New Crowdfunding Site Aims to Understand Manufacturing
BY Eric Markowitz
For backers of crowd-funded physical products, the mantra has always been 'buyer-beware.' Here's how a new crowdfunding site, Crowd Supply, seeks to fix that problem.
About two months ago, I wrote about about Seth Quest, an ordinary guy--a designer--who came up with an idea for a funky iPad stand called the Hanfree. Without the funding to make his product a reality, he posted his idea on Kickstarter. There, with just a few mock-up pictures of what the product would theoretically look like, Quest raised $35,000 to manufacture the Hanfree. After that, things pretty much went downhill.
Quest told me that negotiations with his overseas manufacturers soured. Then, his co-founders held the design files hostage. Finally, when months passed without being able to ship a product, his backers sued him, forcing Quest into bankrupcy.
"Your backers can give you massive support, but they can also tear you down if you fail," Quest told me.
The story was meant as allegory for Kickstarter's growing pains as a crowdfunding platform for physical goods, which can be incredibly complex to manufacture with any sort of scale--especially for a first-time entrepreneur. Kickstarter knows this is a problem. Shortly after the lawsuit, the Kickstarter's founders issued a blog post titled "Kickstarter is Not a Store," and added a cautionary tagline, "Kickstarter does not guarantee projects or investigate a creator's ability to complete their project," that now appears on-screen before any pledge is made.
Now one entrepreneur is launching a crowdfunding site that could become the de facto platform for product development, and a marked improvement over Kickstarter's laissez-faire attitude toward its creators.
Crowd Supply, launched Wednesday morning by Lou Doctor, an engineer-turned-serial-entrepreneur, makes a significant departure from the Kickstarter crowdfunding model. Unlike Kickstarter, Crowd Supply partners with its project creators from Day One to bring products into production. For example, Crowd Supply's staff--a team of six engineers based in Portland, Oregon--actually work with project creators, offering assistance on everything from engineering advice to crafting a production plan. For its work, Crowd Supply takes a 5 percent fee.
"We're looking for innoavtive and transformative products for the markets they serve," Doctor says. He understands the challenges of product development and e-commerce, too. Before launching Crowd Supply, Doctor held a variety of roles in the start-up world, including president of both GolfClubs.com and Billiards.com. He's also a managing partner at Horizon Partners, a boutique investment banking firm.
But ultimately it comes down to proper dilligence, Doctor says.
"What we're trying to avoid is someone who comes to us with a $100,000 funding goal, but who actually needs $500,000 needed to make it happen," he says. "We won't launch a project where, even if it met its funding goal, it still couldn't be delivered."
The site launched with 12 projects--including a dog collar, a bike frame, and a padded shirt-jacket. A year from now, Doctor believes Crowd Supply, which has raised $500,000 from several angel investors in Portland, will have carved a niche for itself as the go-to crowdfunding site for tangible goods.
Another distuingishing feature of Crowd Supply is its attitude towards e-commerce. Unlike Kickstarter, Crowd Supply has built a powerful sales component integrated directly into the site. So, in theory, once a project gets funded, its project page could transition into a traditional e-commerce page, and Crowd Supply would become the vendor for that product.
"Included in the back-end system is essentially a warehouse system," Doctor says. "The front-end is just the tip of the iceberg. The back-end is really an enterprise platform."
Ultimately, Doctor recognizes the crowdfunding market is, well, crowded--with literally thousands of sites offering entrepreneurs with an idea the chance to raise money. But, he also thinks it is still a growing marketplace.
"Some people look at [crowd funding] as a bubble," Doctor says. "I see it as a larger trend in product development."