They sold 350 scooters at $700 each. So just under $250k in sales. They decided, right before Christmas, that they would tell all those people their $700 has been thrown right in the trash.
The founder of this company is the founder of Tile, a VC-backed company worth $XXX million that has raised $104M+. If this person had any morals he would cash out $250k of his shares in Tile and pay back the people who ordered his scooters. Hell give them half back for $125k. That is chump change to a successful SV founder.
I know that legally he has no obligation, but how can he sleep at night? This wasn't "oh making hardware is way harder than we thought and we couldn't afford it" this was "well I figured if I couldn't sell a million of these I'd rather just give up so I spent all the money on ads".
How do I sleep at night? For the last three weeks I've been waking up at about 2AM every night with anxiety running through my body. My life absolutely sucks right now and it will for a while. I absolutely would pay people back personally if I could. I'm working on a way to get refunds back to people.
Things were not going in the right direction and we started moving forward with a more graceful exit that would have gotten scooters to our current customers, but it fell through and then we reached the point of no return.
Basically my only job right now is to find a way to get returns back to people.
Thank you for sharing your side of the story. I was wrong to attack you so personally on a public forum and I apologize for that. It's too easy sometimes to forget I'm insulting a real person when I'm critical online.
I hope your work pays off and you find a solution.
Legally he does have an obligation. All the commenters suggesting that this behavior does not pierce the corporate veil are wrong (on the internet!) and assuming incorrect legal knowledge may be dangerous for the next founder who reads this thread and thinks their liability is limited when engaging in similar behavior. Selling a product with inadequate capitalization is a common basis for piercing the corporate veil.
Tile was a company that always rubbed me in a weird way, too. They spent an incredible amount of money on marketing, yet I never heard of anyone using them. For years.
It seems they "only" had $150,000 in funding, but as they were basically white labelling the Segway ES2[1] I'm surprised they didn't just hold onto their sales revenue to purchase the product...
Interestingly enough, about 2 clicks around their site and you realise they didn't even put the effort into setting up their Shopify site correctly... - https://unicornrides.com/collections/all
Playing devil's advocate here but the Shopify issue is because they removed the only products they sold on Shopify (that's why it 404s at /products/unicorn-scooter-product), that results in the collection being empty and that page showing up.
So their Shopify was likely fine until the business went under. Then they quite correctly stopped letting people make additional orders.
I’d rather they white-label the Segway than build the monstrosity in the video. Though the Ninebot won’t let you tote your three year old on it like in the video. (WTF? I know people do it, but advertise it as a feature? I ride a Boosted Rev to work every day, and my advice is: no one under 13 admitted, at all.)
Others in this thread are saying it was $700? Why not buy the Ninebot for $100 less? Or were the shipping models really going to have custom deck as in the video?
If you give $700 to a company that promises to deliver a scooter, and they spend that money on advertising, that’s fraud.
They have no plausible argument that they didn’t know they couldn’t deliver or refund customers after they started spending pre-order funds.
I hope customers get successful chargebacks and there’s a class action lawsuit. This wasn’t a crowdfunding campaign. Consumers were lied to, and the law should make clear that this is unacceptable business practice.
You're not wrong, you're an idealist, which typically are very closely intertwined when it comes to reality.
If you gave $700 to a company who promised to deliver you a scooter a few years down the line if all of the dominoes fell exactly as planned... I would argue that you got what you paid for even if it amounts to nothing tangible in the long run.
Which is to say, you paid for a pricey digital lottery ticket with a very low potential ROI.
It's a crying shame, absolutely.
But it's nothing to burden the court systems with.
> If you gave $700 to a company who promised to deliver you a scooter a few years down the line if all of the dominoes fell exactly as planned... I would argue that you got what you paid for even if it amounts to nothing tangible in the long run.
Is that what happened with this company? That's the model of kickstarters and the like, but this story sounds like it was a real company offering a product for sale. If a company can form, offer a product, sell 350 units, pay employees & expenses, then fold without delivering product or refund, nor facing any legal repercussions, what's to stop the same employees and founders from following that method ad infinitum? Form company #2, offer a different vapor, take in money from sales of the never-to-be product, spend it on salaries, declare that the product won't be delivered nor refunds given, and move on to company #3. If that's what this company has done, and the court systems are never burdened with tackling such an issue, it is a viable if entirely unethical model for the people involved.
You don't really "sell" products on kickstarter, you try and convince people that you'll actually follow through on your vision.
I've backed a dozen or so, and I've got about a 50% hit rate of anything coming through. The failures are always interesting. Trying to guess, ahead of time, which ones are failures (or scams) - is an education into itself. They always seem so earnest in the beginning.
But, yeah - go into kickstarters with your eyes open. Particularly with people who don't have a track record of deliverying - that, in my mind, is the best signal around. If they've come through more then 3 or 4 times in the past, that's a good indication they may come through on this one.
Then you have a legitimate claim. Unfortunately, it sounds like you are an unsecured creditor, thus you can get in line at the bankruptcy hearing (metaphorically speaking) but you are going to be second to last in line after the secured creditors, employee wages, taxes, etc thus are not likely to see anything.
I consider kickstarter an entertainment product. You pay to watch and participate a bit. The physical product/non-product at the end is part of the "story".
This is a bit nebulous. Every consumer, especially where the expense is a lot of money for them would do well to give this idea more thought.
A pretty website, a few employees and some prototypes doesn’t hit a meaningful bar, let alone millions of dollars in capital (which this joint didn’t even have), TBH. Too bad fuckedcompany is no longer around, it did a great service.
How is that link related to this company? Do you have some information they were even the same supplier?
Regardless, doesn't change my basic point, which is that "real company" is a nebulous concept and not prudent for a consumer. My neighbor's venture without even a business certificate may be a more "real company" because if he fucks me over he has at least has to see me everyday for years.
Depends who you’re scamming. Quite a few powerful and rich people who I would classify as being “scammers”, but their victim is usually a group of people such as taxpayers.
Plenty of companies never deliver a product, hence chargebacks being built into our credit & debit systems (and being available for checks in a restricted form)
Informing all consumers in the market is not a legitimately accomplishable solution to the problem. As long as there are 350 consumers unaware that these people have done this before, and they never have a day in court over it, this story can repeat itself forever.
Assuming this is as easy as you make it out to be, don't you think it would be relatively easy to host this scam business' site offshore/anonymously and scam people outside the jurisdiction of the US courts?
I don't think you are either. But it's a risk you're taking buying a product from a fledgling internet-based startup. Shall we make it easier to start an internet-based business over a brick and mortar shop with laws that benefit the former with the latter's inherent advantage?
> But it's a risk you're taking buying a product from a fledgling internet-based startup.
This is my problem. It is not reasonable to expect a purchase of a product online to be a gamble, a risk that you will get nothing in exchange for your money. No matter whether they're internet based, no matter how old they are, if a company offers a product for sale, it should not be "risky" to purchase it.
The comment I replied to said we shouldn't burden the courts with taking the people behind such companies to task. But if we don't, there's nothing stopping them from doing it again and again.
When I buy a product from a brick and mortar store, there is NO risk to not receiving the product.
When I buy a product online, this is ALWAYS a risk, no matter what.
Your solution uses my tax dollars to make online businesses more competitive with brick and mortar stores, thereby making it more difficult to run a profitable brick and mortar store/mom and pop shop.
>No matter whether they're internet based, no matter how old they are, if a company offers a product for sale, it should not be "risky" to purchase it.
Your solution offloads some risk from the consumer onto everyone else. I agree with the comment, you put the burden on the courts and by extension, me, to pay taxes to support other people's poor ability to reason about what businesses may or may not be scams and encourage risk-taking buying products from risky businesses.
>But if we don't, there's nothing stopping them from doing it again and again.
Again, informed consumers... Accept you're taking a risk buying a product from a fledgling internet-based startup, a risk that wouldn't just go away even if we all incur the large expense getting the courts involved.
We're both basically just saying everything we've already said. No sense in going in circles
They were taking orders and spent the money on something other than delivery, hence could not deliver to creditors. In the UK (where my current company is incorporated) this would make the company insolvent under the Insolvency Act of 1986. It's against the law to operate in this state. [1]
We have to sign documents that assert our finances are in good order for this reason. Violating the law subjects you to various penalties. I'm not eager to find out what they are.
Yeah, I don't understand the craze with all the kickstarters.
I've backed a few here and there. Two of them I knew the principals for a while before the kickstarter began.
And I supported them at a level I considered a donation, so that if I never received anything, that's OK.
Another I backed (ReSpeaker from Seeed Studios) I did because we were interested in it for a project at work, and it was convenient for me personally to back it. And they did (eventually) deliver, which I had a reasonable assurance of because I'd bought from Seeed before.
If you want to back a game or something at a reasonable level (like $40), that's fine.
I did almost back Tilt-5, but ended up not doing so, not because of any concerns about the company, but concerns about my time that I'd have to mess around with it when I got it.
> Yeah, I don't understand the craze with all the kickstarters.
It used to be they were a cool way to get access to products that were otherwise unavailable.
1. I got some amazing desserts from around the world that no way would have been able to try otherwise
2. Limited production run clothing using experimental materials
3. Stick on Cell phone microscope lens! The ones I got were before they became a common thing, and they were a small batch production run
4. Board games that are only ever sold through kickstarter.
Now days kickstarter is a lot less fun, it used to be I could go browse local projects and find a ton of local creators to support, lots of kids out of school trying to make their first video game, local board game designer wanting to release his/her dream, that sort of thing. Now days I find a lot less of those quirky fun projects, which is sad.
I never expected anything to arrive on time (software!) and it is pretty easy to spot a hardware project that is going to fail, e.g. if the amount of $ a team wants to raise to make a smartwatch is less than a single run of tooling to make a smartwatch, it is obvious the team doesn't know much about manufacturing! (Though now days outside investors are pulled in after a successful Kickstarter demonstrates interest).
I also got one of those cool track-belts before they became easily available in the US, and I got this obscenely overpowered LED light bulb that I can't actually use anywhere because it is too bright!
Still sad I never got my glow in the dark plants though, that project is what first got signed up for Kickstarter.
> (Though now days outside investors are pulled in after a successful Kickstarter demonstrates interest).
This was happening probably since the very beginning. Around 2013, I did independent technical evaluation of a certain hardware startup on behalf of a local accelerator, and one of the things I've learned is that the startup in question had some funding that was conditioned on the success of their Kickstarter campaign, which was meant to feel out the market.
True enough, but it has become a much bigger thing now. I've even seen a couple kickstarters showing their funding split on their kickstarter project page between investors and kickstarter funds.
The level of professionality in modern kickstarters is a bit of a turn off really. Seeing massive slick ad campaigns for a kickstarter isn't exactly a sign of authenticity.
But then again if those ads have a positive ROI I totally get it.
ReSpeaker was a shame, though. The v1 hardware was horrifically unstable (and then they quickly moved on to v2 and swept v1 under the rug). But, I went into it with the expectation that things might work out, so, while I was disappointed, I knew that was a possibility from the start.
Indeed, how many Kickstarter projects will it take to convince people preordering on an unsure thing is a gamble and basically an investment in an idea that interests you.
Tons of billion dollar projects, let alone those with only a few million, have been delayed for years, changed half way through, or have died before finishing.
The failure rates for new businesses is pretty high, 50% in the first year.
One could question if its moral to take early preorders without some form of insurance but at the same time a ton of good things have come about using this process and proper communication by the company/purchasing platform can mitigate most of these issues.
Plus it’s pretty rare for people to being giving hundreds of dollars, let alone almost $1000, to an unproven product so it’s probably best not to judge based on the extremes.
Obviously if shady stuff is going on and there’s some evidence the company didn’t meaningfully try to accomplish the goals for which it raised money and misused company funds for personal benefit then there’s a serious problem. There's plenty of laws in place for that already.
Even though you are trying to warn people, you've accidentally fallen into Kickstarter's "dark pattern in broad daylight" by using the word "preordering."
Kickstarter donations (I consider it a charity) are not pre-orders. If I preorder a book on Amazon and it is late, tough for me. If the publisher closes down, Amazon gives me my money back.
Kickstarter donations, on the other hand, don't even have that recourse. We're giving them money out of the goodness of our hearts, and if everything works out for them and they feel like giving us our reward, we receive a nice "thank you gift."
Kickstarter transactions are charitable donations. We don't get a tax receipt, but if things line up, we do get a reward. If we think of it as charity without the tax benefits, we won't go wrong.
But the moment words like "preorder" or "purchase" enter into the conversation, we've fallen into the trap of thinking that we're consumers purchasing a good or service.
This was not a crowdsourcing product. I ordered two scooters because they were advertising scooters for sale. Nothing in my purchase order stated that my order wouldn’t be filled immediately. It was once they had my money that they kept pushing the date back for shipping.
A misguided marketing strategy isn't fraud. That doesn't sound like deceiving people for personal gain by itself.
Unless the whole plan was to sell preorders and feigning failure in order to take the funds. But that's a serious claim and it could be grounds for an investigation if law enforcement was pressured. But it would take more than complaining about FB ads.
>A misguided marketing strategy isn't fraud. That doesn't sound like deceiving people for personal gain by itself.
Quite right. It's potentially an dereliction of duty and could be seen as being dumb enough that shareholders in a company could force an officer out (of course, here it doesn't matter b/c the company is bankrupt), but unless you can prove malice or untoward gains (like, the person making the Facebook buys was getting a cut from Facebook or money was being funneled from the ad buys into someone else's pockets, which does NOT appear to be the case here), there is no fraud.
When a company is going bankrupt, the best that can be done is that the backers can try to fight to be higher on the creditor list to get whatever scraps are left (assuming any scraps exist at all).
All completely correct but I'm unclear who the shareholders are here (other than the CEO/douchebro). Certainly not the people who are out $700. Not fraud, just "My bad. Screwed you. Maybe next time.".
A class action lawsuit against who? You cannot sue a company that no longer exists. It is unlikely consumers would be able to defeat limited liability, particularly with the argument that "the company should have allocated resources differently."
It might not be that unlikely... For example, it's possible they don't have the advertising invoices to back up the claim that that's where the money went.
It is, however, very unlikely that anyone ever gets their money back.
Sure, but nobody has given an example that would be considered fraud. "They spent too much on marketing and not enough fulfilling orders" isn't in itself fraud, just a badly run business that is now bankrupt as a direct result.
If the bar for fraud was set that low, I bet half of failed startups would be considered "fraudulent." More than half if you look at restaurants.
> Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage.
Unless you have some damning email or other disclosure you'd never be able to prove that they knowingly sold scooters they never intended to fulfil, therefore fraud is out. In fact all the evidence seems to indicate the opposite, that their long term goal was to make this a successful business and grow until the money ran out.
On 11/13 they promised to be preparing to start deliveries on 12/15.
If at this point they had not made an effort to reach this goal (placing an order with the manufacturer for example), that is a misrepresentation of fact.
Fraud doesn’t imply malice. They could have jumped the gun on announcing they were preparing to deliver, but doing so would still constitute fraud, especially if this drove an increase in orders.
Legally it does. The discussion was about using lawsuits to break Limited Liability. In that context malice is absolutely required to stand a shot at winning.
> They could have jumped the gun on announcing they were preparing to deliver, but doing so would still constitute fraud, especially if this drove an increase in orders.
There's a large problem with this argument, by the time that delivery "promise" had occurred the exchange of money had already happened. Fraud occurs when someone receives something, through deception, that they wouldn't have otherwise received. By the point of this claim the exchange had already taken place, and therefore the claim didn't indice anyone (i.e. they didn't gain additionally from it).
I think it boils down to people conflating "right and wrong" with "fraud." Nobody is saying this business was run well or they didn't do wrong by their consumers. What we're discussing is the legal definition of the term "fraud" and if a hypothetical lawsuit would be winnable.
If they were still accepting new orders on 11/13 under those promises, that might be fraud. But any of the older backers wouldn't fall under that.
You would have to prove that when the statements to prepare delivery for 12/15 were made, the company had absolute knowledge that no future funding was going to come and that it was guaranteed that they were lying.
If the company was in talks with other investors and thought it might be able to raise in order to ship what was necessary, that's not fraud. That's bad business and everyone should be weary/stay the hell away from any future venture from this place, but that isn't fraud.
I'm not a lawyer, but I believe you could argue that such a statement was intended to keep people from doing charge backs or demanding refunds. In any case you probably have enough to begin discovery, and given the cost of a lawsuit and the embarrassment of what that might uncover, the people behind the company may decide it's easier to settle.
The reason to use crowdfunding platforms like Indiegogo or Kickstarter is because you are not liable to pay people back who give you money for your project. By accepting credit cards directly you forego this release from liability. Not only is there personal liability for damages, there would also be a criminal investigation. Lily Robotics had a similar situation. A warrant had been served to collect information for a criminal investigation, but Lily paid everyone back since they held all the money separately.
It is fraudulent to take payment and not deliver product regardless of the intentions of the founders to be successful. Lacking mens rea, perhaps makes it a misdemeanor instead of felonious, but courts will push the founder all the way to bankruptcy and potentially to jail if they cannot repay damages.
Seems like other comments may not understand what constitutes fraud. I have experience with this situation and discussed it with my lawyer when my company eschewed kickstarter/indiegogo and opted for direct sales instead. We even used our rejection of crowdfunding for PR to boost sales (thanks techcrunch!). Our sales spike was such that PayPal held our money in reserves, which led me to take on all sorts of awful loans to pay for scaling production and made for a slow and painful fulfillment process.
But the broader point about lawsuits not being free is valid. Because in addition to filing fees, you need to pay lawyers to do this. And I am not a lawyer, but I don't know many good lawyers would would take on a case to go after a bankrupt company that has no assets. And even then, those good lawyers are going to want a retainer and multi-hundred dollar an hour fees to do the work, so sure. File a lawsuit. Spend tens of thousands of dollars to get a judgment that the defendant can't pay. What good does that do?
Like, to be clear, if you have more money than God and want to spend time making a point, I'm all for it. You do you. But most people don't have that much money or time to piss away when there is nothing to be gained from the exercise.
It would never go to a jury. The claims of fraud to penetrate limited liability would be thrown out by the judge for having no legal grounding, then they would be stuck suing a limited liability company with no money.
Why would anyone do this when you can get what seems like the same scooter for $300? Isn’t this the same as those Xaiomi (spelling?) scooters I keep seeing for sale?
It might be better to have higher/stricter standards than suing them after the collapse. For example, some rules around how much of the raised money they are allowed to spend on advertising, forcing them to post monthly financial statements (so any money mismanagement is caught early) etc - something like that. This might improve the quality of companies attempting such projects.
Litigation is expensive - plus, 150K isn't that big of an amount in the larger scheme of things. This isn't Theranos level fraud, assuming it was a fraud and not just incompetence/inexperience
You're not wrong. They should have focused those monies on building the actual product first and then shipping it. At that point, once the kickstarter units are built and shipped, grow your business accordingly. To have nothing to show for the efforts is deplorable.
Hyped industry, sort of hyped name, wasting money on FB ads. It seems like they were “hacking” their way to quick success instead of focusing on delivering a proper product - exactly like Paul Graham described in his recent essay http://www.paulgraham.com/lesson.html
> It seems like they were “hacking” their way to quick success instead of focusing on delivering a proper product
Generally - not specifically - speaking, in a world where your competitors can throw away millions of VC dollars into hacking their way to quick success and market share, this is a valid strategy. It may, in fact be the optimal strategy.
Of course, if you don't have said millions of VC dollars to throw into that game, then you're not going to meet much success by trying to play it.
It might be better using other advertising channels if your competitors are pissing away VC money drastically raising bids and making it virtually impossible for any "proper" business to do well in digital advertising utilizing the same channels.
You can notice this even within sub-segments of Google Ads and Facebook Ads where there is a propensity for advertisers to just throw millions at the channel without expecting to be profitable right away (or ever).
But the good news is that if some channels are over-saturated with "free money", then chances are there are other channels are that undersaturated.
Here's my take: the company needed to raise $X to deliver their $700 scooters. They had raised $Y where $Y < $X.
Since the only way for Unicorn to raise money is by preselling scooters They had to sell more scooters. Word of mouth wasn't doing it so they tried advertising for customer acquisition. Nothing unusual here.
So when they say the as we expensive what they realty mean is customer acquisition was really expensive. To put it another way conversions were really low.
So they likely completely understood these costs. They may have been unrealistic. They may have been sold a bill of goods (as agencies are notorious for unrealistically optimistic CPA costs). They may have simply not budgeted enough or expected more organic sales.
So they may want to blame this on expensive ads butt what they realty mean is they screwed up and underestimated customer acquisition costs.
Snarky comment about LLCs being able to shirk responsibility by just going bankrupt...
But really this seems like a basic class-action fraud suit on what they hoped would be a bootstrapped ponzi-scheme. (Spend enough, fast enough to get enough customers to be able to actually deliver your product) but not keeping at least enough money in reserve to make minimum refunds is a major liability.
I feel horrible for the people who had to scrape together the $700 for a Christmas present for their kids, who won't be getting their scooter (like the person in the article). For most middle class people, that's a lot of money. I second the comments about successful chargebacks, because this will probably be ruining some kids Christmases out there otherwise. :(
- who is scraping together their life on one hand and buying $800 gifts?
- if you're really doing the above, why would you take a gamble instead of buying something currently available?
IOW as much as it is painful to read this, it seems pretty designed for an article rather than real world (am talking averages I guess). If it is real, that's the learning I'd take away more than someone defrauding their customers - which happens everyday :)
> who is scraping together their life on one hand and buying $800 gifts?
Having grown up poor I know it's not uncommon for parents to save during the year for that one big annual gift. This customer of Unicorn is one example:
> “I am upset he basically robbed everyone of his customers and is closing without delivering any scooters,” Rebecca Buchholtz wrote in an email to The Verge. “This was my daughters Christmas gift and now I cannot get her any gift.”
I was 50-50 on the victim blaming comment to show up since this was HN and not reddit, lost that bet :)
As much as blaming is wrong, I do believe in personal responsibility as well. I do not agree with the broad brush that's being used widely around victim blaming being 100% bad. I think it is a spectrum and in this case it definitely tilts towards the buyer.
And no - pre-order from this site is not the same as PS4 pre order. There is a huge difference between a big company that has something to lose and will stand behind its product Vs a random company that goes bust after a facebook spend - that's what makes it a gamble.
>- who is scraping together their life on one hand and buying $800 gifts?
You're lacking reading comprehension. Nobody is scraping together their life.
People are scraping together money for a Christmas gift. If you have $300 left over every month you still have have to scrape together 3 months worth of savings.
Also Christmas will be ruined regardless of how much money you spend on the gift if it never arrives.
you could have bought a xiaomi scooter on amazon for $300 - $400 anytime this year. who would ever buy into some maybe-scooter kickstarter if they were low on cash? and who low on cash is buying $700 christmas presents?
Not sure why you would jump to such a dismissive conclusion without at least doing some reading - media reporting has first-hand accounts from customers[0]:
> “I am upset he basically robbed everyone of his customers and is closing without delivering any scooters,” Rebecca Buchholtz wrote in an email to The Verge. “This was my daughters Christmas gift and now I cannot get her any gift.”
What's more insane about this is that they went broke after whitelabeling an off-the-shelf Ninebot/Segway ES2, that retails on Amazon for $480, $220 less than what Unicorn was offering. All I can see that they offer on top of the scooter is "UnicornCare," basically insurance for $1/day on top of the $700 price.
Ironic considering most tech startups' exit plan is essentially to be acquired by FB/Google/Amazon. They are de facto R&D branches for FB/Google/Amazon with all the attendant risk and none of the benefits.
I have read people say that a key difference in entrepreneurship in the US versus European countries is that European company founders are much more likely to be held responsible for their companies' debts and are therefore much less likely to experiment with new businesses at the rapid pace we see in the US.
Would that have been true here? If a German startup had raised $150k in venture capital and taken $250k in orders from consumers and shut down without sending any products to any customers, what would happen to the founder? Would he end up paying someone $250k--$400k out of pocket for a long time?
There are different forms of companies in Germany (GbR, UG, GmbH,...) some of which require personal liability and some which don't (to some degree).
E.g. a GmbH is a limited-liability (at least 25k €). BUT the CEO has to act with diligence. Otherwise (e.g. acting with negligence) they are liable with all of their personal assets. In my non-expert eyes, the CEO of this company would be liable even under the shield of a GmbH.
At least in Belgium, you could still be charged by neglectance when your company goes bankrupt. I have no idea what that means in practice and how many are actually convicted.
This is to prevent doing irresponsible things without it being real fraud.
There's a Germany company, called Relocatly that took money from hundreds of people shipping household goods from Europe to the US -- they went insolvent, our goods were held in port by the actual shipping company and now we have to pay the shipping company despite having already paid Relocately.
They took money for shipments even after they already knew they were insolvent. Now our original payments are trapped inside the insolvency account and the managers of the company? No consequences at all even though they took money for a service they knew they wouldn't be able to provide.
Small anecdote, but the claim that "European company founders are much more likely to be held responsible for their companies' debt" is not true in my experience. If anyone is interested in reading some of the customer stories of Relocately: https://www.international-movers-reviews.com/company/relocat...
My point isn't to complain about that specific company, but to provide a counterexample that the idea that European corporate governance isn't necessarily "better" at all. They scam and fraud just as readily as anyone else.
Don't know about Germany but in Switzerland the managers are not personally liable for the debts of a company.
Except the damage to the company/employees/clients can be be proven to be intentionally or negligently caused by a manager. For this, the they can be held liable with their entire private assets
Facebook ads are way too expensive and tend to not convert that well. There are stories of fake likes and fake clicks. If your growth strategy involves buying click ads, find another strategy or business idea. Groupon is another company that overpaid on Facebook ads to build its email list. Disney and other multinationals are the only companies that should buying such ad.
This may be tinfoil hat territory but I'm convinced Facebook (as I can't see what someone else gets from fake clicks) produces fake clicks/likes.
I had a startup and ran very targeted ads (gender, city, occupation). We were running small dollar amounts ($200-300 campaigns) and would get likes on our ads. The use would have a modest profile set up, usually a visible minority (which wasn't out of the ordinary for our target) but often weren't in target city and would never respond to any communication. I would message them (usually very shortly after they clicked like) and would never hear anything back. Why 'like' a Saas product offering ad if you have no intention of engaging with the maker? I also couldn't understand why they were shown the ad in the first place.
I have heard both sides, I think it depends on your industry. I know people who are blown away with how much ROI they get from Facebook ads. Others have the experience you mentioned.
I think the cost of Facebook and Google ads blindsides many founders who take them for granted as a distribution channel when planning their startups, particularly founders who have no experience with them, or (even worse) founders who used them several years ago when they far cheaper and are unaware of how the landscape has since changed.
You should assume they will simply not be available to you for planning purposes. Occasionally you might stumble across an untapped niche where it is still possible to run ads at a cost permitting reasonable ROI but in my experience that is now the exception rather than the rule. If you do find such a niche it is more likely to be on Google, since their keyword-based model permits such niches to theoretically exist, whereas Facebook is an all-out competition by all advertisers for the same newsfeed slots.
Oh the compound irony of a company LITERALLY NAMING THEMSELVES UNICORN coupled with someone actually being dumb enough to invest in said company, coupled with it failing.
This makes me wonder about Y Combinator. What this scooter company so new and innovative that it warranted investment? Isn't it one of dozens?
Or is it that there's must too much VC money without enough places to put it...?
More pessimistically, it's plausible that a lot of VC money gets spent on expenses that directly or indirectly benefit those VCs, so it's less about the viability of the startup and more about the money flow.
It's possible that the goal of VC is _not necessarily_ to make the highest performing investments, but rather _convince_ prospective and existing LPs that the VC is making the highest performing investments. After all, the LPs pay the management fees. In order to do this, you need to sell a good story, and a good one to sell is one that is already established by social proof: "Look at these scooters taking over cities - don't you want to be part of it?"
After some research, it looks like they were a part of Y Combinator's Winter 2019 graduating class so I believe that seed round is a part of the package you get when accepted.
Assuming for a moment that there's no fraud with this company, this is a great example of how you can quickly go broke selling a popular product. If the payment terms, product delivery logistics pipeline, etc. are more protracted than your suppliers', you will get strangled by your accounts payable before your receivables can save you. This was the genius of Dell's built-to-order system: they had (have?) a negative working capital position.
Of course it's also a great example of how you can, if you're not careful, light a pile of money on fire with performance ads. Please, people, please, test your advertising!
I don't understand how companies like this think they are going to make money? Electric scooters are a solved problem. When there are too many companies in the same market it becomes a game of who has the biggest bank account to spend on marketing. Clearly they didn't, and they lost the game.
I just can't understand how someone can be so irresponsible. They knew exactly what their ad spend was and how many pre-orders they had in the pipeline. Since they only had several hundred pre-orders, they could have easily set that money aside for refunds, but they didn't.
As others have pointed out it is obvious at the outset what ads cost, and you can set budgets. None of this should have come as a surprise or a "opps we spend 150K in one day" kinda thing.
I am assuming their line of thought was:
1 - make some sales
2 - spend income from step 1 on more ads to drive traffic to site
3 - go to 1
Kinda like they put themselves into their own recursive ad-pyramid-scheme or something.
Condolences for the customers who go burnt by this.
2. Spend it on sales, even if their COS exceeds the margin on each scooter.
3. Rack up some "engagement" and "traction."
4. Raise another round.
That's basically what WeWork was doing: Spend so much on commissions that they were losing money acquiring tenants, but raise money based on various BS "metrics."
Digital advertising can be as addictive (and dangerous) as heroin. You give FB some money and customers start to show up - it feels like you suddenly have a real business. If your analytics are off or you don’t even have the right KPIs to start with, you can kill a business very fast, even while the intoxication of traffic distracts an inexperienced team until the very end.
Moreso, they should know their conversion rate and cost per click, and could adjust their spend at any moment. Sounds like they're just trying to pass the blame.
Hard to say. One way is that they say got 100K in sales on 10K in ads. Then they said, hm, lets take 50K from sales and put it into more ads so we can get 500K in sales and the remaining 40K went to tooling/production. When that 50K ad buy didn't really pan out, now they have 40K towards fulfilment which probably doesn't meet their suppliers MOQ if it even covered the NRE (non recurring engineering) and tooling. Its more or less the same problem that all companies encounter when they do preorders/crowdfunding/etc.
There is a solution of course - you need to raise enough money (or commit, in the case of Tile founder who should have had enough personal capital to make this work) to never be in a financial position that you couldn't simply return all your customers money in the event that the product or business didn't make sense. As long as you can gaurentee that you hold onto enough money for the returns, you are operating responsibly. If you take 100% of the money you get from sales and commit it, you cant take back ad spend or tooling/engineering spend. Is it fraudulent - I'm not sure. Is it irresponsible - most definitely.
As a startup entrepreneur myself, I've bought into a few Kickstarter projects and I haven't gotten hosed yet. However, I think this is because I'm pretty cautious. I look into the track records of the people, assess the viability/difficulty of completing the project based on my experience and I tend to buy in quite late in the process.
There have been a lot I've passed on due to the fundamental uncertainty of manufacturing offshore hardware. I just bookmark them and buy it from Amazon when it's actually shipping for real. Often it's not much more than the Kickstarter price (and sometimes it's less).
I count at least three scooter companies in the capital.
They are all startups funded by quick venture capital.
Their scooters litter the street for blind people.
They pollute the sound space of the street with battery charging sos sounds. Questionable.
There is not much difference from one brand to another.
The scooters last about 6 weeks until they need replacement.
I question how good is this for the environment?
The fact that the company's name is "Unicorn" makes this seem like a much bigger deal than it is. The company raised just $150k. And it sucks that they screwed over their customers who paid, someone should be accountable here. But it's not like someone went and blew millions on ads only to realize it wasn't sustainable.
A rotten offer will never sell no matter how many ads you buy. This thread says that the scooter is a whitelabeled product. The margin priced it out of the market. Most people comparison shop. What is really new to learn here that isn't common sense?
Only run Fb and Google Ads if you have a proven (not hypothetical CLV) positive business case. They deplete ressources so fast without building a lasting owned channel...
There is a strict set of conditions that a Kickstarter donation should meet:
1. The product should require relatively large upfront costs such as design or tooling. If I'm ordering a pair of hand-knitted gloves there isn't much fixed cost so it should not be a Kickstarter.
2. The excess value of the product to the donor should be more than the expected loss if the delivery fails.
3. The product should be on the "bubble" of being produced so that the donor's contribution makes a material difference towards the product actually being produced.
4. The team should be qualified to deliver the specified product with the funds raised. Qualified teams can fail but unqualified teams will certainly fail.
5. The money should not be significantly impactful to the lifestyle of the donor.
6. The product’s market should be small enough that it will likely be produced in one “batch” with no opportunity to buy it on the open market afterwards with the execution risk removed.
An example of such a product for me would be a display platform for one bottle of Pilot Iroshizuku fountain pen ink, made out of Japanese cypress wood (hinoki). The ink bottle is beautiful and I've always thought it should have a hinoki stand (just a thin board of wood with a small depression routed out of it). The product would need some CAD and CNC design work, but not too much, there is not that big of a market for it, and I would be happy to pay $100 for such a thing even though it should only cost $5-10 to produce. Let's say it sells for $30, I'd be expecting $70 of excess value so I could accept even a 50% likelihood of failure.
Just wait until the scooter companies and operators get nailed with an injury class action lawsuit. A good friend was seriously injured on a rental scooter, going 2-3 mph, catapulted onto her face, ended up with brain damage and multiple facial fractures requiring reconstructive surgery. A high school physics student could work out that tiny wheels combined with a high center of gravity is a bad combination.
The problem is lack of helmet. If the injured party wasn't wearing a helmet, and the scooter clearly stated that a helmet should be warn, the case will get thrown out.
Everybody knows that nobody wears a helmet while riding scooter company. The manufacturers know, the ride-sharing services know, and the riders know. But if a helmet warning is clearly displayed, that gives the scooter company virtual legal immunity from injury lawsuits.
Even if the scooter's unsafe with a helmet, the situation prevents any serious legal damages. Only a small minority of riders will actually wear the helmet, and the company can just settle with on an individual basis. This pool is too tiny to attract high-powered class action attorneys.
The vast majority of riders, and therefore injuries, will be helmet wearing riders. Proving the counterfactual that they would have sustained the same injuries even with a helmet is very difficult. Head injuries by far are the highest damages, so again the pool of non-head injuries is too small to attract serious class-action attorneys.
Bird puts out a lot of promotional material without people wearing helmets. They lobbied the CA government to change the law so that helmets are not required. They tried the lobby Oregon to change the same law there but were basically laughed out of the state.
A good lawyer could argue that riders do not know they need to wear helmets on the scooters.
The founder of this company is the founder of Tile, a VC-backed company worth $XXX million that has raised $104M+. If this person had any morals he would cash out $250k of his shares in Tile and pay back the people who ordered his scooters. Hell give them half back for $125k. That is chump change to a successful SV founder.
I know that legally he has no obligation, but how can he sleep at night? This wasn't "oh making hardware is way harder than we thought and we couldn't afford it" this was "well I figured if I couldn't sell a million of these I'd rather just give up so I spent all the money on ads".
What a jerk. Merry Christmas from Silicon Valley.