There’s a lot of buzz right now about Kickstarter — the crowd funding platform where you can pitch your project and seek funding from individuals interested in what you’re making. Going back to the early days, we’ve seen it be a hotbed for small startups launching gadgets and new tech. A few campaigns you might have seen press attention about: the Pebble Smartwatch, which raised more than $10 million; the Galileo, which raised over $700,000; The Doom That Came to Atlantic City!, a board game that attracted over 1,200 backers and raised over $120,000; and Ouya, a game console built on Android that raised $8.6 million dollars.
There are plenty of other projects that have launched and turned into successful companies. However, there are equally as many, if not more, that never see the light of day. That’s the part I’m focusing on today, as well as your perspective about backing projects on Kickstarter and other crowd funding platforms, like Indiegogo.
You’re An Investor; Think Like an Investor
It’s easy to get caught up in the success stories of crowd funding. Backers, as well as new project creators, see crowd funding as a way to eliminate the headaches of the traditional means of raising capital — bank loans, venture capital, lines of credit, borrowing from friends and family, etc. However, being a backer of a crowd funding project is essentially making you the bank, the venture capitalist, the credit card company, or the friend that loans the monetary support in the early stages of development. Stop thinking like a consumer buying a new product and start thinking like an investor.
It should go without saying that every new startup, whether crowd funded or otherwise, faces significant challenges for a successful launch in the marketplace. Ask yourself a few basic questions before you even consider pledging.
- Who is the team behind the project?
- Do they have any track record of successful startups?
- What companies did they come from, and what is their experience?
- Have they tried raising funding any other way?
- What’s the feasibility of their “widget” being adopted in the mass market?
- How much time, effort and personal capital have they put into the project?
- Who is their competition?
These are just a few of many questions you should be asking before you pull out your credit card to make a pledge. Anybody can create great looking 3D renders of a non-existent, future product and craft a creative YouTube pitch video for this mythical creature they’ve dreamed up. That alone shouldn’t merit getting your pledge.
Kickstarter is a Trading Floor
The other day, Andy White and I had a short exchange on Twitter about this subject. He’s of the belief that Kickstarter should do more to protect backers from projects that fail after they’ve successfully raised the money to meet their goal. I disagree. Kickstarter is the trading floor where you make investment decisions. They empower you, but they shouldn’t be liable to you other than to provide the service.
Put another way: If you make a bad investment in a publicly traded company’s stock, you don’t blame E-Trade or your stock broker. You should come to the table prepared to lose 100% of your money. That’s the risk any investor takes investing in anything. If you can’t afford to lose your $20, $50, $100, $500 bucks, get off the trading floor. If you didn’t ask the right questions before making your pledge, but you expected a product by the end of it, that’s on you. Not Kickstarter.
The hard truth is, great ideas aren’t always enough. Great image renders and a creative pitch video do not a successful company make.
Kickstarter Campaigns Gone Wrong
Here are a couple examples of when everything looked good on paper, but didn’t turn out how they were presented (or at all).
Galileo, Your iOS in Motion by Motrr
I was one of 5,227 backers to pledge (read: invest) in Galileo. The product sounds simple enough: it’s a “dock” of sorts that you put your iPhone 4/4S on, letting you control its movement remotely with another iOS device. It’d be great for video calls, letting you be hands-free. It’d be great for time lapse photography and videography, acting like a tripod for stable shots. It rotates 360 degrees on its X-axis and 90 degrees on the Y, giving you just about any possible angle.
Galileo raised $702,427 total, far past its original $100,000 goal. This was back in April 2012, with the Galileo expected to be delivered and in my hands by June 2012. I’m still waiting. They’ve got my $95 dollars, but I don’t have my Galileo. What’s worse, because of the huge time delay, I don’t even have the iPhone 4S I had when I pledged, meaning whenever it DOES arrive, I can’t even use it.
They’ve shipped / are preparing to ship a couple thousand units, according to an update I received last week, so hopefully it’ll be in my hands soon. But then what? They’ll have successfully gone from startup concept to tangible product, but this late in the game, it’s a product that does me no good.
That’s the risk that comes with being an investor.
The Doom That Came to Atlantic City!
I didn’t back this board game, but it’s been in the news lately because even after successfully raising $122,874 (3.5 times it’s $35,000 goal), the creators have announced that it will never see the light of day. They’ve reportedly gone through all (or most of ) the money, but have nothing to provide to their backers. People are up in arms. This is the project that got Andy and I talking on Twitter about what Kickstarter should do in situations like these. My answer is still a resounding: nothing.
The creators have vowed to repay all 1,246 of their backers — eventually. But how could they? The primary creator quit his day job, moved to a new city, and from everything I’ve read, spent the money on living expenses while he was trying to get ‘The Doom That Came to Atlantic City’ off the ground. Almost half of their backers (602) pledged at the $75 level, but there were another 401 backers that invested more than that, all the way up to $2,500.
That’s the risk that comes with being an investor.
Investing Is a Gamble; Put the Odds in Your Favor
There are plenty of success stories, as well. Kickstarter and the creators who pitch projects there aren’t bad people, and have produced numerous great products. We, as humans, have a natural tendency to want to see others succeed. We support the idea of the great American success story. Our business colleges tell stories and create courses for entrepreneurship, painting the picture that “rags to riches” can be achieved by anyone who wants it and works hard enough for it. We recount all the hard times tech titans like Steve Jobs and Bill Gates had when they were first starting what would become two of the largest companies in the world. We set our eye on the prize and disregard the troubles that [can] arise along the way.
That’s not what makes a successful investor.
When you pledge support for a Kickstarter project, flip the switch in your brain from “Consumer” to “Investor” and start thinking like one. Get past the original giddy feeling of “Oh, this is a great idea!” Ask questions. Lots of questions. Call or email the creator personally. If they’re serious about their project, they’ll get back with you. If they don’t, well, that tells you all you need to know.
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