The Sondors Bike is Unravelling a Bit

[George S.]

https://electricfatbike.wordpress.c...fatbike-3-5-million-dollar-campaign/#more-661

There are too many layers of government in this country to pull off something like this. He's got the IRS, the liability lawyers, and the bureaucrats against him. Good luck with that. I don't know if they ever thought this through.

 

[Gus]

If they drop ship from China and never touch a single bike, they can skirt around some of this like the sales tax. Its then just a factory in China shipping a product to a customer in the US - which may be subject to import duties that the receiver will have to pay. Storm and company didn't actually sell anything to anyone. They got a bunch of suckers to donate to their business idea, nothing more. I'm sure the tax man is going to get his slice for sure though, which is going to murder their profit margins because they'll be taxed against the full 3+ million. Ouch!

 

[EULITTLB]

George S.... I don't know if they ever thought this through......... I am with you 100% on that. They don't know wtf they are doing and are making things up as they go along..... 12 months in design, and only a single bike with ridiculous claims of performance, weight, battery charging criteria and spec, which are changing all of the time, and which have radically changed in the last three weeks. I have said it before, there will be tears before bedtime - moreover though, there will be a sting in the tail with this one, either shocking quality and performance, import duties or something like the battery isn't included and the shipping charge for it isn't either.......

 

[George S.]

If they drop ship from China and never touch a single bike, they can skirt around some of this like the sales tax. Its then just a factory in China shipping a product to a customer in the US - which may be subject to import duties that the receiver will have to pay. Storm and company didn't actually sell anything to anyone. They got a bunch of suckers to donate to their business idea, nothing more. I'm sure the tax man is going to get his slice for sure though, which is going to murder their profit margins because they'll be taxed against the full 3+ million. Ouch!

The “brilliant” idea was to not sell stuff, by wrapping everything in a developmental model, and making the money a contribution. Then you make the person who gets a perk the importer. The theory, I guess, was that this insulated S/Co from all the things that come from running a business, offering a product, and entering into contracts.

So, it turns out maybe the not selling of the bikes makes it impossible to do the normal accounting, where cost of goods and other expenses come off the top line revenue. You really have to make a profit, generally, to owe any taxes. It’s kind of hard to go back to saying it is a sale.

If the IRS says these are contributions, even donations, I’m clueless as to how that works. Clearly, if it is pure income, and the IRS takes a 20-30% chunk, there’s a hole in the budget. California is a high income tax state.

I’m not sure how they get enough clarity to figure out how much of reserve they need to set aside, to pay the taxes. And then they need to buy a couple of bikes with what is left.

 

[JoePah]

https://electricfatbike.wordpress.c...fatbike-3-5-million-dollar-campaign/#more-661

There are too many layers of government in this country to pull off something like this. He's got the IRS, the liability lawyers, and the bureaucrats against him. Good luck with that. I don't know if they ever thought this through.

George that writer has some kind of weird hardon against Sonders and the whole concept.. If this campaign is reported as personal income, then he has liabilities to write against it, like the cost of marketing, design, selling and manufacture.... Probably not the first time some American hit the jackpot on an idea and figured out a way to make a profit from it.

 

[EULITTLB]

All I know is $3.5 million from a high profile campaign will attract the attentions of the tax authorities like s*it does flies.

 

[Brian(J)]

George that writer has some kind of weird hardon against Sonders and the whole concept.. If this campaign is reported as personal income, then he has liabilities to write against it, like the cost of marketing, design, selling and manufacture.... Probably not the first time some American hit the jackpot on an idea and figured out a way to make a profit from it.

I see it just the same way. Any money they sent to China is a deduction.
The author of that article doesn't know any of what he says to be a fact, just writing in total speculation based on one bit of legal boilerplate that probably doesn't apply, the key word of which was 'may'. Sensationalism at best.

 

[EULITTLB]

At what point and in which territory is the sale actioned for sales taxes to be applied? I hope Sondors et Al have thought through all of this more than they have the spec/claimed performance on the bike!

 

[PowerMe]

I'm sure these issues emerging now are unexpected, because who would have imagined a funding goal of $75K reaching $3.4M? I'm sure they have a finance or tax person they are consulting with and if they don't, they soon will. The arrangement of taking all the monies as "donations" with no attachment to goods/services with costs seems really strange to me. I mean I know they did it, and I'm no accountant, but they do have costs involved on their end. It's not all profit, not by a long shot. If they're only making around $50 profit on each bike (after costs) then the taxes they have to pay should be on the net income, right?

 

[wa5]

after legitimate costs, I cant see their tax bill being anywhere near that high

 

[Gus]

I'm sure these issues emerging now are unexpected, because who would have imagined a funding goal of $75K reaching $3.4M? I'm sure they have a finance or tax person they are consulting with and if they don't, they soon will. The arrangement of taking all the monies as "donations" with no attachment to goods/services with costs seems really strange to me. I mean I know they did it, and I'm no accountant, but they do have costs involved on their end. It's not all profit, not by a long shot. If they're only making around $50 profit on each bike (after costs) then the taxes they have to pay should be on the net income, right?

Thats the part the confuses me too. Mainly because the way the Indiegogo thing works. Since people aren't actually buying anything and only contributing money to something. I think the taxman only cares about net profit, so as long as there is some way to make that 3 million dollar check sent to China as a legit business expense it's probably not as bad as Karl blog guy is making it out to be.

 

[Ann M.]

It's unlikely that Agency 2.0 would let Storm set up this venture in his personal name. Partly because they are also beneficiaries of the campaign and for liability and tax reasons. I do not know what that structure is, but there has to be some other entity and some really clever accounting. Its doubtful they could pull off a non-profit setup.

 

[EULITTLB]

Ann M. what concerns me is this is a massive undertaking by anyone's estimation - the rules of the game change when there is 5000 bikes to be made, checked, shipped from China and delivered to end users, a totally different ball game from 150 bikes. There can be little doubt the shipping will be much less than $195 if believing the claim that the shipping rate goes down as the volume goes up - they can't have expected response but given the inaccurate claims made, they are in a pickle now for sure. BTW I am not a Troll and neither is Trev (wa5).

 

[wa5]

would it not depend on Where Sondors company is set up? may be in a tax free (and extradition free (just for you Bikenut )... area. I think the 7000 separate customers direct from China is still the best bet.

 

[EULITTLB]

Lets face it, contributors were not pledging to fund an idea, it is a low cost bike with extravagant claims for goodness sake - how that will work in accounting terms I really am not sure, but it is one loophole which Sondors could use to fail to supply, I really hope I am wrong. It is an interesting area for sure, maybe that is one reason Sondors was so insistent on the specific terminology used on the website..... but I see trouble ahead asides from the accounting. How difficult can it be to market a bike with particular spec and performance at a set price? Well I guess if you make outlandish, exaggerated claims and change the spec drastically it might be difficult to deliver a product....

 

[J.R.]

https://electricfatbike.wordpress.c...fatbike-3-5-million-dollar-campaign/#more-661

There are too many layers of government in this country to pull off something like this. He's got the IRS, the liability lawyers, and the bureaucrats against him. Good luck with that. I don't know if they ever thought this through.

@George S. , I don't think many are surprised at the recent news from this campaign. It became too frenzied too quickly. Forums are getting ugly with personal attacks, we've all seen that before. I'm sure consumer protection groups, both government and private are watching all this unfold. The taxman will want his slice of the pie wherever and whenever he can get it, for the most he can get. And god help us when the attorneys get actively involved.

There had been so much good news of late for this industry... I guess no good deed goes unpunished. Some have to have something to gripe about, lately for me it's been the weather. Spring thaw can't come too soon!

 

[PowerMe]

My perspective: the original campaign was a pretty small one, considering. And then it exploded as more and more people bought in. We're talking less than 30 days. Now comes the request to have 'everything' figured out right now, including every aspect of a business. Except... that's a tall order and might even be beyond the scope of the average crowdfunding product developer/marketer. Sure, maybe Storm & his folk 'should' have figured their campaign would generate millions in the very first batch, but they didn't. I can't fault them for not being psychic. What really pushed this campaign at such a massive rate was the rabid level of excitement generated by those who first bought into the product. THEY grew the business by word-of-mouth, far more than Storm or Agency 2.0 did (IMHO). Maybe Storm is even kicking himself for not charging $999 per bike right out of the gate.

Most start-up companies make it up as they go. I've seen it first-hand back in the dot.com era of Silicon Valley, where I worked at the time. Someone had an idea and they were not a business person. Common story.

The point? Storm, whether he intended to build a business or not, now has to figure out lots of complicated things since his little venture suddenly exploded into a very big deal. Whether he intends to keep some kind of business concern going or just do this one campaign and then get out, he is suddenly in a spot he couldn't have foreseen without being prescient.

Realistically it will probably take more than 30 days to figure everything out. Though yes, the specs of the bike itself should be nailed down, and within 30 days Storm should know what the Chinese factories can deliver, at what cost per bike, and they should be able to estimate how long it would take to deliver 7,000 bikes to all the funders (I suspect until 4Q until the very last one gets delivered, but maybe it will only be 5 or 6 months). And they should also know or at least be close to knowing what shipping costs will look like.

Storms' campaign shouldn't stop anyone else from pursuing their own eBike venture or dream. Anyone with enough desire can do the same thing -- find a way to have about 200 to 300 eBikes built or find an existing bike and have it converted into an eBike and offer those at some % markup. And they can figure out all the business issues up front and not get caught in the same situation as this campaign.

 

[Ann M.]

Ann M. what concerns me is this is a massive undertaking by anyone's estimation - the rules of the game change when there is 5000 bikes to be made, checked, shipped from China and delivered to end users, a totally different ball game from 150 bikes. There can be little doubt the shipping will be much less than $195 if believing the claim that the shipping rate goes down as the volume goes up - they can't have expected response but given the inaccurate claims made, they are in a pickle now for sure. BTW I am not a Troll and neither is Trev (wa5).

Trolls, did we walk into another reality? Shipping in the container might go down with volume; however, all of my vendors have told me 'Sorry, shipping wit FedEx & UPS is going up this month .' Even getting emails from the various shippers 'apologizing' for freight cost increases. So much for a reduction in the cost of gasoline!

As for Storm being psychic about success; dubious, but having explored importing ebikes myself, there's not a lot left to figure out. The Asian manufacturers are pretty clear on their quotes, ability to produce and what level of modifications they can offer you-- so he would have been given the manufacturing info well in advance- least amount of product to potential max. There's no reason to wrap the guy in a protective veil. I agree, lets encourage anyone who wants to venture into ebike manufacturing, just don't make the customer the product tester

 

[EULITTLB]

Morning from the UK Ann, just to be clear Sondors claims the shipping will be less than $195 with volume, and he cannot dispute that the has the volume of contributors to lower the cost significantly. So with $475 from each pledge after indiegogo fees and credit card fees he has this to go to market and deliver something - it appears resembling the claims on the main site - and to get it to customers all over the world at a reduced shipping rate due to volume. In fairness that stash of contributions should be gaining interest too so as with any good story where you have no idea what the outcome will be, I will watch wih interest. Even if Indiegogo were to refund all customers after a matter of months which they will not for sure, the interest will be a nice little nest-egg.....

 

[JoePah]

Anyone who has sold over th Internet knows that shipping is a tough variable and could eat your profits one way or the other. Storm had a reasonable approach and as long as he doesn't charge more than he stated no one has any reason to complain. Alluding to lower costs can be construed as misleading but he did set the ceiling.

And there is plenty of market for innovative EBike products. Flykly campaign was over $700000 in 2013. They delayed, then the shipping costs and product variables changed, but people who invested seemed to like the final product even tight it was over 6 months late.

Will Storms investors be as patient or as accepting of the final product? Depends on if he can deliver and how reliable the bike is.