Tim Harvey, Software & Biotechnology Consultant
Joni Gale Kripal’s idea for a Kickstarter project began with just her and a friend, looking for something they wanted and couldn’t find on the market – an iPad attachment with practical organization and the elegant design they were looking for. Joni says simply, “I made it for myself because I wanted it,” and they saw the potential in the market as well as talent within themselves to build a business. Although her project wasn’t fully funded, she considers it a positive experience and has some thoughts for anyone considering crowdfunding.
Kickstarter (funded by Index Ventures and Union Square Ventures, among others) is a way for anyone in the world to fund creative projects and is open to creators from the US and UK. Kickstarter specifically requires that all projects be creative in nature, although other platforms focus on different areas. These types of crowdfunding platforms rely on “backers” not investors, people who find these campaigns online, believe in the idea, and agree to put in cash for the project at certain levels. Based on their level of support, backers get rewards, such as the products they’re funding, or a one-of-a-kind experience. There is technically no “investment,” so the creator(s) keep 100% of their equity. This also means an entrepreneur is not likely to find mentorship or guidance going through crowdfunding.
So far, Joni and her partner had just invested sweat equity and personal money, and as they were looking to scale the business they realized they needed more cash to do so. They chose Kickstarter over other services primarily because of the “all or nothing” premise. Other platforms, like Indiegogo or RocketHub have a “keep-it-all” scenario, where an entrepreneur keeps all of the money raised, even if the campaign hasn’t met its fundraising goals. With an all-or-nothing premise, if the goal isn’t reached by the deadline (as in Joni’s situation), no money is collected from the backers. In this case, they won’t expect anything else from you, which limits your risk and sets their expectations upfront. In addition, backers may recruit others before the deadline just because they want to see the idea succeed. For these reasons, ideas tend to be either popular and hit their goal, or don’t get very far – there is little middle ground on Kickstarter. Joni’s biggest take away from her experience was market research insight and real world feedback, and she also had some more specific recommendations as well.
If you’re considering crowdfunding, the first thing to do is to back a few projects that you find interesting to get a feel for how it works. It’s a good idea to have a solid website and a multi-channel social media campaign running prior to launching your project. Keep in mind that having established users liking, tweeting, and blogging about you prior to the project can create credibility for new people finding your idea. Twitter can certainly be useful, and Pinterest could be even more important, especially if your idea is visual in nature and/or is more targeted toward females, as they are 80% of Pinterest’s user base (TechCrunch on Pinterest). Be thoughtful with the rewards that you give backers, and structure the package levels simply. Rewards that are close to the heart of your idea are likely to do well, because backers resonated with them in the first place. Decisions made on social media tend to be fast, making first impressions ever more important, so if you use video (which is a good idea) don’t be afraid to spend some money on video production. It can also be helpful to overestimate your funding needs, as fees and unexpected challenges always come up.
There are things to be careful with as well. As always, read the fine print and keep up on any changes in your business environment. A platform’s rules may change during your experience with them, as Joni’s did, so pay attention to the ones that affect your project. When the JOBS act is implemented (Forbes infographic here), it will change some things in the industry, so be aware of that as well. Fees will cut into your margins, 10-15% in Joni’s case, since Kickstarter takes 5%, Amazon Payments 3-5%, and shipping for backer’s rewards are usually included. “You have to discount to get on Kickstarter,” she says. Competitors can see your ideas out in the open, so if necessary look into filing patents or other IP protection. As always, be careful in hiring any outside professionals, as there are shady “consultants” who cold-email to offer marketing, design, or other little services than are little more than a scam. Do your diligence if you hire someone, and if the offer sounds too good to be true, it usually is.
Joni sees her Kickstarter project experience and education as a good thing and something she would do again. She doesn’t consider it a failure, but a learning experience that is part of her entrepreneurial process. It gave her a new level of market insight as well as a chance for market exposure and feedback from potential customers. In the end, Joni’s positive attitude and learning from her project means that her experience is a valuable stepping stone in building her business.
About the author:
Tim is pursuing a Master’s from CU-Boulder in Engineering Management, after a few years working with entrepreneurs following an undergrad in Cognitive Neuroscience at U. of Denver. He started his first business at age 19 and currently consults for startup companies, primarily in software and biotechnology.