Lily drone is a lesson for all start-ups

In a follow on from last Monday’s article, Kehlan Kirwan looks at the precarious nature of startups and why an announcement from the District Attorney’s office in San Francisco could set a very unwanted precedent for start-ups everywhere.

It was to be the next great evolution in the drone industry.

The Lily drone was going to be amazing and I should know — I came within a click of buying it. The concept seemed straightforward.

You get a tag which you put on your wrist and Lily would follow you anywhere. Over waterfalls, through tunnels, skiing down the side of a mountain.

Combined with its impressive camera and specs it was going to be huge. So huge in fact that they took tens of millions of dollars in pre-orders plus $14m (€13.15m) in venture capital investment. A grand total of $34m for the burgeoning start-up.

But after two years of what the company calls R&D, they decided to call it quits and shut down the once promising company. Lily’s explanation for this was revealed in a blog post which stated that: “We have been racing against a clock of ever-diminishing funds.

"Over the past few months, we have tried to secure financing in order to unlock our manufacturing line and ship our first units — but have been unable to do this.

"As a result, we are deeply saddened to say that we are planning to wind down the company and offer refunds to customers.”

A simple case of just running out of funds.

However, the day after the statement was issued by Lily, the San Francisco District Attorney’s office issued a statement that they had been investigating Lily’s practices and filed a lawsuit claiming “false advertising and unfair business practices”.

Lily was informed of the lawsuit on Wednesday, which pushed the would-be drone makers to release a late-night statement saying the company was winding down.

They said they would be issuing refunds in the process, although it has yet to be made clear how they plan to do that if there is no money left to do so.

Lily insisted that they planned to announce the wind down of the company before the DA’s office made the announcement of the lawsuit. The timetable simply got pushed forward, an unfortunate coincidence.

The DA’s announcement came after months of investigating and it now believes it has enough to bring a lawsuit forward. If found Lily and its founders could be looking at a worst-case scenario of $300m in fines.

The issue seems to have stemmed from a video that Lily released during their crowdfunding campaign. It promised this amazing new drone that could change everything about how we filmed or shot great footage.

It looked impressive. That’s because it turns out that the footage was in fact filmed by the DJI Inspire drone and not footage from any type of prototype or working Lily drone.

It sold its capabilities very well. The problem was that the capabilities had yet to exist. Lily did not make it clear that the footage was not from a Lily drone. Pre-orders went through the roof.

This is what is at the heart of the case against Lily, that they knowingly misled buyers, when in fact the actual product was way away from this stage. Two years of research and development with zero drones shipped and the end came for Lily.

In an email exchange produced for the lawsuit, it seems that the Lily CEO, Antoine Balaresque, allegedly told a video producer to try and modify footage so people couldn’t judge where it actually came from.

“We do not feel comfortable telling people that we shot scenes with a Gopro (camera),” he continued.

“Can you modify a Gopro image in post-processing so that people cannot tell that it was taken from a Gopro?”

According to court documents, another email from Balaresque stated: “I am worried that a lens geek could study our images up close and detect the unique Gopro lens footprint. But I am just speculating here: I don’t know much about lenses but I think we should be extremely careful if we decide to lie publicly.”

That last sentence alone seems incredibly damaging.

A very interesting and perhaps eye-opening precedent taking place here is that it has not been shrugged off as just another start-up flop. What we are seeing is that the law feels that a start-up was misleading in promising what it did to buyers. However, it may not be that simple.

The start-up community survives on promises. The promise to deliver, the promise to pay back investors, the promise of big growth. If you promise something to investors or customers and don’t deliver, is it a broken promise or is it fraud?

It is this question that is sitting at the heart of this case. Millions of dollars pumped into a company that never produced anything that it promised it could. Failure became an alleged fraud and a line, all be it a very thin one in the start-up world, was crossed.

Hypothetically speaking, let’s take the reverse look. If Lily had produced a drone and sales were booming. Then it was revealed that the prototype footage was never from a Lily, would the lawsuit still come? I doubt it.

In start-up circles, it would be laughed off as simply saying yes now and delivering later. Something a lot of start-ups do to survive. The difference it seems is success and failure. Get it right and no one bats an eyelid, get it wrong and big trouble awaits.

Lily was trusted by its customers to deliver on its promises and it didn’t. So it finds itself in the position of having to go to court to decide on whether they over-promised or they committed fraud.

The case is important for every start-up. What you promise and what you deliver matter. Brushing it off as a startup that over-promised may not be good enough anymore.

This could set a precedent to seeing more of these cases and lead to more people asking: When does it stop becoming a broken promise and turn into a lie?