Buying a Concept: The Rise of Crowdfunding

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The thing that makes the Internet great is that it breaks down the gatekeepers in a variety of industries. In fact, it doesn’t even know they exist anymore; they’ve been circumvented and don’t usually realize, or admit it, until it’s too late. Making a product for commercial mass-production is a huge challenge. Unlike a many other endeavors, like writing a business plan or a novel, there’s overhead inherent in creating a prototype to even pitch. Generally speaking, the people who are going to be investing big bucks are going to be older. They often may not have the interest or knowledge in something too unusual or tech-oriented.

Enter crowdfunding. Crowdfunding has always been a great way to get a decent amount of funding with little commitment from backers. A great example is filmmaker Darren Aronofsky soliciting donations of $100 each from friends and family to get the $60,000 he needed for his first movie Pi.  The film made over $3 million and his funders all received back a promised sum of $150, plus a credit on the film. He is now considered one of the best contemporary auteurs of cinema and his last two movies, Black Swan and Noah, made over $300 million each.

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There’s an idea; let’s crowdfund one of these suckers.

Of course, not everyone has people hanging out nearby who can fork over $100 just like that. And even that project took five years to fully fund. What’s great about crowdfunding when it becomes a more streamlined process is that you are essentially pre-ordering a product. And putting quite a bit of trust that someone you’ve never met is going to be able to deliver.

There’s also the added benefit of accountability. While Kickstarter does their best to screen projects, they makes it clear that you are responsible for how you fund with your own money. Even with the added benefit of crowdfunding through a legitimate service like this, there have been a few high-profile snafus involving the failure of a project failing to come to fruition or, even worse, bailing on their promise altogether.

Most Kickstarters that run past deadlines aren’t necessarily doing it because they’re lazy or incompetent. For many people seeking funding, this is a whole new territory. Even when you have the funding, getting a physical product into production is a vulnerable process where any number of things can go wrong. I have a friend who likes to back Kickstarter projects such as games and collectibles; he’ll usually assume he needs to add a month or two extra to their end goal for his expectancy of delivery. In his experience, the more money a project gets, the more likely delays. When a backer asks for $100,000 and they instead receive $8 million, that’s a whole lotta extra product to plan for. Delays are expected at that point. In this case, the responsible crowdfunding entrepreneur should provide regular updates of both the good and the bad. This kind honesty in the manufacturing process will generate understanding and lenience from the backers.

Once the backer accepts that reasonable delays are a part of the logistical minefield that is crowdfunding, the patience can be rewarding. And for the most part, the transparency provided by a public platform is enough to dissuade anyone from using the services for dishonest personal gain. People know when they’re being lied to, especially when you have their money. And if not enough people back a project to meet the goals that have been set then no money is taken and the pledges are cancelled.

Crowdfunding is definitely here to stay. Looking at Kickstarter’s official numbers is pretty interesting. Since 2009 the service has helped raise $1.6 billion in funding. $1.36b of that was successful, although that was at a 38.83% success rate. The majority of the successful dollars are coming from projects that are actually worth taking a look at. But for every successful Pebble/Exploding Kittens/Star Citizen, there’s a whole lotta crap like this, thus skewing the success percentage a little lower. Like other social outlets for creativity, such as YouTube, the cream rises to the top and 99% of the rest is total garbage.

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And then there’s the tasty, tasty 1%.

The idea of buying a concept is starting to show up in other kinds of industry. Electric smartcar manufacturers such as Tesla will be able to send software updates to cars, similar to your iPhone. Camera manufacturer Blackmagic Design has a new model of 4K camera called the URSA that allows the user to swap out the image sensor when a new once becomes available, allowing for better image quality without having to buy a whole new camera in a few years.

As long as the temptation to release half-finished products is avoided, this business model will prove to be extremely fruitful. By releasing a product that is high-quality and upgradable, the customer has less stress over having to buy something over and over again whenever updates and changes are made. The relationship to the company is also personalized as there is a now a direct line to the consume;  and smaller companies are getting a chance jump in and prove their mettle.

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