If you had the opportunity to invest in the most revolutionary product to date, would you? In 2015, 12,075 people took this risk on the crowdfunding website; Kickstarter, expecting to receive the product in return. After losing their investment, these investors now have questions about what happened, and they want answers. But who is really to blame? Is it Kickstarter? The crowdfunders themselves? Or is the company behind the product at fault for their failure?
Torquing Group, a tech start-up company run by managing director Ivan Reedman, created Zano, claiming they had developed the most technologically advanced drone ever. They reached out to Kickstarter hoping to raise 125,000 Euros to help fund their project. The hype for Zano spread like wildfire and the goal was quickly surpassed, eventually raising 2.3 Million Euros. After months of delay, the Torquing Group suddenly announced in November that it was filing for creditor’s voluntary liquidation (equivalent to Chapter 7 Bankruptcy), leaving thousands of investors without their promised Zanos and without any explanation of where their investment went. As we analyze the situation, we find that the involvement of one or more parties could potentially be to blame.
Let us first look at Kickstarter. Zano’s promotional video on Kickstarter promoted a product that far exceeded features of any civilian drone to date. This included GPS obstacle avoidance, streaming live video, and the ability to shoot selfie videos, etc. None of these features had actually been developed and it was later discovered that the video was fabricated for marketing purposes. Although Kickstarter states that this is against policy, there are no checks and balances in the system to validate companies’ claims. Furthermore, Kickstarter takes certain products and promotes them as “Staff Picks” on their homepage; one of which was Zano. Blindly promoting the non-functional drone and differentiating it from other products on the site, gave false assurance to backers that they were indeed making a smart investment. These facts lead to many people pointing fingers at Kickstarter, as they charge a 5% fee of the total amount invested.
Next we look at the crowdfunders themselves. If investors did their due diligence before investing, much of the obvious risk would have been mitigated. First, the Torquing Group had no prior experience of any successful product launches related to drones. An automatic leg landing system for commercial trailers was the only thing they had ever been credited for. Also, seasoned investors would have seen that constant push backs in release dates and no concrete evidence of a functioning prototype were huge red flags. There was misleading and inconsistent updates being given to the public by the Torquing group about the Zano The Torquing Group posted on three different dates that the final PCB flight frames had arrived in their possession. Was this not alarming to crowdfunders that the final frames for the Zanos arrived on February 2nd, February 20th, as well as April 14th?
Lastly, let’s take a minute to examine the Torquing Group’s intent and capacities to fulfill on their promise. Besides the constant deceptive marketing campaign including the Kickstarter promotional video, Torquing Group had a number of internal issues. They undoubtedly became overwhelmed when the demand for Zano drones rose from a few hundred to over 12,000 units in a very short period of time. In addition to this, the poor financial management of the Torquing Group led to its demise. Even though they eventually fabricated a small number of units, months after the expected release date, these were far from the revolutionary product that was promised, many not working at all. Instead of delivering to the crowdfunders, product was shipped to customers who preordered, allowing the Torquing Group to access funds deposited for these units. A combination of poor management, false advertising, and lack of resources really distinguished Zano as one of Kickstarter’s biggest failures of all time.
Regardless of who is to blame, more than 12,000 consumers are left without Zanos and anything to show for their investment. Thus, sparking a worldwide debate over the ethical integrity of tech start-ups and the information they release for product fundraising purposes. Unquestionably, the spread of this monstrous failure is continuing to raise awareness of the crowdfunding community and has cynics questioning whether or not to trust Kickstarter and other similar funding channels.