The most funded project in Canada to date is the Vanhawks Valour, a connected bike that tracks performance and safety as you ride, including Bluetooth to connect to your smartphone for directions. The Toronto-based engineers who invented the bike set out to raise $100,000, but received more than $820,000 from 802 backers.
Sohaib Zahid was excited to build and sell a new kind of bicycle. He had visions of a connected, carbon-fibre bike laden with circuitry and software that would give it sensor and security features not found in traditional 10-speeds.
But, like many entrepreneurs who turn to crowdfunding to create their dream projects, he had no idea how hard the process would actually be.
The prototype, called the Vanhawks Valour, was a big hit when it launched on Kickstarter in May, 2014. The bike quickly blew through its $100,000 goal, eventually landing $820,000 from 802 backers to become the biggest Canadian crowdfunding campaign to date.
Mr. Zahid planned to deliver the Valour by October, but then reality hit. Parts manufacturers weren't used to building cavities for wires and sensors so they had to retool their moulds, which led to a string of delays. The bike finally started shipping this past December, but it was more than a year late.
"It was a very, very steep learning curve," Mr. Zahid says. "The more you learn to identify problems, the more you're running against two things: time and cost."
It's a mistake many entrepreneurs and startups make: the assumption that there isn't much difference between creating a prototype and mass producing it. Kickstarter, Indiegogo and other crowdfunding platforms are, as a result, littered with projects that are mired in delays and even cancellations, despite having met or exceeded their financial goals.
Some are relatively colossal in scale, such as Wales-based Torquing Group, which raised more than $4-million last year for its Zano drone only to shut down in November after finding the planned manufacturing wasn't feasible. Others, such as Toronto-based Undone Labs' Cobra Wallet, are more modest, having raised about $69,000 in 2012 before making similar discoveries.
It's a situation no entrepreneur wants to be in, since it inevitably results in upset backers and a tarnished product. Backers can be merciless in calling out creators who are having legitimate production problems as scam artists.
Ultimately, it becomes harder for everyone as potential backers become more wary of funding projects that sound too good to be true. And technology projects already have the lowest funding success ratio – 19 per cent – of any category on Kickstarter.
Such problems can be avoided, experts say, but entrepreneurs and startups need to bring on manufacturing and supply-chain management expertise before even thinking about launching a crowdfunding campaign.
"There's so much ignorance around what it really takes to go to China and manufacture something overseas and then have the ability to do it at the proper scale and get it back to Canada, into customers' hands," says Sonia Strimban, manager of venture operations at the MaRS Discovery District in Toronto. "The reality that goes into that, [many entrepreneurs] are oblivious."
With the benefit of hindsight, Mr. Zahid agrees. Rapid prototyping – especially now with 3-D printers – is easy to do, as is asking backers for money through crowdfunding. But building supply-chain expertise and a long-term plan after the campaign is trickier.
To that end, Toronto-based Vanhawks raised venture capital money both before and after its Kickstarter campaign. Aside from supplier expertise, Mr. Zahid and his two co-founders hired support staff to help with marketing and human resources.
The company now has 18 full-timers, who have built a chain of 32 fulfillment centres around the world. The Valour, which carries a starting price tag of $1,249, is sold out until May. The investment is risky, but Mr. Zahid believes the bike's crowdfunding popularity indicates there is real demand for it.
"The focus shouldn't be, 'Let's build the product,' it should be, 'Let's build the company,'" he says.
Lyssa Neel also experienced delays with her product Linkitz, a modular and programmable friendship bracelet for kids. The project launched on Kickstarter in May last year and closed a month later just ahead of its $95,000 goal. Shipping was supposed to happen in December, but the final touches are only now being put into place.
The problem with Linkitz, which aims to introduce children to programming, was a glitch in its code. Ms. Neel, who started the project in Toronto but is now based in New York, had to switch to a different processor to accommodate the issue, and it had less memory than she thought.
Her team worked around the clock so that they could ship on time, but eventually realized it couldn't be done. They notified backers before Thanksgiving and offered them refunds, and were surprised to find only one taker. Honest and timely communication, it turns out, is the best way to avoid angering backers.
"Your first instinct is to stop communicating and keep working. Then what happens is you get this psycho fear because your backers are saying, 'Why haven't we heard from them?'" says Ms. Neel. "It's really important to keep your backers in the loop every step of the way, especially if things start to go bad."
Ms. Neel's advice for other hardware-oriented entrepreneurs is simple: just add an extra 12 months to the estimated shipping date. "You can always deliver early."
Some startup accelerators are advising entrepreneurs to avoid crowd-funding altogether because of these potential pitfalls. The University of Waterloo's Velocity program, for one, urges the hardware-oriented startups it works with to offer pre-sales of products on their own websites instead.
That way, there's less pain in trying to convert from one platform to another.
"It gives you more control and a more iterative approach to building your customer base," says Velocity director Mike Kirkup.
Potential backers, for their part, would be wise to do some due diligence before committing money to a campaign. Seeing that a company has investment outside of crowdfunding, and that its founders communicate honestly and frequently, are usually good signs that it's a serious project and not a fly-by-night effort – or worse, a scam.
Still, there will always be some element of faith involved.
"What consumers fail to understand is that you're putting money into a vision, not necessarily the actual thing itself right away," Ms. Strimban says.
The Globe and Mail Small Business Summit is bringing together the brightest entrepreneurs in Canadian business to share insights during an inspiring day of keynote talks, workshops and networking. Speakers include Ryan Holmes of Hootsuite, Aaron Zifkin of Airbnb, Harley Finkelstein of Shopify, Bruce Poon Tip of G Adventures and many more. The event takes place on April 26 in Vancouver, April 28 in Calgary and May 3 in Toronto. Click here for details.