Kickstarter is one of the best ways for new businesses that are making or creating something to raise start-up funds. That’s why it’s called “Kickstarter
,” because it’s intended to help creative people do what they do: create and make.
First off, Kickstarter
is not designed to raise funds for general use. It won’t provide money to individuals and their living expenses, it won’t provide general charitable donations (and is not designed to fund “worthy causes” in general), and it isn’t designed to provide general start-up money for just any type of business.
There are also pitfalls to Kickstarter. If you have a successfully-funded project and have promised to deliver an item or premium to a backer, you need to follow through.
Warning: Don’t Make This Mistake on Kickstarter
Seth Quest thought up an accessory for the iPad called Hanfree. He more than made his Kickstarter goal, receiving $35,400 from 440 people. Nearly all of those people expected to receive a Hanfree iPad stand. The problem? Seth is now bankrupt
, because he just had the idea and made a video and put it on Kickstarter. He had never manufactured anything before, and didn’t have a working prototype. He wasn’t ready to start a Kickstarter tech/manufacturing project. After several months, Seth had to pay back all the backers. That wasn’t what made him bankrupt. It was Seth’s luck to have one backer for $70 who was a . . .
wait for it . . .
Lawyer. That’s right. The guy didn’t get his product, apparently did get a refund at some point, but he sued Seth anyway. The suit was dropped, but Seth was required to file for bankruptcy because of it.
Best Case: Independent Game Designers Have Kickstarter Wired
On the other side of the spectrum, many different independent game designers and game studios have figured out how to launch their games using Kickstarter. One of the newest is Wildman
from Gas Powered Games. This is an ambitious launch, with its initial goal of over $1 million. Most games that were very successful last year did raise well over $1 million, but the catch is: they didn’t set their initial goals at that level. The majority slipped in under the initial $1 million goal mark.
Kickstarter provides the opportunity for creative businesses and individuals of all types to set up defined campaigns to raise funds to “kickstart” creative projects. It’s project-based.
History and Background of Kickstarter
Kickstarter began in April, 2009, and its founders, Perry Chen, Yancey Strickler, and Charles Adler, are still with the company. The NY Times, in initial coverage, called it “the people’s NEA” (National Endowment for the Arts). This is an almost classic meeting of old-school thought and journalism with the new economy and classic misinterpretation of what Kickstarter is. If you haven’t heard it already, Google the term “Maker Economy
Kickstarter is anything but “the People’s NEA.” People used to, and continue to, create work to serve the government customer known as the NEA. Projects succeed on Kickstarter because they are serving real customers in the real world. If this is “the people,” I guess the name is technically true. But every category, type and level of Kickstarter project has its own path to success, although there are many things in common. A small, regional music series that wants to raise $5,000 has some common elements of success (or failure) with the biggest, most sophisticated game design launch, that raises millions of dollars. The small Kickstarter campaign and project has some things in common with last year’s most successful Kickstarter project, the Pebble Watch, which raised well over $10 million (with over 64,000 backers – so at least 64,000 watches were pre-sold).
A big frustration currently is that Kickstarter began in the U.S. for U.S.-based projects and artists. It just expanded to the UK in December. Many other countries are waiting to become part of Kickstarter, not the least of them, Canada. Whenever you see an international (primarily Canadian) project, it’s because the project has a U.S.-based team member, at the least.
Kickstarter is so different from “old school” financing that business school research is limited to a single, really great analysis
by Ethan Mollick from the Wharton School. This paper is a great way to get familiar with the dynamics of Kickstarter. It was written right about the same time as Kickstarter began showing its overall statistics on its site.
What are the odds of having a successfully funded Kickstarter?
In 2011/2012, there were more than 46,900 projects launched on Kickstarter, with total funds pledged of $198 million. Almost 49% were successful. So, a little more than half failed. That’s an almost 1 in 2 chance of success — where else are you going to get odds like that? In calendar year 2012, over 2.2 million people pledged almost $320 million. 18,109 projects were successfully funded.
Now, what are the characteristics of the happy ones that made or exceeded their goals, and what characteristics are the hallmarks of Kickstarter failures?
- Featured on Kickstarter’s Front Page: 30% of projects that were not featured were successful. A whopping 89% of those that were featured made their goals.
- Strength of Social Networks: This varies by type of project and category, but in the Kickstarter film category, number of social network contacts really counts.
- Film Project Founders with 10 Facebook friends had a 9% chance of success (i.e. almost guaranteed failure).
- Founders with 100 Facebook friends had a 20% chance of success – one in five.
- Founders with 1,000 Facebook friends had a 40% chance of success – two in five.
- Video or No Video: Projects with no videos had only a 15% chance of success. Those with videos automatically improved their odds to a 35% chance of success.
- Location: Kickstarter Projects on the East Coast did better than those on the West Coast. Here is a chart that shows the distribution:
Kickstarter Geographic Analysis of success vs. failure.
The lighter color of green is the “failure” color. The darker color means “success.” The size of the pie charts correlates to size of urban area. For example, the big one on the upper right is the New York City metro area. The whopper on the lower left is Los Angeles. You can see how much better New York projects did, with almost 2/3rds successful, than Los Angeles, which performed slightly worse than the overall average of 47.9% projects funded successfully. Portland, Chicago, Seattle and the Bay area all had more than 50% successful projects. I think Orange County fits in the Los Angeles Metro area, and the sad little failure circle at the lower right of the big Los Angeles circle is San Diego. You can do better, San Diego! Go Chargers!
OK . . . back to the facts.
So far, setting a goal over $1 million actually doesn’t translate to greater success. It’s been more beneficial for larger projects (primarily games and tech projects) to go under $1 million. Then if the project does go way over goal, it just looks good for them.
There are a lot of other factors that go into successful/unsuccessful Kickstarter projects. I hope you’ve learned a little more by reading this article.
I’m thinking about adding a new business category called “Firestarter.” It sounds kind of destructive, doesn’t it? But nobody ever wants to be “kicked,” do they? Everybody could use a creative spark
us if you are in the U.S. and want to do a Kickstarter and make it work. When Canada opens up I will be the first to let you know.