- The company could get sued out of existence for patent infringement or something else.
- The product may turn out to be impossible to make or cost so much to make that it exceeds the amount of funds raised.
- The product may unintentionally do something illegal.
- An explosion at the factory could wipe out production.
- The contract manufacturer could have lied about its capabilities.
- A critical component for the product could become unavailable.
- A defect could be found that makes the product unsafe or unusable.
- The app that the product requires could be denied by Apple or Google.
- A critical team member may get hit by a bus.
- The bus may be driven by another team member with whom there's been a falling out.
- That apparently earnest guy humbly telling you "Here's where you come in," in the slickly produced pitch video could take the money and vanish to a comfortable retirement in Chile where he feigns a humble existence driving a bus.
And of course, even if the project creator delivers working products in a reasonable time frame, there's no guarantee that it will be around to support the product long enough to honor any warranty, or that a competitor will not come out with something that does what its product does better at half the price. Given the extended gestation of many crowdfunded devices, that's a genuine possibility.
Now, the odds of many of these things happening are very low. But so are many of the risks detailed in S-1s. And both kinds do occur. Indeed, many, if not all, of these scenarios have occurred with products in their early days and certainly happened with Syre and Jorno.
All project owners should not be painted with the cavalier brush.
All project owners should not be painted with the cavalier brush. Here are some good risks articulated by the developers of the impressive Dash earbuds that have raised more than a million dollars and pack a completely wireless MP3 player and fitness aid into a set of headphones:
"Due to the incredible small size of The Dash, we use miniature components. For some of these we only have a single supplier. Even though we have a close dialog with our suppliers, we are not in control of their actions. Every component is highly integrated into and optimized within the design, and an unforeseen component alteration can delay our launch.
As Kickstarter continues to contemplate the best way to protect consumers, it should require that these kinds of real risk factors be disclosed universally.
"The Dash has a complex Bluetooth setup that we have tested vigorously in our labs. We might encounter real life applications, where we cannot guarantee for the quality of operations. We will continue to improve our software throughout the launch to improve functionality."
The bottom line is that making a hardware product to be delivered on a mass scale is extremely difficult and even the most experienced and resourceful companies in the world occasionally fail in attempting it. As Kickstarter continues to contemplate the best way to protect consumers, it should require that these kinds of real risk factors be disclosed universally. And if the project creators won't do it, it should be stated on the campaign page or pledge page or both.
In the meantime, by all means we should continue to back the projects that we believe in. But like anyone giving money to a cause -- be it a venture capitalist funding a startup or a pedestrian sizing up a street beggar -- understand the risks, analyze the authenticity and accept that your investment may be squandered.
Ross Rubin is principal analyst at Reticle Research, a technology, media and telecom advisory firm, and founder of Backerjack, which covers crowdfunded product innovation. He blogs at Techspressive.