By Ryan Mac and Aaron Tilley
On Dec. 20, Lily Robotics was up against a wall. It was five days before Christmas, and dozens of eager customers who had spent more than $499 to pre-order the company’s flagship product were wondering if they were ever going to see it.
A San Francisco-based startup that had promised to build an autonomous flying camera, Lily was among the most-anticipated consumer hardware companies in Silicon Valley. In May 2015, its splashy launch video, featuring a four-propeller robot whizzing around a kayaker and snowboarder, went viral and was watched 5.3 million times in its first month. But in Dec. 2016, a year-and-a-half after launch, customers bombarded the company’s Facebook and Twitter accounts, asking about the status of their orders.
“We will start shipping US orders late this month until early 2017 and in the order that they were placed,” Lily wrote on Dec. 20, its last tweet to date from its Twitter account. It never got there. The company announced Wednesday that it would be shutting down.
The Lily Camera, which looked like a droid out of Star Wars, was supposed to be playful, but also revolutionary. While there were other consumer drones that took could capture images, none seemed to match Lily's capabilities: sharp video, water resistance, "Follow Me" features and the ability to take off and land in a person's hand.
Unfortunately, Lily over-promised and never delivered. In an email to customers on Wednesday about its closure, the company said it would return some $34 million it had received in pre-orders to its would-be customers.
The following day, the San Francisco District Attorney filed a civil consumer protection suit alleging the company had intentionally lied to potential customers with its launch video, which purported to showcase Lily's capabilities but was created almost entirely with technology from its rivals. The DA also filed for a temporary restraining order to prevent the company from conducting business, but did allow them to move to refund its customers.
Now some tech veterans say there were red flags in Lily's story all along.
“Selling units at a big discount in [a pre-order campaign] can be a huge red herring,” said Mark Siegel, a partner at Menlo Ventures and early investor in consumer hardware companies like Dropcam and Eero. “It doesn't say anything about what the real demand will be at a price that allows the company to turn a decent profit. Lily had a spectacular pre-order campaign but the unit economics made no sense.”
Lily’s demise is another ding in the consumer drone industry, where numerous companies have found it difficult to design and mass produce fully-functional flying robots that people want to buy. GoPro launched its drone last summer, but had to recall it due to a power failure, while 3D Robotics, a well-funded drone startup, changed its focus to enterprise applications after losing millions of dollars when its flagship consumer drone flopped. Earlier this week, French electronics company Parrot laid off a third of its drone division due to a drop in sales.
While Lily was much smaller than GoPro or 3D Robotics, it was, arguably, equally as hyped. With a slogan of “Camera. Reinvented.” Lily is another example of what can go wrong when a tech company promises a grand vision to customers before it sells a working product. Now, its founders face a lawsuit that could haunt them long after they lock up Lily’s doors for good.
The company declined to comment for this story.
A Flying Camera
Antoine Balaresque and Henry Bradlow started Lily in the basement of a robotics labs at the University of California, Berkeley in Sept. 2013. Balaresque, who hails from France, is credited with the idea after he dreamed up a flying camera following a family vacation around the US. After that trip, he realized that his mother had been in none of the family photos as she had been stuck behind the camera.
"Manufacturing is already hard, plus we have software backgrounds, so there was a steep learning curve," the pair told a UC Berkeley website.
After receiving initial financing and support from Free Venture, the university’s undergraduate-run startup accelerator, Lily added investments from Ron Conway's SV Angel and Andreessen Horowitz board partner Shana Fisher. The two cofounders then spent a year-and-a-half working on a prototype, while receiving advice from senior executives at Dropcam and GoPro. In May 2015, Lily announced itself to the world with a video that was shared thousands of times across websites and social media.
That is also when the company’s troubles first began, according to the San Francisco District Attorney’s office. In its lawsuit, the District Attorney alleged that the company intentionally misled consumers with its launch video, which it said was shot using other cameras and professional drones. The District's Attorney's investigation began months ago and its lawsuit features alleged excerpts from the email accounts of Lily’s cofounders as well as anonymous witness testimony.
Lily did not respond to a series of emails with questions about the case.
The lawsuit alleged that Lily did not have a single prototype that functioned as advertised at the time of the launch video’s filming. Instead, it claimed Balaresque and Bradlow brought non-functioning models to the shoot for "beauty shots," while the first-person angles that supposedly came from the Lily Camera were actually shot by GoPro units that had been strapped to the robot.
In an email cited by the lawsuit, Lily CEO Balaresque wrote to Brad Kremer, a video producer who specialized in snowboarding shoots, that shots from the Lily Drone will be using a “Gopro mounted to a Lily prototype.”
“However, we do not feel comfortable telling people that we shot [view from Lily] scenes with a Gopro (because the whole thesis of our product is that you do not need a Gopro),” he continued. “Can you modify a Gopro image in post-processing so that people cannot tell that it was taken from a Gopro..."
Kremer, who works for video production company CMI Productions, declined to comment to FORBES, citing the ongoing litigation.
Despite assurances from Kremer, Balaresque remained worried that people would still be able to tell it was filmed with a GoPro, according to the suit. In another email to Kremer, he wrote: “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."
The District Attorney also alleged that other parts of the advertisement that consumers were led to be believe were shot by Lily, were instead taken by a $2,000 professional drone, the DJI Inspire. The Inspire, made by the world’s largest consumer drone manufacturer, requires another person to operate via remote control. Lily never disclosed to the public that it used outside devices to make its product video.
In fact, when questioned about their video in Jan. 2016 by FORBES, Lily spokesperson Kelly Coyne only said that that it had taken many shoots to create the clips for the advertisement, and that the drone had been improved with different parts that would not be in the market device when it shipped. She failed to mention the use of GoPros or the Inspire.
Despite the alleged deceit, the video and ensuing media coverage was enough to generate a large number of pre-orders. In the first two weeks, pre-orders reached more than $13 million, five times the company's target for the entire campaign, the lawsuit said. Within six weeks, sales swelled to more than $25 million. By last January, Lily had received pre-orders, ranging from $499 to $899 per device for 60,000 units, totaling about $34 million.
Many in the media were dazzled by the company’s lofty promises. The Wall Street Journal featured Lily on a page that proclaimed “Gadgets That Will Define Life in 2016.” In 2015, FORBES, which had been excited by the prospects of a flying camera, put Balaresque and Bradlow on its 30 Under 30 list.
Lily's most recent tweet about its supposed drone shipment. (Photo from Twitter)
A Series Of Delays
As pre-orders piled up, the company began changing its shipping date. Originally the company said it would deliver its devices to its first pre-order customers by Feb. 2016. In Nov. 2015, the company published a blog post celebrating the production of initial units from an unnamed Chinese contract manufacturer. Three weeks later, Lily told its customers that it had to delay shipment until the summer of 2016.
The company told customers at the time the delay was due to "flight software optimization, hardware improvements, and additional rounds of testing." The DA alleged that the company had no reason to commit to deliveries in the summer of 2016, with an unnamed witness saying the date was chosen because it “sounded good.”
In Aug. 2016, the company wrote that US pre-orders would begin shipping in December, while international shipment would begin in early 2017. The company also emailed FORBES to set up a demo, but canceled on Nov. 28, three days before the scheduled event. On Dec. 19, the Federal Communications Commission approved Lily’s wireless components for consumer use and sale.
And then on Wednesday, Lily sent a letter to its customers announcing its shut down and refunds.
"We have been racing against a clock of ever-diminishing funds," the company's cofounders, Bradlow and Balaresque, wrote. "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."
The DA’s office filed its suit the following day.
Planned Shutdown?
Coyne said in a statement that the lawsuit had nothing to do with the company shutting down, noting that it had planned to close weeks earlier. She also said that Lily’s two cofounders were unaware of the lawsuit that was coming.
A source familiar with the investigation, however, said that the company had known of the probe for months. It’s not clear why, if the company had known for weeks that it would shut down, it was telling customers over Twitter that shipments would still occur as of Dec. 20.
Some customers weren’t too surprised by the outcome as Lily had stopped responding to most emails.
"My expectations have gone up and down," said early Lily customer Jim Fawcette in an email. "They've had my payment (and those of many others) since early 2015 and stopped answering customer support messages months ago."
Customers may not be the only ones feeling duped. The company raised $15 million in venture capital funding, largely from Spark Capital, which did not immediately respond to a request for comment. The company also received a $4 million loan from Silicon Valley Bank, obtaining that money on the basis of its strong pre-orders, according to documents obtained by the District Attorney.
That money alone was not enough. One source familiar with the company’s troubles said that Lily tried to raise another $15 million last year. Lily also met with Snapchat parent company Snap, Inc. about a possible acquisition following the social media giant’s foray into video capturing hardware with its new Spectacles, $129 pair of camera-equipped sunglasses. Snap passed on the deal, which was first reported by Business Insider, because of potential liability associated with pre-orders. A Snap spokesperson declined to comment.
Lily also met with other potential acquirers at the behest of their investors, including DJI, said multiple sources. The two companies met in the fourth quarter of last year according to people familiar with the talks, but Lily's cofounders could not come to agreement. A DJI spokesperson could not be immediately reached for comment.
In a world where pre-orders can be used to kick-start consumer excitement, Lily’s shutdown may test consumer’s faith in crowdfunded projects. While every tech entrepreneur seems to have a big vision, marketing and allegedly made-up videos can only get so far. Lily is due to appear in court next Wednesday. Its CEO Balaresque is currently said to be in France with family as his company comes to a close.
“If you are ‘demonstrating’ something that isn't real, then you need to disclose,” said Menlo Ventures’ Siegel. “Otherwise, it is fraud! I have no sympathy for that.”
Follow Ryan on Twitter at @RMac18 or email him at rmac@forbes.com. Follow Aaron on Twitter at @AATilley or email him at atilley@forbes.com.
