What is Kickstarter?

Kickstarter is a type of rewards-based crowdfunding. This is distinct from other crowdfunding such as equity crowdfunding or loan crowdfunding. Fundamentally they are all about raising money in one way or another, but they’re very different from each other.

The common feature of all crowdfunding is that you are generating interest from many people, the crowd, in contrast to more traditional ways of raising money where you might target a single larger organisation such as a bank or a professional investor.

The distinct feature of rewards-based crowdfunding is that you’re not giving away equity in a company or committing to pay back any of the money you receive. There’s a more direct quid pro quo - people give you money, you give them a product (or service or experience).

Unlike a regular ecommerce transaction though, the thing you’re offering doesn’t exist yet! So you get the money first, make the thing, and only then do you give the thing to your backers (customers).

Pre-orders

So basically, when you run a Kickstarter campaign you’re collecting money for pre-orders for your product.

Kickstarter campaigns run with an all-or-nothing model. This means that you decide the minimum amount of money you need in order to make the project viable and set that as a target. Then if the project doesn't reach that stated funding goal, the campaigns simply ends with no money changing hands.

It poses different challenges to many more traditional ways of fundraising. With crowdfunding you have to directly convince many people to believe in your idea and back you with a relatively small amount of money, rather than having to convince one investor to give you lots of money. Not only do you have to have a solid plan for turning your idea into a real thing, but effective marketing is critical as you’ll also need to drive people to your Kickstarter campaign page.

Why crowdfunding

Crowdfunding is not only a relative low-risk way of raising money, it also gives you the chance to test the market before completely committing to a product idea. If you succeed in your crowdfunding campaign, you not only end up with the money to make it, you also prove that you have a market for your product and can build a community of engaged and loyal early adopters.

A generation ago, to develop a new physical product could cost a lifetime's savings, only to fail as a business once it became clear that customers didn't actually want it. With crowdfunding, that risk is dramatically reduced and many of the obstacles to starting a business are removed.

Failing to hit your target is of course very disappointing, but it means that at least you can do so with minimal financial loss. And there’s a warning here. It can be tempting to set an artificially low target for your campaign. That will indeed make it more likely that you’ll reach it, but remember that if you only just hit the target, you’re still obliged to make and deliver your product and you might not have enough money to do so.

Is it for you?

There have been some spectacular successes using the rewards-based crowdfunding model, and while multi-million-dollar campaigns grab the headlines, there is a very long tail of smaller successful projects and you certainly don't need to raise a million dollars to make it worthwhile. Far more projects raise just a fraction of those numbers, but the money can be crucial to covering the start-up costs and getting a product made and shipped.

Perhaps you have a relatively small artistic project or want to fund a run of 3D-printed products, then raising a few hundred dollars on Kickstarter could be a great way to make that happen. In fact, every January Kickstarter encourage people to run smaller projects with their Make 100 initiative. It’s a very broad invitation - the only constraints are that you make something new, and make no more than a hundred of them.

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Kickstarter and Indiegogo are probably the most well-known platforms for rewards, but there are other so have a look around. There are regional variations, or some with a focus on very specific types of project or product, so find one that suits you best.

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If this has got you thinking about an idea you have and you’re looking for some help, feel free to get in touch.