erik Chevalier, who used Kickstarter to raise funds for a board game he planned to design but used the cash for personal expenses, including rent and a move to another state. According to the settlement, Chevalier was "prohibited from making misrepresentations about any crowdfunding campaign and from failing to honor stated refund policies" -- and ordered to reimburse $111,793.71 of the $122,000 he had raised, though that judgment was "suspended due to Chevalier’s inability to pay."
In July, Washington state won the first ever crowdfunding fraud case in court against Altius Management, which collected $25,000 to produce horror-themed playing cards designed by a Serbian artist.
These are pretty clear-cut cases: The production of board games and playing cards usually doesn't present daunting engineering difficulties, so Chevalier and Altius Management should have just kept their promises or refunded backers.
Sometimes, however, people make an honest effort and fail. That is what happened to Seth Quest, from San Francisco, who designed an iPad stand, collected money to produce it, failed to make the project viable and was hounded by a disappointed backer until he declared bankruptcy. He may have deserved this fate for failing to think through his project, but he wasn't a fraudster. There have been more spectacular failures, such as a USB drive with a fingerprint sensor that would automatically provide logins and passwords when attached to a computer. The project collected $500,000 on Kickstarter and received $3 million in venture backing, but could never get out the bugs.
Or take the Ouya game console, which was one of Kickstarter's textbook successes but later got in trouble, was acquired and made game developers mad by pulling a $1 million fund it had promised to spend on new games. While it was collecting money from backers, some tech writers called it a scam. It wasn't, but it didn't work out too well.
Ambitious tech projects often fail, defeated by the harsh realities of manufacturing, business relationships and day-to-day-use. Yet are those who paid $100 to help them get off the ground really deceived even if the project doesn't succeed? I doubt it.
By funding such long-shot campaigns with small amounts, people are telling Big Tech that they want more innovation and pointing out areas where it would be most welcome. Science fiction writers used to do this, too, but Kickstarter and Indiegogo backers are putting their money where their mouth is. Without companies such as Omate and Pebble, first funded on Kickstarter, the modern smartwatch wouldn't exist. Without Oculus, another Kickstarter success, virtual reality wouldn't have been as fashionable among tech giants as it is today. Those were once long shots, too.
If we're too quick to yell "fraud," some great ideas will never be developed. It's pretty clear by now that a laser razor would be a huge hit -- it continues to find backers despite the negative publicity. If a big tech company decides to put a serious effort into making it, the Skarp team will have earned its money.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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