Life after Kickstarter: what happens after a project’s funded?
As much as £63,194 pledged to reincarnate the ZX Spectrum as a Bluetooth keyboard; more than £300,000 raised for an alternative rolling news channel co-founded by Grandstand-presenter-turned-“son of God” David Icke; $10,000 to support the parents of a nine-month-old boy from Atlanta who’s just undergone his second open-heart operation.
The list of projects successfully raising money via crowdfunding – small investments from a large number of people recruited over the internet – is truly eclectic.
Yet, for every large cheque winging its way to the founders of a start-up, there’s another – such as the Docking Drawer, which looks like a plywood tray with integrated chargers for your smartphone or tablet – that crash and burn without even hitting 1% of their funding target.
So what’s life like for tech entrepreneurs who strike gold on sites such as Kickstarter, or for those find it’s a no-go on Indiegogo? We’ve tracked the progress of several successful crowdfunded projects, and discovered why – for some – the trouble starts the moment the funding target is reached.
The crowdfunding scene is dominated by two sites: Kickstarter and Indiegogo. Of these, Kickstarter is the alpha male: just shy of 20,000 projects were funded via the site in 2013, with more than $480 million pledged in total. The Pebble smartwatch started life as a Kickstarter project, as did the Oculus Rift virtual-reality headset, and an Oscar-winning film, Inocente.
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Indiegogo is perhaps best known for an infamous failure: it was the crowdfunding site that hosted Canonical’s failed bid to finance the development of the Ubuntu Edge smartphone. It tempts entrepreneurs away from Kickstarter by offering two funding models.
You can opt for the all-or-nothing Fixed scheme, where projects don’t get a penny unless they hit their self-determined funding target; but unlike Kickstarter, a Flexible model is also offered, where projects get to keep any money pledged, even if they don’t reach their goal. (Canonical chose the Fixed model, which means the company didn’t get a cent of the $12.8 million that had been pledged to its canned smartphone.)
Both sites earn money by taking a commission on successful projects. Kickstarter takes a fixed 5% cut of the pledged funds, while Indiegogo applies a 4% levy on Fixed model projects, and pockets 9% of any Flexible funding project that fails to hit its target. The company claims this stiffer fee is applied to “encourage people to set reasonable goals and promote their campaigns”.
What’s less certain is what investors get for their money. Although the prizes investors can expect in return for a pledge are listed on the project’s page – normally ranging from a mere “thank you” to an early sample of the product being produced – backing a crowdfunded project isn’t like buying shares. Backers don’t receive a stake in the company, a dividend or a cut of future profits. Indeed, as we’ll discover later, there’s very little in the way of a guaranteed return at all.
When crowdfunding works, backers get the almost unique satisfaction of having helped to bring to fruition amazing projects, which may otherwise have progressed no further than a business plan on a bank manager’s desk.
The Portishead-based team behind the Robox 3D printer set a funding target of £100,000 when they launched their Kickstarter project last November. Robox smashed past that target in only a week, and by the time the standard 30-day Kickstarter funding period had ended, the project had amassed a total of £280,891 from 435 individual backers – almost 90% of whom had pledged more than £700, the minimum investment required to get your hands on one of the printers.
On projects such as this, the word “crowdfunding” could almost be replaced with “pre-ordering”: the backers were buying a printer, albeit one that would take longer to arrive than one bought from Amazon (backers were promised units by March 2014).
But founder Chris Elsworthy told PC Pro that the company deliberately chose to go down the crowdfunding route not only because of the fast access to finance, but also because of other, equally valuable benefits.