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How a Kickstarter Project Can Massively Exceed Its Funding Goals and Still Fail
An anonymous reader writes: In November, 2013, a Kickstarter project for a software-defined camera trigger scored £290,386 (~$450,000) in funding after asking for a mere £50,000. After almost a year of delays, they've now announced the project is dead. Their CEO has published a lengthy article about how such a successful funding round can still turn into a failed product. In short: budgeting. To get their software into a workable state, they ended up spending 940% of the amount they'd originally allocated to software development. Their protoyping went over budget, too, and they had to spend a fair bit in legal fees to fend off a major camera manufacturer complaining about their product's name.
Still, they had more funding than they expected, and would have been able to deal with these costs. Unfortunately, the bill of materials for their final product clocked in way higher than they expected. They would have had to sell the device at about $350 each, when they were originally targeting a $99 price point. (And that figure assumes good sales — with a smaller production run, price per unit goes even higher.) The company is now going to refund the remaining money left over from its Kickstarter campaign — about 20% of the total. They're also open sourcing the software and sharing the PCB designs and schematics.
Still, they had more funding than they expected, and would have been able to deal with these costs. Unfortunately, the bill of materials for their final product clocked in way higher than they expected. They would have had to sell the device at about $350 each, when they were originally targeting a $99 price point. (And that figure assumes good sales — with a smaller production run, price per unit goes even higher.) The company is now going to refund the remaining money left over from its Kickstarter campaign — about 20% of the total. They're also open sourcing the software and sharing the PCB designs and schematics.
Terrible advice. The whole point of kickstarter is to invest in something new and risky. But right now the game is tilted towards fleecing backers. If the project succeeds, the creators become filthy rich but if it fails, the creators lose nothing whereas the backers get nothing for risking their micro-capital. It's a zero-loss game for creators and a zero-profit game for backers.
This would change if the backers were paid with equity -- say greater of 1% of total sales or 5% of profit of product being backed. If some products fail, while others succeed, there is a good chance backers won't lose money.
I didn't refer to the paying people as investors!
It's a buy with a (bigger) risk of not getting the thing you paid for.
If you pay 100 USD each to 10 projects, but 1/10 fail to deliver; then your actual cost per delivered product is about 111 USD. You need to guesstimate costs like that before you "gamble" and buy stuff from sites like Kickstarter.
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