Cautionary tale for Kickstarter backers: Ultra-Bot folded?

I have used Kickstarter several times, and always got a reward delivered eventually. It has been said by some projects there are "scams", but I don't believe that is generally true. There may be exceptions though, and there is always a risk that a project creator could disappear with the money and there is little recourse as Kickstarter themselves do not offer any guarantees.

It seems that a recent KS for a printer called Ultra-bot has turned sour. Bill Steele collected over $45,000 but is now saying he can't deliver the rewards and is seeking bankruptcy protection, although it appears he has not actually filed for bankruptcy, according to reports by backers. Apparently Bill Steele has moved on to some other projects, like PiMaker.

Kickstarter's corporate response seems to be "sorry but there is nothing we can do".

I don't have first hand knowledge of this, so if anyone has more info would be interested to hear it.

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Based on the comments in the project page, yeah it's true.

It's sad that stuff like this happens, but it does. Sooner or later everyone will know someone who was a victim of this kind of KS scam and people's opinion will start to turn against KS and the loose responsibilities of the project owners. Many times, even if the project doesn't fully fold, people don't get what they expect. They wait for over a year for their item only to find out it's an overly expensive POS that either doesn't work or doesn't work as well as something they could have purchased and had in their hands a year or two earlier.

Edited 1 time(s). Last edit at 01/06/2014 12:09PM by iquizzle.

Another 3D printer project that went sour is Eventorbot, also some games projects.

Reading around, there have been several failures in various projects, with the money disappearing and no rewards delivered. (By failures, I mean of projects after they have taken backers money). It is hard to find good information, because Kickstarter don't want to publicize failures. That together with the KS rule "all sales final - no refunds" is bound to get regulators involved, apparently the SEC are looking into crowdfunding.

There is a fine line between investing in a viable business, and merely paying someone to go through the motions. Haven't seen how a few startups work, the staff are happy to spend the investors money and run up the expense account until the money runs out, even if the product looks like a sham. In a sense, that is preferred because you don't feel bad about not delivering something impossible.

I think if you told backers KS projects were a form of gambling, they would take a different view.

I think there are three key things to remember with KS:

1. Pledges are donations, there is no guarantee of getting a reward or a refund. When the money has left your account, consider it gone.
2. Don't pledge more than you can afford to lose.
3. Don't be fooled by apparent Early Bird discounts, or early access to a product. These have a tempting psychological effect, into thinking you are getting a bargain, In fact you are betting the whole amount against a 20% discount. Wait until the product goes on general sale, then place a retail order. You have more protection, and it's easier to tell if its a good product by then.

If after that, you still want to take a punt on a fledgeling product go ahead, but be aware of the risk.

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Kickstarter just masks the fact that all of this is just another way of getting venture capital, without even obtaining equity in the start up!

If someone is okay with venture capital and being an angel investor, but want something that is riskier, then Kickstarter is great!

How the heck would you even perform due diligence?

That said, I still find Kickstarter fun, but it is a type of gambling. It is good for tossing small amounts into the pot, without -needing- something to come back out.

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Yvan

Singularity Machine

There have been a large number of successful kickstarters that have delivered on their promises. Angel investing and venture capital is way more risky. I do think that Kickstarter might have less of these problems if they were to make kickstarters fill out a basic cost analysis sheet. Many people who do kickstarters don't think about the hidden costs of doing business.

Ultra-bot didn't even have that many units to make. There were only 34 backers that bought full sized printers. If they produced one unit a week they could have filled their most expensive orders in a reasonable amount of time.

Here are some issues I see off the bat. Hopefully others will take note and not make the same mistakes.

-his design requires a large amount of machining/cutting, if he was doing the work himself that takes a huge amount of time.
-the design requires way too much work to assemble.
-from glancing at the site it looks like there were only two people on the team. That is not enough manpower If you are selling assembled units.
-He didn't add enough money to cover his own labor. lets say that the parts cost of each unit was half of what the units sold for. The revenue is only 24k before taking out expenses (electricity, heat, packing materials, etc). Then divide that between two people working 40 hrs a week for a year.

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jzatopa
Angel investing and venture capital is way more risky.

I don't know about that. What is the failure rate on Kickstarter? Does anyone even know? That right there is a massive risk. To say that angel investing is way more risky, we would have to see comparative numbers. Unless someone can point me in the right direction, I haven't seen anything at all like that from Kickstarter.

The process involved with donating money on Kickstarter is incomparable to a typical investment process for a startup. I suspect 99% of the people who donate money on Kickstarter don't even know what due diligence is! In the Kickstarter universe, the people who donate have no equity in anything, and no recourse in any way whatsoever. Hard numbers are next to none existant. Sounds like ultra high risk to me.

It is great for what it is, as long as everyone knows they have a substancial chance of never seeing their money come back in any way.

BTW jzatopa, you are spot on with all the other points you bring up!

Oops, seems his website is down?

Edited 1 time(s). Last edit at 01/06/2014 03:21PM by Yvan.

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Yvan

Singularity Machine

I thought thought the failure rate for venture capital/angel/startups was 50%, when I goggled it what came up was 75%.

Yvan there are three types of failure on Kickstarter. The first is failing the initial kickstarter review, they reject applications that don't fit certain criteria. The second failure is failure to get funded, the rate is about 50% from what I understand. From my own research, I have done a good amount, a large majority of that 50% are very poorly structured, presented or have a viable market. The rest just aren't marketed well, there are customers for the product but they don't know it exists. The last failure type is failure to deliver. This is the worst type of failure as it damages the trust built up by the successful kickstarters. I would only consider funded kickstarters that didn't deliver as failures. There aren't any numbers available but it seems that it is relatively rare.

"I suspect 99% of the people who donate money on Kickstarter don't even know what due diligence is!" - so true. I bet only 20% who run a kickstarter even know what it is.

My wife did a successful kickstarter. It is what got me into kickstarter in the first place. I think kickstarter is a great tool for small startups to really get a foothold, when used properly. It is even more valuable now that it is so hard to raise capital for anything.

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Kickstarter is the best thing that's ever happened to scammers. Not saying that they're all scammers. I don't know why people are quick to give money to people they don't really know well. There's no guarantee that you'll get anything. As a backer, you assume all the risks.

Edited 1 time(s). Last edit at 01/06/2014 11:37PM by brnrd.

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jzatopa
I thought thought the failure rate for venture capital/angel/startups was 50%, when I goggled it what came up was 75%.

Yvan there are three types of failure on Kickstarter. The first is failing the initial kickstarter review, they reject applications that don't fit certain criteria. The second failure is failure to get funded, the rate is about 50% from what I understand. From my own research, I have done a good amount, a large majority of that 50% are very poorly structured, presented or have a viable market. The rest just aren't marketed well, there are customers for the product but they don't know it exists. The last failure type is failure to deliver. This is the worst type of failure as it damages the trust built up by the successful kickstarters. I would only consider funded kickstarters that didn't deliver as failures. There aren't any numbers available but it seems that it is relatively rare.

"I suspect 99% of the people who donate money on Kickstarter don't even know what due diligence is!" - so true. I bet only 20% who run a kickstarter even know what it is.

My wife did a successful kickstarter. It is what got me into kickstarter in the first place. I think kickstarter is a great tool for small startups to really get a foothold, when used properly. It is even more valuable now that it is so hard to raise capital for anything.

That is news to me, I thought the failure rate for venture capital/angel/startups was 90%! I get very suspicious when there are no numbers available for Kickstarter failures... Keep in mind that if someone invests in four startups(for the sake of simplicity), they will lose on three, but make a very substantial amount on the fourth which will recover the losses from the others. With Kickstarter, you lose when you lose, but when you don't lose, all you get is what you paid for. So, no win that recovers your losses. In the case of Kickstarter, 'the house' is keeping mum on the odds.

BTW, your wife is very talented!

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Yvan

Singularity Machine

I've backed 42 projects on Kickstarter. To date none have gone bust or were scams. I really dislike when people imply that many, or even the majority, of Kickstarter projects are scams. Kickstarter makes it fairly clear that you have no guarantee of success.

I think people just need to apply a little bit of skepticism to their choices. It is not hard to tell what the going price is for things like 3D printers. If you look at the offered design and figure that there’s no way you could built it for that price then they probably can’t either. The old adage of being too good to be true applies here. I would rather spend a little more to get something from a known vendor with a track record than take a chance on someone who's never delivered something before.

It is good to encourage people to take time to research the background of someone and their project and take caution but to imply that there is something fundamentally wrong with Kickstarter denies all the successful projects and the people who have received what they expected.

-- Chris

I've backed around 25 projects in the past year. So far two have been scams. One was the Kobe Beef Jerky one that thankfully was caught and canceled with like 73 minutes left, and the other was a very small time dog treat thing (raised just over $500). So I only lost out on $10, but both experiences have made me very cautious about which projects I back. If they project creators are not shown in the videos, if they aren't linked to FB or have backed other projects, or I can't find any info about them online, I don't back. Better safe than sorry.

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krafter
Kickstarter makes it fairly clear that you have no guarantee of success.

Yes, I think as long as that is your attitude toward KS funding then you are "playing the game" correctly so to speak. The problem is that all too often, especially with 3d printers, no guarantee of success doesn't make sense because the project being pitched is neither new or experimental. Why should someone accept no guarantee of success for something that already exists -- and has full guarantee of success? Why should they forfeit their right to return a product that doesn't work? Why should they wait for over a year to receive it?

If you are on KS simply to sell something that already exists, then I have no other choice than to suspect that A) if someone used your product and wrote a review, then there's no way I'd want to buy it, OR B ) you want to play fast and loose with your obligations as the seller of an object so that you are in an environment where you are not bound to accept returns, give refunds or otherwise provide the product you advertise.

Whether or not that is the motivation is irrelevant. What IS relevant is that KS enables these possibilities and offers no protection for you if the seller desires to scam you. I believe that most people have good intentions; however, on the internet it is nearly impossible to determine if the person is trustworthy -- and the fact that you have to rely on the moral character of someone you have never met is the only thing that is relevant.

So IMO -- DO fund KS projects that have awesome ideas that need to be promoted... but be wary of the projects that are not new, because you're trusting a stranger with your money and you have extremely limited means of protection.

Edited 2 time(s). Last edit at 01/07/2014 08:46PM by iquizzle.

@ iquizzle

Or C) They recognize that KS is an extremely cost-effective way to get media buzz, eyeballs on your product, and early traction.

While I agree this is not strictly within the rules of KS, from a backer risk perspective it's certainly appealing vs a completely speculative project.

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krafter
I've backed 42 projects on Kickstarter. To date none have gone bust or were scams. I really dislike when people imply that many, or even the majority, of Kickstarter projects are scams. Kickstarter makes it fairly clear that you have no guarantee of success.

I think people just need to apply a little bit of skepticism to their choices. It is not hard to tell what the going price is for things like 3D printers. If you look at the offered design and figure that there’s no way you could built it for that price then they probably can’t either. The old adage of being too good to be true applies here. I would rather spend a little more to get something from a known vendor with a track record than take a chance on someone who's never delivered something before.

It is good to encourage people to take time to research the background of someone and their project and take caution but to imply that there is something fundamentally wrong with Kickstarter denies all the successful projects and the people who have received what they expected.

-- Chris

I think your comments are fairly balanced, but keep in mind you may be unusually good at picking solid projects on Kickstarter. Unbiased data would be interesting to see. I don't gamble in casinos because I know what the data shows about where the money goes. Kickstarter is a good idea, and I don't want it to stop, but they are keeping mum about basic info that is required to asses risk. They are after all running a business, and they are keeping their cards close. As a rule, I don't bet against the house!

In the end, I am very puzzled about how Ultra-Bot folded. How exactly does one accept $45 000 and fail so badly that they are not even capable of shipping out a few machines before the cash runs out? From the outside looking in, it looks like they didn't try very hard. I know developing a new technology is expensive, but that is exactly what they were not doing, they just repackaged an existing design.

Some people "in business" have a very high burn rate, and they don't even know why....

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Yvan

Singularity Machine

I should add that while I am pretty positive on Kickstarter I do get annoyed at some of the 3D printer related projects that I feel shouldn't be on there. Sometimes it feels like someone has an idea and without even thinking it through they are like "Hey, this might work, off to Kickstarter!". This dual extruder thing, that failed to get enough funding, is an example of that to me. They clearly were nowhere near proving it was even close to working. [www.kickstarter.com]

I agree that Kickstarter as an organization could go farther to release statistics about what is going on. I think they could do a better job of policing submissions too. Also seeing how much of a cut they take of projects I think they should have a much more sophisticated website. Searching for new projects is a pain and most of the time I find out about projects from sources outside of Kickstarter. With some of these high profile projects bringing in millions you have to believe that Kickstarter has brought in some nice cash but its not reflected in the quality of the site.

As I said I just get annoyed when people say the whole thing is a scam. I have a friend who's team recently completed a million dollar Kickstarter and I know for a fact they fully intend to deliver and that they didn't have VC's banging down the door to fund them another way.

-- Chris

Edited 1 time(s). Last edit at 01/08/2014 12:39AM by krafter.

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bobc
It seems that a recent KS for a printer called Ultra-bot has turned sour. Bill Steele collected over $45,000 but is now saying he can't deliver the rewards and is seeking bankruptcy protection, although it appears he has not actually filed for bankruptcy, according to reports by backers. Apparently Bill Steele has moved on to some other projects, like PiMaker.

Kickstarter's corporate response seems to be "sorry but there is nothing we can do".

I don't have first hand knowledge of this, so if anyone has more info would be interested to hear it.

One thing that wonders me, is ( I have discussed one of Bill Steeles designs in my book) where all his other campains have gone. You cannot find them on KS anymore, That one rotating 3D printer was quite interesting and after studying his website, videos etc. I found him very competent in what he was doing. Did not give me the impression of a typical KS scammer. We do not know what has happened to his business. Maybe bad planing, maybe something else.
Btw. The KS campain that is "gone" at KS was the PiMaker campain http://www.kickstarter.com/projects/wjsteele/ultra-bot-3d-printer/posts/362119

If you try to check the campains that he previously made you will only see the last one created. I think he made 3-4 altogether.
Now here one should complain at KS for removing the links.

As for the money spend, I feel sorry for you and I hope there will be a way to get some compensation. Maybe you can get in touch will the guy and ask him to at least ship you the parts (even at your own costs).

Apart from that: Do not solely rely on the internet for information research! You can see how important is is to document and archieve internet information, today it is here, tomorrow it may be gone.
His website went offline, so all the information is lost. Picture below of the PiMaker made by Bill Steele is from my book 3D - technology & business....

Edited 1 time(s). Last edit at 01/08/2014 12:54PM by maboo.

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krafter
I think people just need to apply a little bit of skepticism to their choices.

Yes. And Kickstarter, the company, tries hard to avoid this. Because this severely bites into their business.

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