This post originally appeared on Business Insider.
The crowdfunding website Kickstarter hired a journalist at the start of December to investigate Zano, one of the site’s biggest—and most notorious—failures. Mark Harris, whose work has appeared in The Economist and Wired, published his epic 13,000-word essay on the subject on Medium on Wednesday.
Zano received over $3.2 million in funding from 7,000 backers, almost none of whom ever received a working prototype of the drone, which promised to take photos and follow the user around. The Kickstarter campaign was added to a pot of money that already had about $282,000 in it, according to Harris. Much of this additional funding came from a local business owner who is thought to have lost about $353,000 on the project.
In his report, Harris lays out exactly what happened and how it happened, suggesting several steps crowdfunding sites can take to remedy the situation when campaigns fail.
Here are the takeaways:
- The Kickstarter campaign was so wildly successful (the company initially asked for just $282,000) that the founders were overwhelmed with orders.
- This led to mistakes, such as going straight into mass production without ordering a small sample of drones.
- Missing a series of deadlines set on the Kickstarter page led the company to become increasingly panicked.
- Employees, however, were not told exactly how bad things were. Two senior people who spoke with Harris say they didn’t know it was bad until the last few weeks, right before CEO Ivan Reedman quit.
- The booth at CES, which won the drone a seal of approval from Engadget, was a house of cards, with multiple lies being made up about why Zano did not fly.
- Some of the money from the campaign is believed to have been spent on new high-end Macs, a new BMW for a son of one of the non-Kickstarter investors, and other superfluous items.
- The demo video, which was featured heavily on the Kickstarter page, was edited to make Zano look functional. The local advertising authorities are investigating the company to see whether it intentionally misled backers.
- PayPal, through which campaign funds were processed, refused to pass on the money until orders were fulfilled (a standard practice to prevent fraud). This meant the money from the campaign was released and then immediately went back into refunds for unhappy buyers.
- Astoundingly, even if the company had not done anything wrong, it still would have been $1.4 million in debt after it fulfilled all orders.
Harris went on to speak to the CEO of Kickstarter, Yancey Strickler, who argued that the company could still take a 5 percent commission fee from each successful campaign—about $162,000 for Zano—but should probably look at building out support for any founder whose campaign is so wildly successful.
Read the full report from Harris here.
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