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Does Crowdfunding Work?
Barence writes "Is it really practical to fund a business from hundreds of small donations harvested over the internet? With Kickstarter grabbing the headlines with some high-profile projects, it's all too easy to assume crowdfunding is great, the obvious solution for a business that needs investment. But just how feasible is it for most businesses? This article looks at several lower-profile examples and investigates the positives and negatives of this new way to raise money."
And then said "Famous douchebag" posts your message as an A/C on Slashdot.
Man, I just wish I had mod points.
Bill
It's my Sig and you can't have it. Mine! All Mine!
Obviously there are a lot of people who won't get any kind of funding and that's perfectly normal, it'd be a pretty strange world if everyone got the money they asked for. That doesn't say much about the relative merits of crowdfunding versus investor funding.
Live today, because you never know what tomorrow brings
No, for most people and businesses it does not work. You have only to look at the other 99.9% of projects on kickstarter to see that.
Side note: anything that links to pc pro is probably *not* something we should consider news for nerds.
If the project is well thought out and the pitch is done reasonably well so that the the funder knows what they are getting into, then yes, it does work.
As a kickstarter myself (shameless plug: Ultra-Bot) I started out with a modest goal... and quickly achieved it with a product that I think was well thought out, had reasonably low expectations and offered the intended audience exactly what they wanted.
With that said, however, there are a few kickstarters that are way off the mark and haven't thought it out that well... usually because they have their emotions tied into the product and it really isn't as good as they think it is... which in that case, Kickstarter actually works as well... it allows you to know that your idea isn't so hot before you invest a billion bucks in it.
Bill
It's my Sig and you can't have it. Mine! All Mine!
Its a long winded article, the short TLDR is crowdfunding is the hip new term for the middle aged concert ticket business model which is based on the ancient business model of patronage. Some things like films work really well with a concert ticket / patronage model, almost everything else, not so well.
I've crowd funded a couple films. Mostly tech. Mostly tech documentaries directed by Jason Scott. I'm eagerly awaiting the release of 6502, for which I donated a healthy chunk of change. So I have some experience with this business model, and I like it.
I basically paid "an entire row of movie theater tickets" for a documentary I really want to see, done by a guy with a proven track record of decent tech documentaries. Needless to say the local theater is totally uninterested in taking a couple hundred bucks to put my taste of movie on instead of the bubblegum for the mind they specialize in. I literally cannot get the local movie theater to take my money. But via crowdfunding over the internet, I can finally get someone to take my money.
Crowdfunding really works best when there is no way to get "the locals" or the "established companies" to take my money. There are VERY FEW areas where this actually works. There are no shortage of pizza restaurants around here... crowdfunding a "pizza startup" isn't going to work. Or yet another web 2.0 company following existing trends.
Another thing you need is fanatics... Where mass industry collides with supply and demand. I'm more than willing to give away $15 for Stross's latest novel. Heck I'd give him $50. There is no known business model where I can give a book author $35 more than list price other than crowdfunding.
Finally crowdfunding works well in a gift economy. My wife got me a package deal with some custom signed artwork a couple years ago as a gift. Awesome, but out of pocket I would not have dropped that kind of dough for myself. Right now is prime gift giving time for Christmas, maybe even a little late, so you're going to see crowdfunding articles peak around this time of year.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
I don't think the question should be can you raise money for your business (or idea) with crowd funding. I think the question should be, is crowd funding intelligent enough to pick winners and losers? Most popularity contests are won by the superficial as opposed to substance.
This comment is on the issue of the market solving the problem of government meddling with raising funds with this kickstarter project. I do not know if all companies can benefit from kickstarter, but surely some can. Today trying to get a business loan is an exercise in futility as the government crowds out all of the real credit, so none is available to the small firms, startups. The startups have to rely on VCs, friends, family, angel investors, but the rest of the market (almost all small time investors) are prevented from investing in companies while there is a potential for a real upside. The government regulations surrounding IPO prevent small investors from being able to get into businesses while there is actual upside, instead it is VCs (and underwriter banks) that mostly gain from IPOs and the IPO becomes a way to cash out instead of a way to try and grow a new business.
Kickstarter is a good first idea that allows people to invest into businesses before they could ever qualify for IPO money. Of-course there is risk in using kickstarter to try and invest, but there should be risk, people should be evaluating risks instead of blindly jumping into the casino that the inflation turned the stock market into.
MY OTHER COMMENTS
That article was remarkably free of actual numbers. I was hoping for some statistics. Speaking of which, here's an article about Kickstarter projects that I read a while back ( http://www.appsblogger.com/behind-kickstarter-crowdfunding-stats/ ). They included some actual numbers - for example: "Projects that are featured have a 89% chance of being successful, compared to 30% without." (I presume that means "featured on the Kickstarter homepage".) The downside to that statistic is that, as more projects appear on Kickstarter, the smaller percentage of them will be on the front page (because there's limited space). If that's true, it means the percentage of successful Kickstarter projects will decline as more projects appear on Kickstarter.