Crowdfunding, The Good, The Great and The Ugly.


In recent years, crowdfunding has become mainstream. Mainstream news and media regularly report on Crowdfunding hits and more often misses. I am a great lover and supporter of crowdfunding, having backed 75 projects on Kickstarter to date. I have also backed projects on other platforms including a book and a legal case. The growth in the sector has spawned a large number of crowdfunding platforms, ether general like Kickstarter and IndieGoGo or specialist like Fig (Aimed at video games), Crowdjustice (Aimed at supporting legal action), Unbound (Aimed at book publishing) to name but a few.

What is Crowdfunding

Kickstarter System Shock Crowdfunding Campaign

Crowdfunding for anyone who isn’t aware of the concept, is where a person comes up with an idea. They then seek funds from the public in order to complete that idea. In return they give these funders rewards. These rewards are normally tiered depending on the amount that a founder pledges. They can also include limited rewards Where only a limited number of backers can select that reward. For product based ideas i.e. video games, board games, movies, electronics etc this reward is usually early access to the product, sometimes it also includes input to the product design and/or a credit, as well as extras such as limited posters or Soundtracks. For more ephemeral projects like Art installations you may get a credit, some special thank you item or access. Rewards vary from project to project, and it is up to the creator to come up with rewards that they feel will encourage investment in their idea. My experience of crowdfunding, and I think crowdfunding in general especially on Kickstarter falls mainly into the product based projects.

Why Crowdfunding

The reason that I got into crowdfunding and the reason I think it took off in the mainstream consciousness is that the large corporations, the people that have ready access to funds to launch new ideas, have become increasingly risk adverse. This intern has lead to them only launching and investing in safe ideas. This is understandable when you consider what is involved for a corporation to bring a idea through development to production. For a product to become a reality it has to go through, Initial Idea, Research and Development, Design, Concepting, Testing, Approval, Production, etc. A large corporation has to invest heavily in the process, and be able to manufacture and make a return on a large scale. They also have no firm prediction of the up take. Sure they can get a rough idea from Market Research but that is only what people think they want. The reality can and does turn out to be very different.

So how does crowdfunding help? The first thing is that crowdfunding is flexible. This is because you know roughly what the real interest is in your project. People are handing over money at a relatively early stage therefore you have a good idea of what your return is going to be. You also don’t have the secrecy, therefore you can engage your customers at a much earlier stage in the process allowing you to build a product that they want. When using crowdfunding, you also expose your business to less risk as you already have the money needed to fore-fill the final orders. This is of course if you have A) correctly calculated your budget, and B) made sure that you have a contingency in cause of unforeseen issues. You also have an advantage, as you are operating direct to customer, this means that you can scale your production to demand. With larger corporations that are selling via retailers, they can often end up having to make a large amount of inventory available in order to meet retailers requirements. This can be a disadvantage if you only sale a small percentage of that inventory through to the customer.

What I like about crowdfunding

The end result of all this, and what makes it exciting is that by Crowdfunding, project creators are more able to take risks. This means that you get a lot of cool, or niche interest ideas that are successful crowdfunded, but never would see release or development if made by a large corporation. This is what got me hooked on the crowdfunding bug. I have a vast range of interests, a lot of these are niche such as technology, anime, comics, indie video games and much more. The first project I ever backed was back in 2013 and was a diabetic journal app for iOS. Since then I have backed a vast range of project categories from 75 projects in games through photography, fashion, technology, comics, music and more. Each of these projects bring a new and interesting look on their respective category. The other thing that I find exciting is that I get to back projects that are groundbreaking or can make a real difference to people’s lives. I have always had an interest in venture capitalism, been on that cutting edge of technology that could change the world. I know crowdfunding is vastly different to the world that venture capitalists work in. However as a person with a more normal level of funds it lets me get a taste of that world.

I tend to stick to crowdfunding on Kickstarter, the mean reason for this is trust. Unlike sites like IndieGoGo, Kickstarter seems to have better policies around what you can put up as as project. When looking through the video game category on IndieGoGo, it is common to see people that just want money to buy a new gaming rig etc. Kickstarter’s projects by contrast tend to be more professional. The other thing I like about Kickstarter is that it only allows “All or Nothing” campaigns. An all or nothing campaign is one where they project creator works out how much money they need to bring their project to market. They then list that total along with project details, backers pledge to the project. Kickstarter then sets a time frame to raise this total normally around 30 days. If the project raises or exceeds the total requested then the project is successfully funded, else it gets no money and any pledges are not taken. The reason that I prefer this way of funding projects is that I feel that the project creator is more likely to complete their project and deliver the rewards. This is because they have all the money that they need to complete their project before they start.

The Problem

ok so if you have looked at the press in the last 5 years you would have heard and read about projects that went epically wrong. This often leads to people that have pledged getting angry, understandable so as they didn’t get what they though they were going to get. Apart from where the project creator has set out to commit fraud, I feel that the project creators are also not to blame. I think the issue comes from a misunderstanding. A lot of people seem to think that backing a project on crowdfunding site, is exactly the same as pre-ordering a product from a retailer like Amazon. This understanding is fundamentally flawed however. When pre-ordering a product from a retailer, the manufacture that is suppling that product has already gone through a lot of the steps that bring a product to market as mentioned above. The manufacture can do this because they have a large pot of funds that they can dedicate to bringing a product to market. As already stated crowdfunding projects don’t have that. When you pledge to a crowdfunding project, they likely only have a rough design, and maybe some basic prototypes. This means that the process of bringing their product to market doesn’t actually even begin until the crowdfunding project closes and the project creator has their funds. This means that people backing projects should think of it more as investing than pre-ordering. Like any investment you must be prepared to loose all the money you put in, and never invest anymore than you are willing to loose.

The other issue with crowdfunding is also its biggest strong point, and that is that anyone can start a crowdfunding campaign. Although Kickstarter has a set of guidelines that it expects project creators to follow, They will even enforce these guidelines when offending creators are reported, they do not vet projects or the creators claims or feasibility. This is actually a good thing, A) having vetting staff would take more of the total funds away from the project creators, and B) it would begin to strangle creativity and innovation. This is because Kickstarter would start to play it safe like the big corporations and we would end up with just another corporation that would only allow investment in safe projects.

The Future

I think personally that the future of crowdfunding is strong. If people can start to see it as an investment that they can loose, then I think crowdfunding can go from strength to strength. Unfortunately while the misunderstanding still exists that pledging to a crowdfunding campaign is the same as pre-ordering, then it is walking a fine line. It only takes one of two large and public crowdfunding failures to destabilise the entire industry. The resulting loss of public confidence (the people that actual provide both the crowds and the funds) would mean that projects wouldn’t get investment And the sector would collapse. I will continue for the time been to back projects on crowdfunding platforms, as they still deliver exciting and innovative products.