In early 2014, Klever Freire left his job as an aircraft performance engineer at Bombardier Inc. to focus on his startup, DreamQii Inc., a company that aimed to build a drone for aerial photography.
The Toronto entrepreneur, then 30, set up shop at Ryerson University’s Digital Media Zone, home to small tech companies, and that fall set out to raise US$100,000 on the crowdfunding website Indiegogo Inc.
Klever Freire, CEO, Founder and Lead Designer of DreamQii Inc. at Ryerson in Toronto, April 8, 2014.Peter Power/The Globe and Mail
The fundraising part worked beyond his wildest imagination. Within seven weeks, DreamQii had drummed up about US$725,000 and sparked an array of positive media reports for “PlexiDrone.” Eventually he raised more than US$2-million.
Henry’s, the Toronto-based camera and electronics retail chain, struck a deal to sell the PlexiDrone and called it “a great product.”
The drone-building part hasn’t gone so smoothly. Four years later, DreamQii has yet to deliver a drone, and Mr. Freire now faces a stack of consumer complaints from a coalition of disgruntled backers. Some backers who paid for the drone, including Ryerson’s master’s program in digital media, have asked for their money back.
The situation offers a cautionary look inside the world of startups that use crowdfunding sites such as Indiegogo and Kickstarter to help fund a dream. Crowdfunding allows small-scale entrepreneurs to raise money that would be difficult to get otherwise – and to do it without the same level of legal documentation or collateral that might be required to get a bank loan, private equity capital or accessing the junior public markets.
Crowdfunding began to boom in the United States in 2012 and in Canada the following year, according to research by Mohammad Keyhani, a business professor at the University of Calgary. Crowdfunding was a way for startups to draw attention as well as raise fast cash – and many did. Eric Migicovsky, after studying engineering at the University of Waterloo, scored US$10.3-million for his Pebble smartwatch project in 2012 on Kickstarter, an Indiegogo rival.
Mr. Keyhani’s research shows that the crowdfunding market reached a plateau in 2015. About US$20-million is raised on Kickstarter in Canada each year. The total raised on Kickstarter worldwide each year is about US$600-million, the bulk of which is in the United States.
Those who commit money to an idea often expect they’ll receive a product in return, but the legal framework behind crowdfunding makes room for failures. San-Francisco-based Indiegogo’s terms of use require that campaigns such as DreamQii’s make a “good faith” effort to deliver what they promise, along with providing regular communication to backers – and explanations for obstacles and delays. Backers are warned that their contributions are voluntary, made at the risk of the contributor, and that there is no guarantee of delivery.
“We think it’s worth the risk, if it doesn’t turn out,” Mr. Keyhani said, describing the mindset of crowdfunding supporters. He noted that the median amount raised on a successful Kickstarter project in Canada and the United States is only about US$5,000.
DreamQii attracted more than 8,400 backers, making it one of the bigger Canadian crowdfunding successes. Some made “donations” of varying amounts to support the company’s efforts, but many paid US$699 and more for packages that included a drone.
Mr. Freire and his colleagues ran into trouble in the early going. By spring 2015, when the drone was supposed to be ready, DreamQii had bumped back its estimated delivery date to September, 2015, on its Indiegogo page. Meanwhile, three people listed on LinkedIn as co-founders – Damon Yu, Nick Spina and Nikolas Trutiak – left the company.
In an interview, Mr. Freire said none of the three were co-founders. Mr. Yu did not respond to a request for comment, and Mr. Spina declined comment. Mr. Trutiak, in an e-mail, described the experience of working with Mr. Freire as “unique in my life.”
In a short promotional video posted on YouTube in June, 2016, DreamQii declared, “PlexiDrone is ready” and said it had a final release date, though it did not specify the date.
By June, 2017, almost three years after the crowdfunding campaign was launched, DreamQii said on its website that ramping up to full production was “very different” than making a prototype. Months later, it posted an update saying it was committed to fulfilling “many thousands of orders” in 2018.
Last May, DreamQii provided videos and pictures of drone production and packaging and requested what Indiegogo calls shipping status, the crowdfunding firm said. Indiegogo certified DreamQii and updated its page to say the company “has mass-produced the final product and has started to ship it to backers.”
But drones were not being shipped.
Tom Campbell is among the company’s frustrated backers. He is a cinematographer whose Prescott, Ariz.-based production company makes adventure films. He spent US$1,400 on the drone and other accessories starting in November, 2014. “We want our money back and we feel PlexiDrone and Indiegogo should be held accountable,” Mr. Campbell said.
Dissent among some backers coalesced this summer. Mark Johnson, a lawyer in San Jose, Calif., who uses drones at his company Visual Law for litigation cases, was a fan of DreamQii but hadn’t paid money to the company. After seeing mounting complaints on Facebook, he started a letter-writing campaign and dispatched complaints on behalf of his PlexiDrone Coalition, which has some 150 members, to about a dozen attorneys-general across the United States, the U.S. Federal Trade Commission and Canada’s Competition Bureau.
Mr. Johnson – who also helped push for refunds for backers of a failed crowdfunding campaign for “artificial gills,” a phony device that claimed its users would be able to breathe underwater – said he is putting together a lawsuit against DreamQii.
In his letters on behalf of drone buyers, Mr. Johnson alleges DreamQii and Mr. Freire have made false statements, among other missteps. “I think they bit off more than they can chew,” Mr. Johnson said in an interview. “A lot of people will say, ‘It’s just crowdfunding.’ But people got sucked into this.”
Indiegogo said it began a review of DreamQii in mid-June after it saw complaints from backers on the company’s page. The crowdfunding site revoked the startup’s “Indiegogo shipping certification” on Aug. 21. DreamQii is now listed in the “production” stage, which states it has started to turn a prototype into a mass-produced product.
An Indiegogo spokesman said the company recently investigated whether DreamQii violated its terms of use and determined it had not.
Mr. Freire now says the company is “doing the work to produce thousands of units right now,” and all PlexiDrones should be delivered to backers by the end of next August. He said he has refunded more than US$250,000 since the Indiegogo campaign concluded.
“The challenges have very obviously surprised us," said Mr. Freire, who made headlines for a different reason in early August after he and a colleague were rescued from an elevator filling with flood water in the parking garage of their Toronto building. "I will be the first one to admit the mistakes that were made and the things that were unexpected.”
And though he knows he has backers who are upset, he underlined the nature of crowdfunding. “We have always been very careful to let people know that what they contributed to was a crowdfunding campaign for the realization of an idea.”
While waiting for rescue during the Toronto storm, Mr. Freire said he recalled his drive to deliver the long-promised drone. “One of the things that we were thinking about while we were in there was to make sure that we make good on our commitment to our backers."