Rags to Riches with Kickstarter? The Truth Behind Crowdfunding
Peter Dering started with zero dollars in venture capital. Now he’s worth tens of millions. Peter and his partners swear by project funding platform Kickstarter. That’s how their once small, camera accessory business, Peak Design got its start back in 2011, and how it continues to thrive today, to say the least.
This month, Peak Design closed its ninth Kickstarter campaign generating $12,142,148 from 27,165 backers, averaging an impressive $447 per backer. Once Peak Design fulfills these orders, it will be the largest fully executed Kickstarter campaign of all time, not to mention, Mr. Dering and his company just broke the record for the most money raised on Kickstarter – a total of over $32.4M.
I scream, you scream, we all scream for crowdfunding. But there’s a glaring hole in the Kickstarter business model; projects can’t offer equity.
So you can forget incentives like revenue sharing and other investment “opportunities”. This is mostly due to SEC rules on the things that are supposed to protect the investor, but all it really does is keep equity out of the little guy’s hands, so to speak. But that’s only if we were to describe the financial backer as the “little” one; oftentimes, it is the project’s creator that is relatively “small” before having raised any money through a Kickstarter campaign.
There are countless types of financial backers and creative visionaries all over the world who get involved so as to take their beloved product(s) to market. According to statista.com, about 36.84% of participants see things through to fruition. That’s the current success rate. Some make out like bandits. Others fail but try and try again, until they hit it big. And they do.
Successfully funded projects to date: 167,463
Total dollars pledged to Kickstarter projects: $4,448,701,706
More real-time metrics to blow your mind:
So how does it work, exactly?
Kickstarter CEO Yancey Strickler has said that it’s not a place to buy things, and it’s not a place to invest in things — it’s a place where fans can support and connect with artists they love. “Kickstarter won’t switch to an equity-based model…We believe the real disruption comes from people supporting things because they like them, rather than finding things that produce a good return on investment.”
Kickstarter Mission: To help bring creative projects to life.
Projects must meet a range of requirements and follow a handful of guidelines, beginning with a clearly defined creative topic, an engaging project video, a funding goal, and a deadline.
Kickstarter community members back project with monetary pledges in exchange for rewards, and are only charged if the project reaches its full funding goal. This realistic all-or-nothing funding approach mitigates risk while incentivizing the most industrious and most popular. In addition, creators are only charged processing fees if they reach their funding goals. That’s basically it in a nutshell.
Some of the most innovative (or just plain fun) products on the market get their start on crowdfunding sites like Kickstarter.
People back projects as seemingly outlandish as Exploding Kittens, Meat Soup, Grilled Cheesus, Crystal Bacon and even Poop: the Game, a profitable business that’s also creating a positive social impact.*Please note that Poop: the Game is not actually doing as much; we simply wanted to see if you were still paying attention; it was also a good segway into projects that actually improve our world or the way we live in it, significantly.
A gimmicky brand or project name may only get you so far, though. The best, most innovative and typically successful products tend to come with a more serious and substantive point of view, albeit a wildly creative one – passions and prototypes like Oculus Rift, Pebble, or one of our most practical favorites – the rather modestly named xSuit – a perfectly-fitted, techy “life-proof” travel suit or “suit of the future” that repels stains and odors while keeping its wrinkle-free fashion-forward shape for days on end. The xSuit is perfect for the modern gentleman on the go. This inventive twist on tailoring would be a terrific example of a Kickstarter project/product that improves everyday life.
The Pros – so many advantages to running a Kickstarter campaign:
Use Kickstarter to raise capital, increase sales and build a community. You know, versus traditional digital and social marketing. Kickstarter allows for…
Community Building – The human communication that occurs from company to backer throughout the Kickstarter campaign process is paramount. Developing a community that you can come back to each time you decide to raise funds for a creative project is not only a good idea; it’s something you’ll come to count on for support if you need a “kickstart” more than once. Backers love and understand the community aspect to Kickstarter and feel much better about helping people launch because of it. Since going live in April 2009, Kickstarter has helped aspiring entrepreneurs, artists and inventors raise $3.4 billion from 14 million backers to bring passions and prototypes to life. Contributors eager to be the earliest adopters of new technology, or provide support to dancers, musicians and other artists seeking grassroots support, have fully funded more than 134,000 campaigns.
Cash Flow – The normal sales cycle in a product-based business where you have to pay a manufacturer 6-7.5 months prior to actually receiving money for that product is a tremendous burden to bear and typically requires financing/investors. For a company to grow 100% annually it takes a lot of money up front. Without Kickstarter you’d have to give away a significant chunk of said company. Kickstarter allows for a budding company to pre-sell and get money up-front. The backer gets discounts on products, and the company doesn’t have to waste time making Power Point presentations or schlepping around begging for money during multiple rounds of funding. Instead, they can focus on their business. The trajectory and the ability to remain independent is phenomenal.
Process – The early ground-level market research provides valuable lessons in customer communications. Ultimately, hopefully, customers buy a product(s) from your site and you capture their contact information in order to build a loyal, quality client/consumer/backer base to be, for that very project and/or others as you continue to be an entrepreneur. Capturing emails is native to the platform. No shadiness here.
The Cons aren’t that many:
The most obvious rubs are 1). Not everyone makes it. 2). No equity for backers.
Again, just shy of 36 percent of all Kickstarter campaigns reach their goal, which is required under the crowdfunding site’s all-or-nothing funding formula.
The competition is stiff – You may recall that Pebble failed to deliver on its infamous Kickstarter campaign, in which backers pledged over $20 million, but the company never shipped its promised product.
Intellectual property may be compromised along the way. If your Kickstarter project does not meet its funding goal, it will likely live as a creative inspiration to others, as a mere campaign before dissipating. Then again, such is life.
Most successfully funded projects raise less than $10,000 but a growing number have reached six, seven, and even eight-figures.
There is almost no real downside to running a Kickstarter campaign besides the embarrassment of failure and not reaching goals.
Finally, some tips and things to keep in mind along the way:
Ask yourself, “What product/service am I offering?…Is it solving a large enough problem?…Is it doing so for a strike price that the consumer thinks is a valuable thing?” Ideally, your creative concept addresses a very real problem that A LOT of people who participate in Kickstarter want to solve.
The right combination of solving the right problem for the right market – that’s what leads to adequate funding.
Then, different things like how you present yourself and how you market yourself adjust that strike price in the mind of the consumer.
Experts agree that the best Kickstarter campaigns are about much more than money. The most successful pitches create an enthusiastic funder fan-base made of people who share the creator’s passion for a project, product or performance, and can’t wait to see it make its way to the real world.
Remember, it feels good to be part of the early adopters who helped to bring something to market. As a project creature, one should nurture their community in so far.
So, build your social following, create teasers, send them to your previous Kickstarter backers (if applicable) and to your Facebook fans and your email lists, and let them know when there’s something interesting going on without bothering the all that much. Effectively tell a story they’ll care about. Think tactfully. Think in terms of inoffensive brand awareness.
Borrow trust and credibility. Go for the right type of influencer(s) for your product. Get them to buy in; chances are their following is an audience full of quality leads. Get in front of that audience through your influencer(s).
E-mail acquisition is a passive activity. Convert customers organically with influencer Tweets that can translate to dollars.
Kickstarter veteran Peter Deren advises that if you’ve never done a crowdfunding campaign, you do market testing (learn info about your product, make a prototype(s), stretch yourself on capital and go into production before reaching your goal, if you can. But, don’t use Kickstarter as a market test (to see if people are going to like or want your product…as your proving ground). It will be a proving ground, no doubt about it, but if you actually want to roll your Kickstarter project into a successful business, that means you have to have that product ready to go in a relative amount of time…in production, while the Kickstarter campaign is going on, with your prototypes, etc.
“If you don’t do that (even if you have a successful campaign) you will not have a successful business because it will take you a year and a half to come out with that thing and it’s forgotten about it by then…nobody gives a rip anymore…and it’s impossible to get that momentum back.”
Also, prepare for your marketing phase. Kickstarter (and Indiegogo) is the best marketing platform. Figure out who your influencers and hit on all 21st-century fronts.
e-Commerce conversions – 0.5% is ok. 1% is good. 1.5-2% is really good. 12-13% is an order of magnitude larger than any.
Discounts, early adoption, sense of community, distribution, awareness, and product-market-fit all contribute to people being lenient with purchases.
It’s best when the project creator can give rewards specifically tied to their mission. People are pledging for a product and they’re going to get that product.
Other crowdfunding sites like Wefunder do offer equity to backers, but we’d say that for the creators trying to raise funds for their idea, Kickstarter offers some of the best marketing out there, bang-for-buck, if you play your cards right.
If you design, develop, generate, source, manufacture, and create a product launch big enough to warrant the effort behind it all, we’d say you’re in business. Yes, you will need marketing and distribution, and all of it; these things don’t go away but if you do them right, the rewards are much higher on Kickstarter.