“Thank you all very much,” Update 57 concluded, by way of goodbye. “Working on this project was the most ambitious and meaningful undertaking any of us have ever attempted. Getting to know all of you, and working to create some seriously cool technology, was one of the most rewarding things we’ve ever done. We are deeply and truly sorry that despite our best efforts, we were not able to get this machine across the finish line. Love, Gleb, Igor and Janet, Team ZPM.”
It had been three long years of gradual disappointment since the 1,500 or so supporters of ZPM Espresso — otherwise known as the PID-Controlled Espresso Machine project on the crowdfunding platform Kickstarter — each put a few hundred dollars, or some $370,000 in total, into the campaign, and eight months since the last communiqué from the project’s creators. Now, with Update 57 in January, ZPM Espresso announced that it was winding itself down. For the backers who expected a ZPM machine for their pledge, there would be neither fulfillment nor refunds. All accumulated moneys, the update said, were dispersed on the nonrecoverable engineering costs involved in ZPM’s failed attempt to manufacture an inexpensive commercial-grade espresso machine for the home market.
Ian Woodhouse, the 44-year-old director of operations for a Toronto real estate developer, was one of ZPM’s earliest and most ardent backers. Three years on, though, no new blow could surprise him. The update represented exactly what he had long come to expect from the creators. It was evasive and opaque. There was no clear explanation for the company’s insolvency. Woodhouse was especially nettled by that valediction: “love.” What he wanted, he told me later, was not another update “signed ‘love.’ They always signed their updates ‘love.’ ” He could see that it seemed like a peculiar fixation, but the word was so disingenuous and cloying, and it made him angry. “Notice,” he instructed me, “how I keep bringing up the ‘love’ thing.” It reminded him that what ought to have been a straightforward financial transaction had somehow left him feeling taken advantage of and betrayed.
Powerless to act individually, the backers began, in Update 57’s wake, to organize. Their first step was a Facebook group, “Ripped off by ZPM Espresso,” but Woodhouse feared it wasn’t private: The principals of ZPM, who seemed to him at once inept and robust in their malfeasance, might easily monitor the activity there. So Woodhouse, along with a few others among the more persistent backers, instead set up a private forum on the messaging service Slack, where they shared their sense of affliction and pondered legal or moral redress. The legal options were limited. Although Kickstarter’s terms of use stipulate that any creators unable to satisfy the terms of their agreement with their backers might be subject to legal action, no sane attorney would initiate a class-action suit on a contingency-fee basis against insolvent creators, and no sane backer would ante up the necessary legal fees.
The other alternative was a consumer-protection suit filed by a state attorney general, but for that to proceed, the backers would need evidence of actual fraud, which they spent an enormous amount of time and energy trying to uncover. As Woodhouse, who speaks in the tone of a reasonable man drawn hopelessly against his will into a vast conspiracy, put it to me, “We found out a whole bunch of interesting information.” He ticked off the names of four lawyers, an unpaid accountant and two Silicon Valley investors. He delved into what he dug up in the corporate-filings section of the State of Georgia’s website, and on a shady-seeming portal seeking to bundle Chinese angel investments. By his estimations, ZPM had ultimately raised $1.2 million, all of it gone and unaccounted for. The ZPM founders, the backers discovered in their attempt to serve up (at the very least) a small-claims action, were lying low; they had left Atlanta and absconded for San Francisco. (...)
Since Kickstarter’s debut in 2009, campaigns on the platform have raised $1.4 billion for the creators of more than 80,000 projects. In the process, the company and its crowdfunding competitors have invented a new sort of economic relationship, and a corresponding frontier of Internet acrimony. Disgruntled crowdfunders are not your typical Internet-commenting degenerates: In ZPM’s case, they are affluent, well-educated professionals, working in New York and Los Angeles as systems analysts, TV directors, research physicians specializing in adrenal pathology — the sorts of people you would expect to write off their $250 donation as a gamble gone sour. Yet they found, for reasons that weren’t always clear to them, that they couldn’t. A professor in Columbia’s graduate school of architecture wrote, on the private Slack forum, that he considered Polyakov to have “neither humility nor shame.” He continued, “I also think it entirely appropriate that he never work in technology, finance, consulting or the coffee fields (sorry, that kills the barista career) again.”
The rancor is due, perhaps, to a fundamental confusion about what crowdfunding really is. On one hand, a backer is not a customer, because the product does not exist yet and may never; Kickstarter is constantly reminding its patrons that the platform is not a store. (On some level, backers must already know this, or else they wouldn’t be backers; if Ian Woodhouse had just wanted an inexpensive espresso machine, the top seller on Amazon retails for $86 and has thousands of five-star reviews.)
On the other hand, though, neither is a backer an investor, even if many of ZPM’s backers insisted they be treated as such. A Kickstarter pledge does not buy a portion of a company. Backers do not sit on the board; they are not enfranchised to review the company’s audited financials. Investors’ interests, at least ideally, are aligned with those of the company, whereas nothing in the crowdfunding relationship ties a backer to the company for the long term. Moreover, the last thing Kickstarter wants to deal with is S.E.C. regulations.
It had been three long years of gradual disappointment since the 1,500 or so supporters of ZPM Espresso — otherwise known as the PID-Controlled Espresso Machine project on the crowdfunding platform Kickstarter — each put a few hundred dollars, or some $370,000 in total, into the campaign, and eight months since the last communiqué from the project’s creators. Now, with Update 57 in January, ZPM Espresso announced that it was winding itself down. For the backers who expected a ZPM machine for their pledge, there would be neither fulfillment nor refunds. All accumulated moneys, the update said, were dispersed on the nonrecoverable engineering costs involved in ZPM’s failed attempt to manufacture an inexpensive commercial-grade espresso machine for the home market.Ian Woodhouse, the 44-year-old director of operations for a Toronto real estate developer, was one of ZPM’s earliest and most ardent backers. Three years on, though, no new blow could surprise him. The update represented exactly what he had long come to expect from the creators. It was evasive and opaque. There was no clear explanation for the company’s insolvency. Woodhouse was especially nettled by that valediction: “love.” What he wanted, he told me later, was not another update “signed ‘love.’ They always signed their updates ‘love.’ ” He could see that it seemed like a peculiar fixation, but the word was so disingenuous and cloying, and it made him angry. “Notice,” he instructed me, “how I keep bringing up the ‘love’ thing.” It reminded him that what ought to have been a straightforward financial transaction had somehow left him feeling taken advantage of and betrayed.
Powerless to act individually, the backers began, in Update 57’s wake, to organize. Their first step was a Facebook group, “Ripped off by ZPM Espresso,” but Woodhouse feared it wasn’t private: The principals of ZPM, who seemed to him at once inept and robust in their malfeasance, might easily monitor the activity there. So Woodhouse, along with a few others among the more persistent backers, instead set up a private forum on the messaging service Slack, where they shared their sense of affliction and pondered legal or moral redress. The legal options were limited. Although Kickstarter’s terms of use stipulate that any creators unable to satisfy the terms of their agreement with their backers might be subject to legal action, no sane attorney would initiate a class-action suit on a contingency-fee basis against insolvent creators, and no sane backer would ante up the necessary legal fees.
The other alternative was a consumer-protection suit filed by a state attorney general, but for that to proceed, the backers would need evidence of actual fraud, which they spent an enormous amount of time and energy trying to uncover. As Woodhouse, who speaks in the tone of a reasonable man drawn hopelessly against his will into a vast conspiracy, put it to me, “We found out a whole bunch of interesting information.” He ticked off the names of four lawyers, an unpaid accountant and two Silicon Valley investors. He delved into what he dug up in the corporate-filings section of the State of Georgia’s website, and on a shady-seeming portal seeking to bundle Chinese angel investments. By his estimations, ZPM had ultimately raised $1.2 million, all of it gone and unaccounted for. The ZPM founders, the backers discovered in their attempt to serve up (at the very least) a small-claims action, were lying low; they had left Atlanta and absconded for San Francisco. (...)
Since Kickstarter’s debut in 2009, campaigns on the platform have raised $1.4 billion for the creators of more than 80,000 projects. In the process, the company and its crowdfunding competitors have invented a new sort of economic relationship, and a corresponding frontier of Internet acrimony. Disgruntled crowdfunders are not your typical Internet-commenting degenerates: In ZPM’s case, they are affluent, well-educated professionals, working in New York and Los Angeles as systems analysts, TV directors, research physicians specializing in adrenal pathology — the sorts of people you would expect to write off their $250 donation as a gamble gone sour. Yet they found, for reasons that weren’t always clear to them, that they couldn’t. A professor in Columbia’s graduate school of architecture wrote, on the private Slack forum, that he considered Polyakov to have “neither humility nor shame.” He continued, “I also think it entirely appropriate that he never work in technology, finance, consulting or the coffee fields (sorry, that kills the barista career) again.”
The rancor is due, perhaps, to a fundamental confusion about what crowdfunding really is. On one hand, a backer is not a customer, because the product does not exist yet and may never; Kickstarter is constantly reminding its patrons that the platform is not a store. (On some level, backers must already know this, or else they wouldn’t be backers; if Ian Woodhouse had just wanted an inexpensive espresso machine, the top seller on Amazon retails for $86 and has thousands of five-star reviews.)
On the other hand, though, neither is a backer an investor, even if many of ZPM’s backers insisted they be treated as such. A Kickstarter pledge does not buy a portion of a company. Backers do not sit on the board; they are not enfranchised to review the company’s audited financials. Investors’ interests, at least ideally, are aligned with those of the company, whereas nothing in the crowdfunding relationship ties a backer to the company for the long term. Moreover, the last thing Kickstarter wants to deal with is S.E.C. regulations.
by Gideon Lewis-Kraus, NY Times | Read more:
Image: Mark Mahaney 
