It’s every entrepreneur’s dream: come up with a great product idea, make a pledge on Kickstarter, and then raise 3.5 times your goal. Sounds awesome, right? Most of the time, I’m sure it is. But it wasn’t that awesome for Seth Quest when Neil Singh sued over the failure to deliver a $70 iPad mount.
A story reported first by Inc, and then later followed up on by Venture Beat, details that Quest is a product designer by trade, but had never manufactured a product or ran a business. His problems seemed to be the same basic problems that I preach on this blog all the time: he didn’t incorporate his business, and he started the Kickstarter campaign without any contracts in place.
Singh’s lawsuit was for only $70, or the cost of his pledge, so how did that bankrupt him? It wasn’t that lawsuit alone, it was how he handled his business. Quest was unable to deliver any of the products he promised, and engineering snafus and disputes with manufactuers ate up the $35,000 he had raised.
Because Quest didn’t incorporate, he deposited the $35,000 into his personal bank account, and not an account owned by a corporation. That made all of his personal assets available to satisfy the amounts owed to backers. If he had used a corporation, and deposited the funds into that account, he may have been able to escape the full liability. His personal assets may have been protected.
His second mistake was not having contracts in place with his manufactures. When his manufactures saw that he earned $35,000 in pledges, well more than his $10,000 goal, he lost his leverage. The manufacturers wanted a bigger piece than originally planned. This threw off the entire deal. It’s a simple mistake that could have easily been avoided.
It’s not all that bad, though. Inc. reports that Quest is now living in Costa Rica, “researching his next venture.” Sounds like a good plan, to me.