$20 cardboard bike project runs into obstacles

July 2, 2013: 1:30 PM ET

Made from 100% recyclable materials, the bike costs only $9 to make. But the potential $20 price tag touted by its creators – that's now up for debate.

By Kurt Wagner, reporter

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FORTUNE -- When Israeli inventor Izhar Gafni announced that his new product, a cardboard bicycle, would be available for $20 to consumers, it was hard to determine which was more impressive—a bike made completely of recycled cardboard and car tires, or the rock bottom price. But when Cardboard Technologies, the company behind the new two-wheeler, launched their Indiegogo crowdfunding campaign last week to raise money for the bike's mass production, donors were met with a bit of a head scratcher: the bike was listed at $290. The promising idea, which has been featured in national publications across the United States, hit a snag.

The campaign is only one week old, but the cardboard bike has raised a mere $24,000 out of a $2 million funding goal. Of the 5,000 cardboard bikes up for sale at the $290 asking price, only 24 had been purchased by July 1. On Tuesday, Cardboard Technologies responded to the donors (or lack thereof) by lowering the bike's cost to $135 ($95 plus a $40 shipping charge). Cardboard Technologies CEO Nimrod Elmish says the price of the bike will eventually fluctuate depending on the market, costing more for consumers in cities like San Francisco and costing nothing in third world countries. "We want to bring a social business model that will make [the cardboard bike] available to all," he added. "We don't have a price tag, we have a value tag."

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The company is offering to refund the price difference to donors who already purchased a bike at the $290 price tag, or provide them with two additional cardboard bikes.

Regardless of how the Indiegogo campaign shapes out, Elmish says he has investors lined up to finance the mass production of the bikes which includes plans for a factory and production line. Essentially this means that lead investor and former Timberland CEO Jeff Swartz, along with a handful of other unidentified investors, will provide the necessary funding should the Indiegogo campaign fail. So why would anyone donate if their funds are not actually needed? "We wanted to give people the chance to join us and be part of [the project]," says Elmish.

The technology behind a bike made of cardboard is far from simple, and Gafni was motivated by doubters who told him it couldn't be done. The majority of the bike's features—95% of them according to Elmish—are made entirely of recycled cardboard, meaning the bike is light (less than 27 pounds). But by folding and gluing the cardboard to increase its strength, Gafni created a product capable of holding a 275-pound passenger. The bike tires are made of recycled car tires and "will never get a puncture," according to the bike's Indiegogo campaign page. The device is also waterproof and fireproof, a necessity when your product is essentially made of paper.

And while it may not look very comfortable to ride, it's hard to beat the price of materials, which cost between $9-12 per bike, according to Elmish. It was this cheap cost of production that put Cardboard Technologies into the national spotlight, but also initiated the company's most recent struggles.

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The cardboard bike campaign represents the best and worst of the newest fundraising strategy known as crowdfunding. Thanks to their campaign, Elmish and Gafni learned quickly that a $290 version of the bike—even if only temporary—would not fly with consumers. Crowdfunding the project enabled the creators to analyze their pricing mistake before investing thousands of dollars into mass production. Of course, publicizing their strategy and taking money from consumers before their product hit the market opened them up to criticism. A consumer-base expecting a $20 product may feel betrayed, or skeptical that Cardboard Technologies will be able to deliver when the time comes. (For pre-orders from the United States, that means a delivery date in March of 2015.)

This has been a major point of discussion for crowdfunding opponents over the past year, who have pointed to campaign stumbles like the Pebble Watch to explain their concern over the fundraising method. The Pebble Watch campaign (launched on Kickstarter) was so popular, that the entrepreneurs behind the idea were unable to fill orders in time, resulting in angry consumers and a critical media. By lowering the price of their product, Cardboard Technologies is hoping to change course before it's too late. With their $2 million funding goal still unfulfilled, Elmish and Gafni are leaving the fate of their bike project in the hands of their most influential advisors: their customers.

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