Crowdfunding Faceplants Yet Again

Crowdfunding Faceplants Yet Again, To the Tune of $9 Million

Companies that crowdfund directly are an incredibly risky proposition.

By Eric Limer

Crowdfunding is not an investment—it's a gamble. And stories illustrating this basic truth just keep coming. The latest, and one of the larger misfires to date, is a company called Plastc. Once promising to bring funders a smart card that could hold multiple credit cards inside it, the $9 million project announced yesterday that it is ceasing operations and filing for bankruptcy.

From the statement on the site (emphasis theirs):

For the past 3 years, our mission here at Plastc was to build and deliver the most technically ambitious smart card on the planet. After making enormous leaps in development, product innovation and progress towards our goal, Plastc has exhausted all of its options to raise the money it needs to continue. ...We were so incredibly ready for production in order to hit our deadlines but without capital it is impossible for us to move forward and we will not be able to fulfill any pre-orders.

When the electric credit card was first announced in 2014, it offered features like NFC payment, chip and PIN compatibility, and wireless charging all for the hefty preorder price of $155. At the time, it was ostensibly the competitor to another non-existent product called "Coin" which offered many of the same features whipping up outsized hype and funds. Coin was already facing delays by the time Plastc "arrived" and ultimately gave up the ghost in 2017. Now Plastc has followed suit.

Fully-funded crowdfunding projects hosted on Kickstarter or Indiegogo have been failing for as long as either of the platforms existed. As a result, Kickstarter has made strides to try and vet projects more carefully, ejecting egregious yet successful projects like the Skarp "Laser Razor." Indiegogo tends to be less discerning and picks up some of Kickstarter's scraps (like the aforementioned razor), but still ostensibly has some rules and standards. After all, these platforms will fail entirely if the world loses faith in crowdfunding as a premise.

ONE-OFF CROWDFUNDING CAMPAIGNS HAVE NO REASON TO BE CAREFUL AND GOOD REASON TO BE RECKLESS.

But the failure of Plastc is an example of something newer and more dangerous. Plastc didn't rely on a platform, but rather took preorders directly. It's a similar approach to the Lily Drone—a failed drone startup that took $34 million in direct funding in large part through pre-orders.

Unlike a crowdfunding platform, these one-off companies have no continuing reputation to maintain. They are instead incentivized to capitalize on whatever momentary hype they can muster to get as much money as possible for their One Big Thing. If that fails, they fail, so they have no reason to be careful and good reason to be reckless. It's all or nothing. Which is to say frequently nothing.

Regardless of how many crowdfunding bodies hit the floor, the takeaways remain the same. Crowdfunding is not an investment. Unlike real investors, who have a stake in a product's success, crowdfunders only stand to lose. Waiting for a product to come out and buying it then is an infinitely wiser decision with barely downsides. Waiting is doubly important because while many campaigns go down in flames, many more follow through but with lackluster results. It's more mildly unfortunate story that frequently goes uncovered, but makes just as good a case against crowdfunding as the failures.

THE CHANCES OF LOSING ARE BIG, AND THE ONLY "WIN" IS BREAKING EVEN.

If you must crowdfund, just keep these factors in mind. There are no guarantees. If you can help push a project over the edge and help bring about something that never would have existed otherwise—especially if it is music or art, or anything but technology—perhaps that's something you'll see as worth the gamble. But the chances of losing are big, and the only "win" is breaking even.