Kickstarter Sets Off $7 Million Stampede for a Watch Not Yet Made

http://www.nytimes.com/2012/04/30/technology/kickstarter-sets-off-financing-rush-for-a-watch-not-yet-made.html?_r=2&ref=business&pagewanted=all

by mattewing • 14 years ago

72 40 14 years ago

nytimes.com

mattewing2• 14 years ago

Love this line: “The terms on Kickstarter are more attractive than any bank loan or venture capital amount”

catch23• 14 years ago

I wonder if this will make angels worry, the same way that angels made VCs worry. And if so, I wonder if we'll be seeing better terms for future founders from the old system investors.

glennos• 14 years ago

It might but there's a couple of reasons that Angels/VCs need not lose too much sleep. Kickstarter only accepts "projects" that have an end point. To be fair, they're perhaps loose in their application of this, but generally speaking, the project needs a finish point. For example, Pebble will ship the core product, a completed watch.

When it comes to software/web apps, there's a less definitive end point. Games seem to get through ok, because they reach a pretty clear release point. "Projects" like Instagram would likely not have made it through as a Kickstarter project, because they're designed to be iterated on. Getting to the "first release" is not generally what Kickstarter accepts... unless you're Diaspora... or anything open source.

InclinedPlane2• 14 years ago

Yes and no.

Yes because Kickstarter has a high profile now, and there is rather significant amounts of money flowing through it. Angels and VCs sometimes only put in a few k or a few mil. for a company, and now it seems as though you can just go to kickstarter for that amount.

No because kickstarter isn't for everything. The closer your project is to the ideal of a semi-artistic one-off project with a timeline of months that produces a tangible product that the backers can receive the more likely it is to be approved and funded. But not all businesses fit in that model. More so, that model of venture isn't necessarily the sort of thing that is most attractive to an investor. Kickstarter projects are the sort that scale up slowly and carefully. But a lot of the most desirable investment targets are software companies which provide a service who can scale up by a factor of thousands or millions in a matter of months.

Now, there is still a sizable niche that straddles both worlds (such as game development) and you can expect a lot of interesting things to happen in that space in the near future.

jmitcheson• 14 years ago

I think they probably should be. Kickstarter may not fund all types of projects but Kickstarter is only the beginning. The world works on trends right? Put all these things together and look forward 2-3 years:

AngelList

Kickstarter

JOBS Act

Software boom

Open hardware innovations (Arduino, Raspberry Pi, Open 3rd printers, etc.)

I'm not really certain that things at the VC level would be a whole lot different but I would sure be worried if I was an angel or earlier. Pretty soon, we'll be far less dependent on them than they are used to. If you ask me seed stage may have so many options that they'll have to reverse-pitch ;)

brk• 14 years ago

It's really not comparable to VC money in any normal way though.

When you're raising VC money, especially early rounds, you're trying to prove and build a business model. You're trying to get market awareness and acceptance, develop your product, etc. There is a statistically high probability that you will fail entirely, or will at least fail to achieve the progress intended (meaning you may have to raise more money, affecting valuations and dilutions).

One upside to VC money is that you get to use all of it in almost any way you like.

Kickstarter, especially in this case, is people pre-ordering an already more fully defined and developed product. The money raised is going more or less directly to people purchasing product. It is assumed that there is a profit margin on the product, but it's also reasonable in these early cases to assuming the manufacturing costs may overrun estimates, and that roughly 10-25% of the money raised will actually end up being "profit".

Sure, even 10% of $7M is a nice chunk of money, but $7M of kickstarter money is way less working capital than $7M of VC money.

Retric• 14 years ago

For digital goods you can probably spend 85% of the funding on building the product AND you don't need to give up shares of your company to a VC. As for physical goods I don't think most physical kickstarter projects aim for 25% margins, especially when you look at all the diffident tiers. Many of which end-up as 1,000$ twice what you would get for 200$ but we will say thank you on our website.

mason55• 14 years ago

Kickstarter, especially in this case, is people pre-ordering an already more fully defined and developed product. The money raised is going more or less directly to people purchasing product.

It's funny because Kickstarter is intended NOT to be pre-purchasing but to be an investment in something that might not pan out. People have gone out of their way to point that out when some of the high profile failures have happened.

egypturnash2• 14 years ago

I'm trying to decide if Kickstarter is the blossoming of a new way to do business, or a bubble fueled by a few hits that came at the same time.

I'm hoping it's the former, as I've got a campaign going to print a comic book that's close to being funded, and I'm hoping to have it around as a viable option to repeat this stunt to fund future books, and ultimately maybe even support myself this way. The limited duration makes stuff MOVE which is great.

mattewing2• 14 years ago

It's hard to see kickstarter as the same type of bubble we saw in real estate or web 1.0. That type of bubble is driven by investor group think leading to absurd valuations.

Kickstarter is based on purchases (or donations), not investments. In other words, I don't think people are paying irrational amounts for your comic book because Kickstarter is so hot right now.

Now, if the pebble watch I just bought turns out to be a POS, I'm probably going to be a lot less likely to buy other new untested products on Kickstarter. So, a few high profile flameouts could damper the whole marketplace, but I don't think could lead to value crushing collapse like when a bubble bursts.

Good luck with your comics!

egypturnash2• 14 years ago

Yeah, I'm mostly worrying about what happens if some of these million-dollar projects fail horribly. Especially if some HOT GADGET turns out to be a scam and they just vanish with the funds. Games, I don't think that's a possibility - you have to have a giant reputation to raise the money to make one happen.

I'm also pretty hopeful this is just paranoia talking, and that folks quickly realize they need to do a sanity check. Maybe Kickstarter will end up with a tighter TOS and will send lawyers after a huge scam if one happens, I dunno.

While people are definitely paying for my own personal awesomeness rather than Kickstarter's awesomeness, I think the fact that people know and somewhat trust the model and te middleman is helping. Break the trust and it doesn't work.

And thanks for the well wishes, the comic leapt from 80% to 121% around the time you sent them!

mibbitier• 14 years ago

It'll become a scammers paradise. The people giving money are pretty naive.

officemonkey• 14 years ago

I think reputation is going to keep down most of the scam artists.

There are a lot of kickstarter projects that never go anywhere because the creator is unknown to the scene. You're going to need some reputation to get the ball rolling. Even the watch guys have a track record.

Of course, it's the scammer with a reputation (think Bernie Madoff) that scares me. But kickstarter addresses that with the social aspects. If someone feels ripped off, they can post about it and the scammer can't hide.

zokier• 14 years ago

imho Kickstarter is best suited for projects that are essentially finished and ready for manufacturing, but need money to actually do a manufacturing run. A comic book seems like a example of a "good" project in that sense.

But basing kickstarter on just a idea seems extremely risky, and that's why I'm not all that interested in game kickstarters. If somebody wanted to kickstart a boxed copy of a finished game, that would be nice. But just kickstarting a concept gives me an uneasy feeling.

Negitivefrags4• 14 years ago

One issue with Kickstarter for games that are ready to play (at least for us) was that we want to give access to play the game the moment that you decide to give us some money.

You can't really do that with kickstarter because you don't know if you will really get the money from each supporter.

Due to this, and due to the fact that you need to be an American company (which can be gotten around, but is annoying) we decided to go it on our own with something that was very similar to kickstarter, while not actually using their service, which you can see here: https://www.pathofexile.com/purchase/

Using stripe.com for credit card processing, it was fairly easy to get payment processing up and running.

Really the reason to use kickstarter.com is as an advertising platform. I'm not really sure if having their audience as well as our own would have benefited us in this case or not.

As to paying money for just a concept, it's not really unlike the decision investors make on a smaller scale. Bear in mind that copies of a game on kickstarter are typically lower than the final retail price. Your reduce your risk by "investing" in a diversified portfolio of kickstarter games in the hope that one will turn out to be a gem.

sgt• 14 years ago

And as for Kickstarter themselves, it's certainly a blossoming startup. They get 5% of every successfully funded project.

jerf• 14 years ago

http://en.wikipedia.org/wiki/Hype_cycle - we're halfway up the first bit of the graph. Perhaps a bit more.

I'm confident that the plateau of productivity will be reached, after the inevitable backlash.

carbocation• 14 years ago

Unless I'm missing something, Kickstarter sure seems like the closest thing I've seen to a tool that enables closer-to-perfect price discrimination.

InclinedPlane2• 14 years ago

That's an excellent point that I haven't seen anyone else make yet about Kickstarter, and does help to explain a bit of their runaway success. Though it does seem rather obvious that a higher level of transparency and a stronger customer-maker bond would also be useful in capturing a greater amount of the consumer surplus than an average, faceless megacorp would.

bostonvaulter2• 14 years ago

Could you expand on what you mean by closer-to-perfect price discrimination?

guard-of-terra3• 14 years ago

You pay however much you are ready to pay. Traditionally if you price a ware 100$, you'll lose all the money from those who can only afford 10$, and if you price it 10$, you lose all the extra money from those who would have paid 100$.

With Kickstarter, some people pay 10$, some 100$ and some 1000$, and they are all very happy about that.

This is achieved by: Giving nice perks for extra money; Buyers understanding that by paying less they only steal from themself.

markerdmann• 14 years ago

A word of warning for anyone considering funding a software project through KickStarter: they may reject it.

I recently spotted this blog post written by a team trying to fund the development of an iPhone app:

http://famnerd.com/2012/02/update-famnerd-rejected-by-kickst...

pronoiac• 14 years ago

Nice graphs - http://www.nytimes.com/interactive/2012/04/30/technology/thr...

spdy• 14 years ago

Would love to see the margins of popular products. By the end the will probably sell over 50k+ watches. Im sure they now negotiate better terms.

Direct Kickstarter link: http://www.kickstarter.com/projects/597507018/pebble-e-paper...

pepijndevos• 14 years ago

It saddens me that Kickstarter is US only. I know there are some equivalent european websites, but I haven't heard of any big success stories about them. HN bias? or is Kickstarter-the-brand really that much more successful than Kickstarter-the-concept?

naish• 14 years ago

From my understanding, the US requirement is due to Amazon Payments. It would be great if they could offer an alternative to those who are ineligible for Amazon's service. I'm not sure what incentive there is for Kickstarter to explore other options--they are likely happy to enjoy their current growth and success.

That said, as a backer of many Kickstarter campaigns from north of the border, it would be nice to be able to tap into their momentum with projects of my own.

TazeTSchnitzel• 14 years ago

You can still use Amazon Payments outside the US. Unfortunately, unlike PayPal, they bill you directly in the target currency which means your bank or credit card company may charge you fees - they did for me :(

igorsyl• 14 years ago

What would happen if the company fails to deliver the watches? Give a refund? What if the company has no cash left?

Kickstarter Sets Off $7 Million Stampede for a Watch Not Yet Made

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