The Private Sector Catches Up

Some years ago I wrote in this space about what I felt was the ultimate in Public Sector funding nonsense: an art project, funded by the Canada Council for the Arts (the Canadian equivalent of our National Endowment for the Arts), in which a performance artist received a $55,000 grant for explaining his plans to build a giant inflatable yellow banana and place it in orbit of the Earth, but not actually doing anything. According to the story, upon receiving the grant the artist realized that it would actually take at least ten times more funding to actually complete the project, and elected not to proceed until he was able to raise the additional funds. But, due to the nature of the grant program, he was not required to pay back any of the money; hence my contention that he had received five figures worth of money to do absolutely nothing…

At the time I acknowledge that there have always been private sector fiascos that were just as bad, but in terms of sheer flamboyant lunacy, it’s hard to beat paying someone to create an orbital banana that never happens. This, however, was before the era of crowdfunding, and specifically sites like Kickstarter that allow people to solicit all manner of art projects, public performances and product developments that they have no intention of actually doing. Including, apparently, a company that raised over $1 million USD for the creating of a watch that they will never actually make…

You can pick up the original story off of the New York Observer website, but if you’d rather not wade through it what they’re talking about is a company called Central Standard Time, which issued a Kickstarter project requesting $200,000 in January of 2013. It was to be the thinnest wristwatch ever built, and even though it wasn’t a smartwatch product, the Internet when crazy over the idea, eventually raising over $1 million USD for the project. At the time, the company claimed that they had already designed, prototyped and tested the product, and were ready to begin production, needing just the upfront money to start everything in motion. But as things turned out, the product wasn’t ready, there was no production contract in the works, and the watches turned out to cost about three times what the company originally projected…

Originally, the company had promised to ship its first production run in about three months; this lengthened to six months, then to twelve, and then they stopped announcing dates altogether. Finally, over two years after they were supposed to have product in stores (and rewards to the participants of the Kickstarter) the company announced that they were out of funds and would not be able to continue with the production. Normally this would mean that they had to return the money to their backers, but since the company has never actually declared an end to the project – as of this writing they are still “investigating alternatives” – legal action against them isn’t yet possible. Even if you wanted to sue them, there would still be some question of whether the company has anything you could use to recover your funds…

Now, we should probably note that the majority of crowd-funding sources are entirely legitimate, and a surprising number of them have ended up creating wildly successful products and services. Writing on the Forbes site, Goncalo de Vasconcelos notes that crowdfunded companies start out with a large base of potentially fanatical customers (the people who liked the product or concept enough to bankroll the project in the first place) who will often promote the product or service to everyone they know. Whether or not this makes such projects superior to the ones generated by professional venture capital firms is debatable (de Vasconcelos makes his own argument in the article), but it’s hard to deny that the concept can be extremely powerful when it works. Unfortunately, it can be difficult to tell the difference between a can’t-miss project and an embarrassing boondoggle even for the professionals, let alone for a crowd of Internet supporters – and that doesn’t even consider the possibility of outright malfeasance…

For the record, I have no reason to believe that anyone associated with the Central Standard Time company or its Kickstarter project are anything other than well-meaning, naïve and possibly credulous entrepreneurs. I think we can safely assume, however, that there are crowdfunding projects out there in cyberspace that are being run for nefarious purposes – and if there weren’t any before, there almost certainly are now. From where I’m sitting it looks like the private sector has caught up with our beloved Orbital Banana and is currently breaking away…