Honeymoon over for crowdfunding

It was supposed to be the next big thing - a tiny device that would render the ubiquitous computer mouse obsolete.

The Ractiv Touch+, a collection of sensors in a plastic block the size of a pack of chewing gum, was supposed to be able to turn any surface into a multi-touch touchpad. In a slick promotional video, users can be seen using the device to play video games, prepare Excel spreadsheets and paint in Photoshop.

The product was so promising that it got the attention of numerous tech blogs and newspapers. It nearly doubled the US$100,000 (S$133,600) it hoped to raise through crowdfunding website Kickstarter and ultimately drew more than 2,000 backers.

The co-owner of the start-up, Mr Darren Lim, also became the first Singaporean to be admitted to the Thiel Fellowship in the US. The fellowship, set up by PayPal founder Peter Thiel, offers funding to youth looking to advance careers in scientific research and start-ups.

Fast forward two years and the Ractiv Touch+ is in danger of joining the small but growing group of crowdfunded projects that have failed to deliver on their promises. In the United States especially, where the online crowdfunding industry which started around five years ago is now worth billions of dollars, the honeymoon period seems to be ending.

Many backers and industry experts are warning those just starting to dip their toes into crowdfunding to be wary of where they put their money.

"My advice for anyone considering backing a new project would be to really delve deep into the creator's past. Look past the surface and check projects they may have been involved in before," said radio and electronics technician Lachlan Pollock, 37, who has backed more than 20 projects on Kickstarter and Indiegogo.

So far, he classifies three of them - including Ractiv Touch+ - as money down the drain.

No official statistics exist for how many projects that raise money successfully end up failing to deliver, but most estimate that it is a small number.

A study published last year by Professor Ethan Mollick of the Wharton School of Business found a 3.6 per cent failure rate. Out of 381 products he looked at, just three issued refunds while 11 stopped responding to backers.

Meanwhile, a website named Kickscammed, which allows users to post about failed crowdfunded projects, lists more than 160 such products.

The reasons a funded project might fail vary greatly, and backers say most creators blame production problems.

In the case of the Kreyos smartwatch - a project that raised US$1.5 million on Indiegogo - its chief executive Steve Tan placed the blame largely on his China- based manufacturer for the failure.

He posted a long response online apologising for the problems but also effectively saying he had done everything he could.

Some 10 months after the promised delivery date, most of the backers had not received the watch and those who did found it had bugs and was missing a number of promised features. Other projects have left backers hanging with less explanation.

The backers of the Smarty Ring, a ring that can receive alerts from a smartphone, last heard from the creators five months ago while those who supported the mPrinter, a portable versatile printer, are still without a product more than two years after the promised delivery date.

In Ractiv's case, backers are also still in the dark as to what happened. Around August last year, the company started shipping the devices to its backers. However, it soon discovered a software bug and took down from its website the drivers required to make the Touch+ work.

After about two months of setting, and then missing a series of deadlines, the company dropped off the grid. It stopped updating its Facebook page and its Kickstarter page. Backers said attempts to contact the company were ignored.

One Ractiv backer, Mr Dan DiGregorio, 32, who works in product development for a medical imaging company, said: "I've reached out to them directly. I've also reached out to a couple of funding groups that backed them and they seemed to indicate they had trouble contacting them as well.

I don't think they've completely disappeared but I don't understand why they won't answer anyone's questions or let anyone know what's going on."

Ractiv did not respond to e-mail from The Straits Times though its website remains active.

The issue of what sort of claim backers can make against the creators who fail to deliver is one of some disagreement in the United States.

The current terms of service on Kickstarter seem to indicate that - unlike in a normal store - those who pledge money on the site are not necessarily guaranteed a product. Its terms of service simply require that creators unable to fulfil rewards make "every reasonable effort to find another way of bringing the project to the best possible conclusion for backers".

This includes offering to return remaining funds or at least explaining how those funds will be used.

Lawyers take a different tack. Digital media lawyer Dan Rogers wrote in his blog recently that backers and creators are entering into enforceable contracts on crowdfunding platforms.

"Few would argue that a farmer who sells what is still growing in his fields has a legal obligation to deliver the ripened crop to his buyer when ready... Telling a buyer that you didn't realise how much work it would take or deciding to develop something else mid-season hardly relieves you of your duty under the law," he said.

Singapore lawyers agree.

Mr Bryan Tan of Pinsent Masons in Singapore told The Straits Times that backers do have rights in contracts. "The only issue that is possible is a 'state of the art' issue - for instance, if what is crowdfunded is so state of the art that no one can guarantee it will be done or done successfully," he said.

Thus far, the liabilities related to crowdfunding have not yet been tested in court. The first major case in the US - for horror- themed playing cards that were never delivered to backers - is still pending, and Mr Tan said he is unaware of any case being brought in Singapore.

For backers, though, supporting a failed project now seems akin to making a bad bet.

Said Mr DiGregorio about the idea of pursuing Ractiv: "Some of us have talked about a lawsuit but I think the consensus is that it will be more trouble than it is worth. Right now, I don't really have any expectations."

jeremyau@sph.com.sg

This article was first published on May 25, 2015.
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