Category Archives: Rip-offs

Jet.com – Not ready for Prime time

I really wanted Jet.Com to work. When they announced the service as an alternative to Amazon, I thought that a new kind of competition would be good for the industry. Unfortunately, my experience shows that great ideas and intentions that are not ready for prime time = just a terrible customer experience that appears doomed.

Jet.com offers a membership service with what they believe to be prices 10-15% below the competition. As Costco has proven, a membership purchasing concept can be great for both customers and business. With free shipping on purchases over $35, the offer seems attractive.

I was pleasantly surprised to find a wide array of products on Jet.Com. Their UI is simple and straightforward – well suited to the task. Graphics are good and their purple theme interesting.

Given that I am a photographer, as well as techie, I first went to cameras. I was astonished to see a Nikon pro camera (D4S) in their listings. I immediately added it to my cart and the savings were indeed substantial enough to convince me to upgrade from my three-year-old D4.

Then the fun started. I clicked check out, entered my shipping and credit card info, and clicked purchase. They seems to process my order. Then a message popped up that they had a problem and please retry or call a “Jet Head.” I tried again. And again. No luck.

I called and Auli’i was really pleasant. Saw the item in my cart, confirmed that they had it, confirmed the price, confirmed that it was indeed a US sourced item, but got the same error. She put me on hold (with my permission) and talked with support who acknowledged that they were having problems. I was asked to try a different browser – I tried two more. Same result. She said that she would work with support to get my order through the system, process it and I would receive an email acknowledgement.

Two days later – not received. So, I called again. Brandon acknowledged that they were have some problems. (Can you say “not ready for prime time?” Yes.. pun intended) When he looked at my account, there were no items on order, nothing in my shopping cart, even though my account still showed the Nikon camera. He asked me to re-purchase. I did and there was no such product.

He told me that they had some issues with items that they priced too low and then removed from the system and that was probably what happened. They would not honor the price for an item that had already been ordered. And then, repeated the part line about service and price.

After I hung up, I got even angrier. Clearly this is amateur hour! They post items and prices to attract you to the site, don’t have them at that price, let you add them to your cart, and then have the “cart fail” so that they don’t have to honor their commitments.

And then, two days later, got an email response, again apologizing and asking for patience while they worked through technical issues. So, I checked and the same item was reposted, with the same price. Added to my cart, clicked purchase and got exactly the same error. And was informed, that the customer service staff had no ability to do a work around.

Intolerable policy and service. Chalk this up as another startup that doesn’t get it.

 

Crowdfunding

Crowdfunding is about to be approved by Congress and signed into law by the President. For those unfamiliar with the concept, you can read Wikipedia (http://en.wikipedia.org/wiki/Crowdfunding) or simply put it is raising money for startups, typically via the Internet, in small chunks from people who may never meet with or diligence the company. Crowdfunding has been used in some non-profits for years and has been successful in Europe for the last two or so years as well.

Most existing investors in this early-stage asset class hear of crowd funding and have the immediate reaction: “Won’t this lead to massive fraud?” Today, investments in unregistered securities require that all investors be “accredited” so that they are assumed to understand the risks in these investments and ensure that sophisticated investors carefully vet deals to ensure that there isn’t fraud.

But, times change. Some VCs and Angels have become fabulously wealthy and famous by investing in early-stage companies, and the media has made a big deal about this. Think Google, Facebook, and even Microsoft. And, in our current economic malaise, creating high-growth, innovative startups is seen as a way out of the mess. But many innovative startups fail in trying to raise money. Angels do their part (see many of my previous posts). But many believe that the need is greater than sophisticated (“accredited”) Angels can finance.

So.. the idea of Crowdfunding has gained great momentum. The current vehicle, H.R. 2930, the Entrepreneur Access to Capital Act, as amended and approved by the House Financial Services Committee on October 26, 2011, (see http://financialservices.house.gov/UploadedFiles/hr2930ai.pdf for the original). The amendments are important, since they lower the size of the amount raised. While the situation is still fluid (the House reportedly just passed its bill and the Senate is in draft), it appears that there will be a $1M annual cap on raising money through Crowdfunding. Crowdfunding is exempt from current broker-dealer rules. Other issues, like how companies handle scores or hundreds of investors or allowable fees that Crowdfunding platforms can charge, remain up in the air.

I have heard rumors about this being done in Europe for the last several years, but cannot substantiate that startup companies have been funded this way. Wikipedia reports that “One of the pioneers of crowd funding in the music industry have been the British rock group Marillion. In 1997 American fans underwrote an entire U.S. tour
to the tune of $60,000, with donations following an internet campaign…” And movies have been known to use Crowdfunding. Any readers with more data?

This is a brave new path for the US. While many (myself included) think that our current SEC regulations that limit investments in startups to “accredited investors” are too narrow and should allow other knowledgeable investors to participate, there is established law and precedent for the investment market. I worry that we might be opening Pandora’s box. Many startups fail and investors that are not willing or able to do due diligence should not be investing in them. It is one thing for sophisticated, accredited investors, like me, to invest in a company and loose their investment. We understand the risk going in. We did our due diligence on the management team, the market, and the technology and reached a positive conclusion. It is quite another thing for someone to “advertise” a deal to the Crowd and have people send them money based solely on the company’s information without any substantiation.

I believe that broadening the participation in the early-stage asset class is a good idea and Crowdfunding is one way to achieve this. I just don’t want some bad actors who use the Crowdfunding mechanism for fraudulent transactions to poison the entire asset class. I think it would behoove both the entrepreneurs that raise money with Crowdfunding and the investment community to find a way to have a trusted platform that verifies that the company is who they say they are and that some investment professional has done due diligence appropriate to the investment.

I also worry that Crowdfunding could lead to some very high priced deals. Investment professionals (including “Professional Angels) have a great deal of experience setting the price for early stage deals. This experience comes from many years of investing, forecasting companies’ success and capital needs, and understanding how exits are likely to occur. Without this discipline, prices might not reflect true value. For example, if an entrepreneur is told by the investment professionals in their community that an appropriate valuation for their company is $2M, but they go to the Crowd with a $10M valuation and raise $500k, what happens when they need to do their next round? After they have spent the $500k, they might approach either Angels or VCs who will then set the price well below $10M. The Crowd will then find that their investment is worth very little. If the Crowd understands that risk, I have no problem with Crowdfunding, but if this isn’t transparent or well-disclosed, I think we could have many disgruntled investors.

I really want Crowdfunding to work. I don’t want a bunch of “mom and pop” unsophisticated investors ripped off.

Taking Money from Entrepreneurs’ Pockets

In a previous posting/rant, I talked about Angel Groups that gouge entrepreneurs (http://blog.drosenassoc.com/?p=13). Some charge over $10,000 for the right to present and that steams me. However, I have not directed my wrath at another group that gouges entrepreneurs even more – brokers and small investment bankers. Note to entrepreneurs: Do Not Use a Broker (or small investment bank)!

Such firms typically charge an entrepreneur between 5-10% of the amount raised, in addition to expenses, legal fees, and a retainer. No angel I know wants to see the money they invest in a startup flow out the back door in this way. You do not need to pay to find angels and get them to invest in your company. If you have a good idea and a good business, approach us directly. The staff at the Alliance of Angels gives you far better feedback, based on angels who actually invest, than you will get from a broker. And it’s free!

The Northwest Entrepreneur Network (NWEN) and Washington Technology Industry Alliance (WTIA) offer seminars, networking events, and classes on how to raise money. They are low cost and valuable.

But.. no angel I know likes deals where there are brokers involved. We like to meet with and get to know the entrepreneur, help them get their company going, and build to a success. None of want or need someone in the middle.