When Crowdsourcing Fails: Cambrian House Headed to the Deadpool

Crowdsourcing sounds good in theory?pull together a bunch of smart, motivated individuals from across the Web to create a new product or business?but in practice it is not so easy to pull off. One of the first major casualties of the crowdsourcing movement looks like it will be Cambrian House, the Calgary startup that tries to organize the crowd around creating new ideas for Websites and software products. After unsuccessfully trying to raise a new round of capital, it is our understanding that the startup has negotiated a fire sale of its intellectual property, assets, Website (and whatever community remains after the sale) to Spencer Trask, an old money, New York venture firm that originally backed Thomas Edison.

The deal is structured as an asset purchase, after devolving through various stages from initial talk of a new investment to a joint venture to a buyout. The more Spencer Trask looked, the less it offered. Spencer Trask is basically buying the Cambrian House platform and its community for a fraction of the $7.75 million that investors have already put into the company. We cannot yet confirm an exact figure, but one source speculates that it could be less than $1 million. Spencer Trask plans on taking the assets and rolling it into VenCorps, a Cambrian House project in development that wants to apply the crowdsourcing concept to venture capital. Sean Wise, a Canadian "venture consultant," is heading up VenCorps and (presumably) whatever is left of Cambrian House. A Cambrian House spokesperson contacted confirms that the sale has gone through and that the site will "dissolve" in three months. We are placing Cambrian House in the deadpool.

So far, 6935 ideas have been created on the Cambrian House site. Some of them must be worth pursuing, no? Perhaps. In addition to VenCorps, Cambrian House itself will be keeping some of its more successful projects alive, including desktop fighter game Gwabs, independent-film funding service FilmRiot, Digg-like charity Greedy or Needy, and virtual gift-wrapping app Prezzle. It will also retain rights to its source code and try to license it to others through an application called Knottle and a platform called Chaordix, both yet to be released. Many of these ideas didn't gain traction until they were invested in and championed by Cambrian House itself, which again makes you wonder whether any good ideas can actually grow into full-fledged products from an unaffilated crowd.

To be charitable, maybe Cambrian House just suffered from poor execution and Spencer Trask thinks it can do better. But crowdsourced venture capital? If the crowd cannot even make a decent Web app, the chances of its being able to allocate millions of dollars more efficiently than seasoned pros does not seem terribly great.

The imminent demise of Cambrian House is a cautionary tale for other startups, such as Kluster, CrowdSpirit, CrowdSpring, and FellowForce, trying to cut their teeth in the nascent crowdsourcing industry. They all have their own approach, and experimentation is necessary to find the right one.

The fall of Cambrian House won't deter them from trying. For instance, Kluster takes a more structured approach by breaking down projects into manageable stages and has thought through the incentives a little differently. And CrowdSPRING, which focuses on designs for Website and marketing materials, is formally launching tomorrow after picking a winner for the $5,000 contest to design its own Website.

Some of these will survive, and some won't. The key is attracting the right community of active contributors and structuring the rewards in such a way that makes it easy to participate. Or is crowdsourcing simply a bad idea that should be put to rest?