Hybra’s Kickstarter Backers File Complaints, Allege Fraud—And Wait
When we last caught up with Hybra Advance Technology in July 2015, co-founder Joe Thiel told us the company’s legion of disgruntled Kickstarter backers, who forked over nearly $550,000 in 2013 to help Hybra develop wireless headphones called the Sound Band, would soon be made whole.
Beta test units of the headphones—which transmit sound through flat, vibrating panels when they make contact with the back of the ear, leaving the ear open, unlike conventional headphones—had been shipped to about 10 backers as a reward for larger donations, Thiel said. If all went according to plan, he maintained, Sound Band units would be shipped to the hundreds of remaining Kickstarter backers as soon as Hybra incorporated any feasible changes requested by beta testers, likely by the end of 2015.
Well, things didn’t go according to plan, because the Sound Band’s backers are still empty-handed. Adding insult to injury, some backers say, is Hybra’s most recent Kickstarter update, dated Dec. 15, 2015. It appears to be a cut-and-paste e-mail conversation about components, but without any additional context, it’s difficult to make heads or tails of it. An update posted by Hybra the day before had a little more meat to it: a part with an 18-week lead time, Hybra wrote, was in, which meant the company had “approved the build and assembly of 25 completed production grade SoundBands.”
The update ended on a hopeful note: “From this point forward we will update as important milestones are reached. In the coming weeks each day will be touch and go, but we hope to steady the ramp, after the first 25, in quantities of 200 very soon, then increase to 400 unit batches until all the Kickstarter units are delivered. We will keep everyone informed at each step and continue to provide high quality images of the process.”
It’s now four months later, with no further updates on Kickstarter. During last year’s interview, Thiel had said he would encourage beta testers to post reviews and videos within the boundaries of the confidentiality agreements they signed, so other backers could see the headphones were legit. But a search of Kickstarter and YouTube has not turned up any reviews from beta testers or even comments confirming they received their units. (We’ll hear more from Thiel below.)
Welcome to the chaotic world of the Sound Band. Here’s what’s new: Hybra backers have filed at least 30 formal complaints with the Federal Trade Commission and three with the Michigan Attorney General’s office; Thiel himself is denying accusations of fraud; and Kickstarter maintains it is merely a facilitator between project creators and supporters. The situation continues to shine a spotlight on the practices of crowdfunded companies, as well as advancing the strange story of a local startup whose founder steadfastly claims the Sound Band project is moving forward.
A quick backstory, in case you’ve missed our previous coverage: Warren, MI-based Hybra Advance Technology initially popped up on Xconomy’s radar in 2013. (The company got started in 2009 to focus on wireless audio products.) After an early prototype of the Sound Band won a prestigious design and engineering award at CES, Hybra set out to raise $175,000 on Kickstarter to help pay for what it characterized as final manufacturing costs. The initial response from Kickstarter backers was enthusiastic: When Hybra’s campaign ended on Sept. 13, 2013, 3,292 backers had pledged $547,125 toward commercializing the device. Hybra told its backers the estimated date of delivery for Sound Band would be December 2013, with other rewards promised as early as October 2013, mere weeks after the fundraising campaign ended.
Despite telling backers that the Sound Band was ready for commercialization, it soon became clear that the device had serious design flaws and other fabrication challenges, Thiel has said. So the initial team (minus Thiel) left the company, and an engineer with many years of experience was brought in to fix things. That was in 2014.
The relationship between Hybra and its backers became contentious almost immediately after the company blew its first self-imposed delivery deadline. As Hybra kept revising the production timeline and offering vague updates, the Kickstarter backers began vocalizing their dismay in the comments section of the Kickstarter page. As more time passed and Hybra’s updates continued to be deemed unsatisfactory by some backers, some of the more vocal commenters began accusing Thiel of fraud and requesting refunds.
Xconomy filed a Freedom of Information Act request with the Federal Trade Commission (FTC) to find out if Hybra’s backers had filed complaints with the federal agency tasked with regulating Internet commerce. A long, petition-like list of backers who wanted a refund had been circulating in the comments section for months, and people began suggesting that it might be more expedient to file FTC complaints. According to what we got back from the FTC in March, more than 30 backers from across the globe have thus far filed complaints with the federal government, most of them accusing Hybra of malfeasance.
A spokesperson with the FTC was unable to say whether an investigation into the company is underway, as the department doesn’t release details about investigations to the public. The Michigan Attorney General’s office confirmed it has also received a handful of complaints about Hybra’s Kickstarter campaign, but it similarly wasn’t able to say if it was looking into them.
The text of the backers’ complaints to the FTC have several recurring themes: accusations of fraud, requests for refunds that were ignored or denied by both Hybra and Kickstarter, anger over being led to believe the Sound Band was production-ready in 2013, insufficient updates from Hybra, and an overall lack of useful information on the Sound Band’s status. Many complainants say they understood the risks of supporting a crowdfunding campaign and no longer even want the headphones; instead, they want Thiel and Hybra (and some say Kickstarter) to be held accountable.
I tracked down one of those complainants to find out more about his beef with Hybra. BJ Van Gundy works in politics, most recently having co-chaired Marco Rubio’s grassroots presidential campaign in Georgia. Four years ago, he helped run Newt Gingrich’s national presidential campaign. He’s also a serial Kickstarter backer. He estimates that he’s funded more than 130 projects over the years, everything from the Sound Band to a fancy golf tee to a cooler with a built-in blender. He likes supporting Kickstarter campaigns because he’s a fan of innovation and grit, but he said his experience with Hybra is almost enough to turn him off of crowdfunding forever.
Van Gundy said he was worried from the start that Hybra and the Sound Band were not what they appeared. Van Gundy is one of the more vocal disgruntled backers, and he often posts in the Sound Band comment section urging other backers to open their eyes.
In his FTC complaint, Van Gundy says in part that Hybra “claimed that they had a finished product back in July/August of 2013 and said delivery would be by October/November 2013. Then proceeded to claim problems and improvements being made… etc. BOTTOM LINE: They took the money and ran.”
One of the other Kickstarter projects Van Gundy backed was the Zano, a big European mini-drone effort that went belly-up last fall. Torquing Group, the startup behind the Zano, raised roughly $3.2 million from 12,000 backers to mass-produce its drone, and everyone from Popular Science to Engadget praised the project. Kickstarter even featured it as a staff pick. But ultimately, Torquing wasn’t able to deliver on any of the promises to its backers before it went under, unleashing the Internet version of an angry mob with pitchforks.
The furor of disgruntled Zano backers eventually led Kickstarter to commission a report from an independent journalist to determine if the project was legit or a scam, as many backers suspected it was. The BBC reported that the journalist did not accuse the Torquing team of dishonesty, but said that “as production problems mounted and the money began to run out they showed ‘a dangerous lack of self-awareness of the problems the company was making for itself.’” The reporter concluded that the reason for the project’s failure was the team, which “possessed neither the technical nor commercial competencies necessary to deliver the Zano as specified in the original campaign.”
Compared to Hybra, Van Gundy finds the Zano project to be a success, he said, because he believes that Torquing made a good-faith effort to the best of its abilities. “Hybra raised money in August 2013 and said they’d deliver by October. That’s mindboggling.”
At this point, Van Gundy said, the Sound Band’s technology is outdated and no longer has the magic it did three years ago when the project launched on Kickstarter. But the experience continues to leave a bad taste in his mouth.
Kickstarter: Caveat Emptor
Many dissatisfied Sound Band backers have asked why Kickstarter can’t step in and remedy the situation. The short answer is that Kickstarter, as it clearly spells out in its terms of service, is merely a facilitator between creators and backers and therefore can’t be held liable for failed projects. Spokesman David Gallagher said that in 2014, Kickstarter updated its rules to try and add a bit of clarification regarding what creators owe their backers.
Section four of Kickstarter’s terms of service spells out what happens if a project fails: If a creator is unable to complete their project and fulfill rewards, they’ve failed to live up to the basic obligations of the agreement. Kickstarter says creators must “make every reasonable effort” to satisfy backers if a project fails. The crowdfunding site will let creators off the hook only if they do the following: post an update explaining what work has been done, how funds were used, and what prevented them from finishing the project as planned; demonstrate they’ve used the money raised appropriately and made every effort to complete the project as promised; be honest, and make “no material misrepresentations in their communication to backers”; and offer to return any remaining funds to backers who have not received their reward, or else explain how those funds will be used to complete the project in some alternate form. Failure to do any of those things, Kickstarter warns, could subject creators to legal action from backers.
Gallagher said the crowdfunding website is meant to be a way for people to make something new, which is inherently risky. According to data supplied by Kickstarter, an independent University of Pennsylvania study found that fraud is fairly uncommon and creators fail to fulfill pledges to backers only 9 percent of the time. More often, backers get upset when the project doesn’t come to life exactly as proposed in the initial fundraising pitch. Sometimes, creators get in over their heads, as seems to be the case with the Zano project.
“In the space of a few weeks, they went from ready to ship to goodbye,” Gallagher said. “That was a shocker, and it led us to say, ‘How can we help backers understand how the system works?’”
Zano’s backers were convinced that the creators ran off to the Cayman Islands, but the report found that Zano’s creators simply didn’t possess the knowhow to deliver to backers. And sometimes, Gallagher explained, creators aren’t willing to admit defeat, which is part of the reason Kickstarter clarified its rules in 2014.
Kickstarter also maintains an “integrity team” to ensure projects conform to the site’s rules. If they don’t, campaigns are canceled. Gallagher recalls one such project for a laser-guided razor. The integrity team found that the creator hadn’t actually built a working prototype, so it was pulled. (He said it immediately relaunched on Kickstarter’s competitor, Indiegogo.) But once a project is fully funded and the funding period expires, the money contributed by backers goes to the creator and it becomes a business arrangement between backers and creators. (Although there is a small window of time where, if a project is found to be violating the rules, it can be pulled.)
“A big part of our role is to set the right expectations going in, so potential backers know that Kickstarter is not a store, and that projects may not work out,” Gallagher said. “When a project is funded, a contract is formed between the backers and the creator. Kickstarter is not a part of that contract, so our role is limited. If we hear from backers that a creator isn’t being responsive, we’ll reach out and encourage them to send an update. A creator who isn’t fulfilling their promises to backers and isn’t keeping backers informed would not be able to launch another project.”
What Should Hybra’s Backers Do Now?
Kickstarter recommends that dissatisfied backers who believe they have a legal case against a creator seek the advice of an attorney in addition to filing complaints with the proper regulatory bodies. Jeff Aronoff, a lawyer at Sidewalk Ventures, said crowdfunding is so new that there aren’t a lot of legal precedents to go by. (The FTC’s spokesman said he knows of only two instances nationally where creators of crowdfunding projects were brought up on criminal charges: once after an investigation initiated by his office, and once by the state of Washington.) Aronoff said backers might be more successful pursing a civil complaint rather than a criminal one.
And what does Hybra’s co-founder, Joe Thiel, say about the latest round of accusations from backers? That the project is continuing to “progress well” despite a durability testing process that was longer than expected, he said in a phone interview this month. He said his most recent update, the cut-and-paste e-mail from back in December that so many backers found confusing, was meant to be a “kind of neat” way to show the back-and-forth with, one assumes, the engineering team. (It’s not clear who is participating in the e-mail discussion, or what their role is.)
He said further delays were caused by procuring yet another piezo driver, a key piece of technology that allows the Sound Band to operate without covering the ears, after Hybra exhausted the stock of one component manufacturer. And there was a capital issue, he said, that involved moving money from Hybra Energy—a separate entity that has a contract to light the Ambassador Bridge connecting Detroit to Canada—to fund the Sound Band’s development. “The long lead time on parts hurt us, but rather than make a big deal about it, we wanted to move forward,” he said.
Thiel said he had other things to worry about, like shipping beta test units out. He declined to share tester feedback publicly, but told me most of the testers praised the sound quality but were less enthusiastic about the fit of the headphones. And he spoke of meeting with “multibillion-dollar companies,” which he said came to town and commissioned his lead engineer to explain how he refined the Sound Band’s design.
Thiel is adamant that the Sound Band is not outdated or obsolete, as some backers now claim. He said Hybra is the only one developing headphones capable of detecting “surface sound”; his competitors, he said, rely on bone conduction, which is a different technology. “You wouldn’t ask that question if you understood the technology,” he said. “I don’t want to talk bad about another company, but there’s nothing else remotely similar.” Thiel even went so far as to say Hybra was way ahead of its time and is now “driving the industry.”
So, what exactly is the reason Hybra has not been able to deliver? Component procurement, mostly, Thiel said. “Now, it’s just a matter of ramping up. We have a purchase order in with [a local electronics manufacturer] to build 10,000 units, which we’ll do in 400 unit runs until we deliver to all the backers. I expect backers to get their units by the end of 2016—no doubt about that. We’re really close.” (This plan to do multiple-unit runs is exactly what Thiel forecasted when I spoke to him last July, but he said then that they’d be delivered to backers by the end of 2015.)
As for the FTC complaints, Thiel said Hybra is aware of five and has responded to all of them. “We just give [the FTC] all the data we have to show the claims being made are false. I get why people are upset, but there has been nothing done that was fraudulent,” he said.
Thiel said he’s too busy operating a startup to spend time on backer updates. “I can send an update every week, but I don’t find that to be very valuable from a time management perspective,” he said. “Backers want to hear they’re getting their units. I think it’s better to spend the time and energy on pushing forward.”
There is yet another twist to the Sound Band saga. After going dark and displaying an “under construction” message on its website for the better part of two years, Hybra turned the lights on again a few months ago. According to the website’s revamped text and mission statement, Hybra is now positioning itself as a consultant that can help other companies get new technology to market. It now claims to offer a range of services, including design, engineering, prototyping, ideation, marketing, packaging, and production.
Thiel said the changes to the website represent the long-term vision of what he wants the company to be. “We want to help people with the same pathway we created,” he said. “We’ve faced a lot of adversity and spent a lot of time and energy to push forward and complete the Sound Band project. We’re not a case of fraud, we’re young entrepreneurs without a lot of experience that learned and grew. I do hope state and federal government agencies keep cracking down on crowdfunding projects that take money and don’t deliver.”
Under the Production tab, the company’s website now says: “Hybra can produce pilot production runs very quickly, sometimes going from rough concept to hundreds of samples in under a month. Our speed and flexibility enable our clients to initiate acceptance or performance testing at early project stages.” In the Marketing section, the website offers this morsel of word salad: “The paths you see before you are symbolic as to where you might be with your marketing endeavors. Each one looks well traveled, but gives no clue where it leads or what lies ahead. We’ve been down just about every road there is to get to Success and can take you there, too. … No roadblocks or traffic jams.”