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.

Comments

Morale of the Story

[Anonymous Coward]

Don't Kickstart something that seems like a good idea but has never been done before. If it's really a good idea then people have either tried and failed multiple times before, and/or people with more money that Kickstarter can provide will agree it's a good idea and invest.

Crowd funding is good for known quantities from reliable sources. Printing out a book for that webcomic you like, where the pricing is a fixed and known quantity before hand, or funding a game from a known and reliable developer like Broken Age from Double Fine or Project Cars from Slightly Mad studios.

Re: Morale of the Story

[Anonymous Coward]

Yes, people should never ever try something never done before!!!

Or, maybe⦠you know⦠crowfund it just because traditional investors are too scared to do new things; but add a disclaimer about it not being a traditional buy but comes with some risks. You know, just like it's being done on sites like Kickstarter!

Re:Morale of the Story

[HBI]

I believe the morale of the story is positive. It looks to be in good spirits!

Re: Morale of the Story

[geogob]

Yes, because no one ever tried to produce a watch that does more than tell the time before pebble. [/sarcasm]

I do not fully agree with AC and I find he is definitely going too far. But he also speaks some truth. If it seems too good to be true, it often also is too good to be true. The problem is that for most people, the concept of risk in design is quite abstract. As an engineer, I can weight the risks not only because I know how to do that and have experience doing it, but also because I understand the technologies and problems linked with project management. So when I support a KS project, I have an idea what the risk level is and how good my investment is placed.

Now, most people cannot do this for one reason or another and their decision to invest is solely based on enthusiasms, thrust and first impression. It may be deeply driven by technological ignorance. The person have a high risk of being disappointed because they have implicit expectations of success for a project which may actually have very little chance of succeeding. This is exacerbated by the fact that project closer to the leading edge (or even to the "bleeding edge"), are those who stir the most enthusiasms and interest, even though they are also the projects with the highest risk. This is a dangerous combination when money is in play, as the investors are not fully aware or informed of the risks.

Investing only is safe and low-risk projects as the AC proposes is a solution, but it's not the best promote incubation of new ideas. But maybe better inform KS users of the risks maybe a good idea. Maybe a open risk assessment could be a solution (a bit like an open peer review of KS projects). The potential investors would then be informed of the potential risk associated with backing a project before they do so. Maybe a project with high risk hoping for 500k funding won't get 2 million USD funding anymore, but that maybe for the best as experience showed.

Re:Morale of the Story

[gnupun]

Don't Kickstart something that seems like a good idea but has never been done before.

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.

Re:Morale of the Story

[nedlohs]

Paying with equity would be illegal, and thus not such a great idea. The Title III JOBS act provisions are not "live" yet, since the SEC hasn't managed to finalize the rules yet.

But a cut of the profit is not equity anyway.

Of course most successful kickstarters have more than 20 backers, so 5% of the profit is going to be rather tricky. If you mean 5% of the profit shared amongst all backers then I doubt that is going to have much impact on the "lose money" part. 100% of the funding for 5% of the profits? I'm sure there'd be no hollywood accounting there.

Re: Morale of the Story

[clickety6]

Venture Capatalists expect to see a profit on their investment. On Kickstarter, you might get something slightly earlier at a reduced price. It's not an investment. It's more like group patronage.

Re: Morale of the Story

[whoever57]

Or, maybeæ you knowæ crowfund it just because traditional investors are too scared to do new things

Stop right there. People don't "invest" on kickstarter. They have no ownership interest in the business. The people who fund in kickstarter take all the risk, while having no possible upside beyond the products that they buy.

I could make a political point about how kickstarter and its kin are a response to laws that limit risky investments by all except the wealthy and the effect of "the closure" in Venice in the 14th centuary.

Re: Morale of the Story

[svanstrom]

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.

Re:Morale of the Story

[jythie]

In this case, they already had done it once before. This was their second kickstarter for the same basic project, with their previous one being successful and for general sale. They wanted to improve the design and take it from a 'hacker friendly' packaging to something 'consumer friendly'. So their track record was actually pretty good for a very similar device.

Re: Morale of the Story

[geoskd]

Maybe that means that their is room for a new kickstart. You invest and get x amount of the company per dollar. So you put in say $100 into a "Kickstarter" and you get .01% of the company. The venture fails and you get write it off on your taxes. It becomes Facebook and you get to retire.

Except that scheme runs afoul of a whole host of rules, and will get you in hot water with the SEC (possibly including jail time)

That very concept has a name: "Initial Public Offering", and the rules surrounding it are complex enough that most companies hire a brokerage house to handle the details.

Color me surprised

[houghi]

If you make the wrong asumtions with your budget, you will fail financially? Who would have thought this?

New News: Product Design is Hard!

[TechyImmigrant]

If you think it's going to be easy to put together a real techy product with software and circuits and PCBs and enclosures and EM certification and patent minefields and manufacturing and packaging and distributors and competition, you might want to examine why you think that.

Many successful projects went bankrupt

[Anonymous Coward]

...and are still delivering value. The Suez canal is a prime example, but if you do some research, you will come up with others.

The most important thing is that the achievements not be thrown away, and in software, there's a very nice way of doing it (no: it's not "some Intellectual Property Vulture feeds on the remnants"). So kudos for releasing the software and the hardware blueprints.

So yay for the visionaries of triggertrap (those who worked hard at it and those who risked their money). May you survive the crash and be richer after that. May the explosion disperse seeds far and wide for new things to grow.

In the end they were fair

[aepervius]

Rather than spend all the money, 20% will be refunded. And a software source and PCB will be offered. It is a failed kickstarter, but not as bad as those which went home with the money breaking all promised delivery. Like moulyneux and godus for example.

The real morale of the story

[SuperKendall]

Morale: gloomy

But!

That doesn't mean you should never contribute to hardware kick starters. It's a good idea to carefully examine what they have done before to see if they can handle making the new thing...

But!

Sometimes, it's just plain good to kickstart something even if it looks unlikely they will reach the goal. I would argue that is what happened in this case, because they found out a LOT about making this thing a lot of people want, and are sharing what they found. Eventually the thing people really wanted may well get made. If I had contributed to this Kickstarter (I did not) I wouldn't be mad, just a bit sad it didn't go through.

Re:The real morale of the story

[TechyImmigrant]

I've signed up for a few hardware kickstarters and they've worked out fine. Maybe because I've had 30 years of product design and I can spot the naive ones a mile off. Generally, if it involves wireless interfaces or software that requires and operating system, avoid - the risks are significant.

The reflowster toaster oven reflow soldering controller is a classic. Simple, useful and you know you could do it yourself if you weren't so lazy. You're paying them to be less lazy that you.

Re:Insurance

[lindseyp]

The rewards offered on kickstarter are pitiful given the risk to the capital, and complete lack of upside if the product is successful.

Just look at Oculus Rift. Sure the backers got "goodies" such as, ooh... prototype oculus rifts, but did they get any of the $2b Facebook bought the company for? No! If Kickstarter were a real investment platform backers should benefit from the success of the company just as easily as they can lose their money when it fails.

Re:Insurance

[Boronx]

It's not an investment platform, it's a begging platform with door prizes. Investors get ownership for their money and can demand accountability *during* the life of the project.

Re:Insurance

[St.Creed]

Actually, kickstarter is not allowed to give out equity under US law *yet*, but that may change soon. ANd if they want to stay relevant, they should, because the kickstarter model is starting to show cracks.

A company called Symbid (symbid.nl) has been doing this for quite some time now because they're not in the US and under Dutch law they can already do this. You can invest small sums of money (20 euro and upwards) and in exchange you get equity. That sounds simpler than it is, but it seems to be working for them. They take over all the hassle of the process of issuing shares, the lawyer part of it etc. and make things cheap and easy enough to work for small sums.

If I ever invest money, it will be through something similar. But not through kickstarter. Kickstarter is where you give donations. Investors go elsewhere.