When smart hardware defaults become a trend, what should crowdfunding platforms do?

Smart hardware is very popular. However, when more and more hardware conferences use "no delay" as a promotional point, you may think that the statement "the delay rate of domestic smart hardware has reached 70%" has some truth.

While large companies invest their own money to make products, small smart hardware companies tend to choose to release products on crowdfunding websites, then default on payments and apologize. After repeated apologies, they finally ship the products, but when consumers receive them, they find that they often do not match the initially released design drawings.

This has also led to a general trust problem facing crowdfunding platforms. For crowdfunding platforms, the survival is based on trust. Funders need to confirm that their money is invested in the goals stated by the project initiator, and the project initiator needs to ensure that the fundraising amount is received; from this point of view, the frequent default of smart hardware has become a major obstacle to the rapid development of crowdfunding.

Jump and jump, you will get used to it

In December 2013, smart bracelet manufacturer HALOBAND started crowdfunding on Kickstarter, promising to ship in January and February, raising a total of $45,000; in January 2014, HALOBAND started crowdfunding on Roll Call Time, saying it would ship in March, raising a total of 18,000 yuan. However, HALOBAND actually shipped in July 2014. HALOBAND founder Luo Xiangyu posted on Weibo at the end of July: "A backer left a message saying that he ordered a lot of products on Kickstarter, and our Haloband was the first to receive it. Hahaha, we were the first to receive it even though we were delayed so much."

In December 2013, Cuptime, a smart water cup manufacturer, started crowdfunding on Dianmingshijian.com, promising to ship the cups in February, raising a total of 1.358 million yuan. However, the actual shipping date of Cuptime was April 23, 2014. Li Xiaoliang, the CEO of Cuptime, admitted that the production cycle was completely unpredictable due to the ultrasonic plastic welding process of Cuptime.

These are just a few of the many hardware products that have been delayed. Another particularly famous example is the Touman T-Fire watch. In addition to these startups, delays are also common among large companies, such as the 360 ​​children's bracelet, Xiaomi router, etc.

The reasons for the delay are mostly that the startup team underestimated the difficulty of hardware product mold testing and core algorithm, and started to promote on crowdfunding websites when there was only a prototype, which eventually led to the delay. The following two are the problems that those who delay the delivery often encounter:

1. Product requirements are "strange", technology is difficult to achieve, and the yield rate is low. Many smart hardware products will use new materials or new processes, and many times the foundry also needs to try and error again and again, which makes the product development time completely unpredictable;

2. There are few early orders for products, and the supply chain does not pay attention to them. The first batch of orders for smart hardware products is generally between a few thousand and ten thousand. Such orders are too small for many large component suppliers and foundries, so they will not be taken seriously, will not get enough resources, and will be difficult to supply in the short term.

Is it illegal to just jump when you say so?

Is there any legal risk in project default? Yang Dong, director of the Internet Finance Law Institute, told NetEase Technology that it depends on the contract signed between the project and the platform; if the project initiator fails to deliver the goods within the time promised in the contract and delays for a long time, it will violate the Contract Law. According to Article 107 of the Contract Law: If a party fails to perform its contractual obligations or performs its contractual obligations inconsistent with the agreement, it shall bear the liability for breach of contract such as continuing to perform, taking remedial measures or compensating for losses.

According to Article 114 of the Contract Law, the parties may agree that when one party breaches the contract, it shall pay a certain amount of liquidated damages to the other party according to the circumstances of the breach, or may agree on the calculation method of the amount of compensation for losses caused by the breach. If the parties agree on liquidated damages for delayed performance, the breaching party shall still perform its obligations after paying the liquidated damages.

Zhao Hui, a lawyer at Dequan Law Firm, also emphasized to NetEase Technology that if the project initiator breaches the contract, according to the Supreme People's Court, the project initiator will be liable for liquidated damages of up to 30% of the total amount. If the initiator flees, he may also be held criminally liable for violating Article 224 of the Criminal Law, "Contract fraud; organizing and leading pyramid selling activities."

Article 224 of the Criminal Law stipulates that if a person absconds after receiving goods, payment, advance payment or security property from the other party, if the amount is relatively large, he shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention, and shall be fined or fined alone; if the amount is huge or there are other serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than ten years and shall be fined.

How do crowdfunding platforms control payment defaults?

To reduce defaults, the most important thing is still to rely on the entrepreneurial team to solve the problem themselves; but from another perspective, risk control on crowdfunding platforms is also a way to alleviate the problem.

For users who participated in crowdfunding, they hope to get the product as soon as possible. Therefore, several major platforms in the domestic crowdfunding market are currently more tolerant of projects. If there is a delay, the platform will mainly remind the project initiator through coordination and supervision: for example, when booking new products on Dianmingshijian (the company has begun to transform into an e-commerce platform), you can clearly see the statement posted by Dianmingshijian: "If there is an unavoidable delay, Dianmingshijian will promptly urge the team to explain to everyone and actively solve the problem. We also hope that everyone can understand and wait patiently."

Project initiators often communicate with users about the latest project progress in a timely manner and try to appease users. The inWatch watch, which raised 1.12 million yuan on the crowdfunding website, was compensated for its delayed delivery, which is a standard for domestic smart hardware products: after discovering that it could not be delivered on time, inWatch CEO Wang Xiaobin promised users an unconditional refund. In addition, the first batch of pre-order users can upgrade to the new model inWatch one S for free within three months.

In order to avoid defaults as much as possible, domestic crowdfunding platforms mainly control risks through early project audits and withholding deposits after successful crowdfunding.

1. How to control before launching the project:

Zhang You, CEO of Dianmingshijian, previously told NetEase Technology that all projects launched on Dianmingshijian must be reviewed by Zhang You. After the transformation to e-commerce, Dianmingshijian will only select smart hardware products that are in the trial production to mass production range. These products have often obtained angel or A-round financing and are relatively mature.

Sun Hongsheng, CEO of Crowdfunding.com, also told NetEase Technology that Crowdfunding.com has arranged a multi-person team to follow up in each category, and the project manager of each category will be responsible for connecting and reviewing the authenticity and feasibility of the project. Under strict management, the current approval rate of projects submitted on the Crowdfunding.com platform is only 20%, and it was even lower in the early days, at only 3%.

2. How to control after the project crowdfunding is successful:

Sun Hongsheng said that after the project crowdfunding is successful, the crowdfunding website will prepay 70% of the amount to the project initiator, and then pay another 30% after the project is successfully shipped. If the project defaults, according to the agreement between the two parties, consumers can directly request a refund.

Zhang You told NetEase Technology that after the transformation to e-commerce, Dianmingshijian will not pay any fees to the project initiator before the project is successfully delivered. The amount raised will be paid in one lump sum after the project is successfully delivered. If the project is delayed, consumers can also request a refund at any time.

Du Mengjie, CEO of Dream.com, also told NetEase Technology that Dream.com will prepay 50% of the amount to the project initiator first, and then pay another 50% after the project is successfully delivered.

How do foreign crowdfunding platforms work?

Compared with the cautiousness of domestic crowdfunding platforms, the two foreign crowdfunding platforms mainly play the role of platforms and are not responsible for the authenticity of the projects.

Although Kickstarter has banned the use of product renderings for promotion since the end of 2012, Kickstarter's instructions clearly state that "Kickstarter cannot guarantee the authenticity of project information and user information."

Indiegogo's project requirements are lower. It is more willing to act as an intermediary, connecting project initiators and users and promoting the establishment of relationships between the two, but it does not actually bear any legal responsibility. This point is repeatedly stated in Indiegogo's terms of service. In China, according to Article 131 of the Contract Law, if an operator provides goods or services to consumers in a fraudulent manner, he shall bear liability for damages in accordance with the provisions of the Consumer Protection Law of the People's Republic of China.

This has also spawned a new industry abroad: insurance for crowdfunding projects. Startup Asurvest has proposed a new solution. If the crowdfunding project invested by the user defaults or even commits fraud, the insurance agency will pay compensation.

Asurvest founder Luke Cooper has worked in the legal and investment banking fields. He also plans to build a "risk engine" to conduct project risk analysis for users who invest on the Kickstarter and Indiegogo platforms.

Conclusion:

Relatively speaking, the current level of development of smart hardware in China is still relatively low. In addition to crowdfunding platforms raising the entry standards for projects, consumers are also cultivating patience for smart hardware; after all, Xiaomi has not yet shipped its products!

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.