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Innovation Economy

Funding through KickStarter can be tricky

The Geode mobile wallet device from iCache.

The Geode mobile wallet device from iCache.

April 21 marked an amazing milestone for Jon Ramaci and his Cambridge start-up, iCache. He’d set out to raise $50,000 on the crowdfunding site Kickstarter for an iPhone ­accessory that would let users carry digital copies of all those credit, debit, and loyalty cards that jam their wallets, all secured by a fingerprint recognition system. But Ramaci blew past his initial goal, collecting $352,000 from more than 1,500 people eager to have one of the ­devices for their own. ICache promised to start delivering its accessory, the Geode, by June.

But by late fall, disappointed iCache backers were calling police detectives and the Internet Crime Complaint Center, and posting Ramaci’s last known address on the very same Web page where they had pre-ordered their $159 Geodes earlier in the year. Ramaci had left the company he founded, as had several other senior executives. Ramaci and iCache were being sued by the former president of iCache for nonpayment of salary and ­bonuses.

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Ramaci acknowledged in an interview last week that at least 20 percent of Geode orders ­haven’t yet been filled, and of those that were shipped, “a good amount of them had ­issues.” Ramaci was unwilling to connect me with anyone who works for iCache, and I was unable to reach anyone by phone or e-mail despite multiple attempts.

Raising money on Kickstarter was one of the biggest entrepreneurial trends of 2012. The New York City-based site enables anyone with a great idea for a new product (or artistic project or nonprofit initiative) to do an end run around professional investors and instead raise money from “backers,” who might receive anything from a T-shirt to a poster to a finished consumer product like the Geode in return. But successfully raising money on the site is a bit like having a bunch of friends front your registration fee for the Boston Marathon: It doesn’t exactly get you across the finish line.

“What you are seeing is entrepreneurs struggling with what it means to actually fulfill on a dream,” says Boston venture capitalist Nabeel Hyatt. “And I think consumers are starting to get comfortable with what Kickstarter is. This is not Amazon.com, where the item shows up in two days. It’s a lot higher risk.” Hyatt estimates he has received about half of the products he has supported so far on Kickstarter. “That’s not a great ratio,” he says.

Plenty of Massachusetts-based Kickstarter projects, like wood-cased Bluetooth speakers from Vers Inc. or a theft-resistant bike light from Gotham ­Bicycle Defense Industries, have raised money on the site and successfully shipped. But other inventors are discovering just how hard it is to turn a prototype into a finished product, what resources are needed to provide customer support, and, in one case, what happens when a company believes your product infringes on one of its patents.

This year’s most successful Kickstarter project locally was launched by a trio of MIT students and alums who designed a desktop 3-D printer capable of printing very-high resolution objects, and priced at about $2,500. By the time their fund-raising campaign ended in ­October, they had accepted almost $3 million in pre-orders for the device. The following month, their Cambridge start-up, Formlabs, was sued for patent infringement by 3D Systems, the giant of the 3-D printing industry. (The suit also names Kickstarter as a defendant, for serving as Formlabs’ sales agent.) Formlabs has said the lawsuit won’t stop it from delivering its 3-D printer to more than 1,000 buyers. But the company will now have to spend thousands of dollars defending itself against the suit.

Another Cambridge company, Equiso, designed a remote control and a small device that plugs into a port in certain flat-panel TVs, enabling viewers to watch Internet video services like Hulu, play games, or post to Facebook. But the company’s first-generation product was fluky, and Equiso’s three employees have been scrambling to provide customer support via e-mail, as well as finish a major software upgrade that will be available next month.

Schuyler Towne, a competitive lock-picker in Cambridge, raised $87,000 on Kickstarter in 2010 for a lock-picking set. He quit his job as a graphic designer to fulfill the orders, thinking that he’d “start a new life for myself.” But a test run of the picks snapped too easily, and he realized he hadn’t priced the set appropriately. Towne says his backers turned on him, and he started fielding inquiries from the Massachusetts attorney general’s office. That led to “an eight-month major depressive episode,” Towne says, including hospitalizations. But several of Towne’s acquaintances have taken over the project, and they are working to try to deliver the sets to his Kickstarter backers. Towne is working as a barista in Burlington, Vt., and dedicating some of his salary to fulfilling the Kickstarter orders.

“With manufacturing, there are so many different ways to fail,” says Scott Miller, chief executive of Dragon Innovation, a product design and manufacturing consultancy in Lexington that has been working with a growing number of Kickstarter projects. “You may be able to build a functional prototype pretty quickly, but there are a lot of steps between that and a finished product that you can build in volume.”

At iCache, the Geode device addressed one of those problems we all have: managing the growing collection of plastic in our wallets. It promised to digitally encode all the information, and let you carry just the Geode and your iPhone. When you needed to use a credit or debit card, a single “GeoCard” popped out from the case, encoded temporarily with the ­account information for whatever you wanted it to be (your business AmEx, for instance). But Ramaci says that the GeoCard, supplied by an outside vendor, didn’t work reliably.

And some backers, like Sean Carter of Woodbury, Minn., paid $159 for a Geode that was never delivered. Carter was so interested in the product that he purchased a used Geode for $50 from someone who was selling it on the Kickstarter message boards. “It isn’t ­accepted by all point-of-sale systems,” he says. “It works at Home Depot, but not at Target, and many ATMs won’t read the card properly. It definitely isn’t working the way it was presented.”

A Kickstarter spokesman, Justin Kazmark, says Kickstarter can’t guarantee that every project will be a success. The company doesn’t issue refunds if a product never arrives or is defective. But Kazmark says ­entrepreneurs who raise money through the site can issue refunds, if they choose to. Kickstarter and its payment processing partner take about 10 percent of all money raised through the site.

Developing a brand-new product, Ramaci says, “is ­always messy. There are risks involved, and unforeseen things that are going to happen. It doesn’t mean that anyone had any bad intentions.”

I asked Ramaci whether he might turn to Kickstarter to raise money for a future product. “I probably don’t see that on my horizon,” he says.

Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.
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