Kickstarter: dumb entrepreneurs, dumb investors

Via @ow on Twitter comes this little rant:

Hi.

You don’t know me, or at least don’t know anything about me more than I have been willing to divulge.

Would you like to give me money for a product that does not yet exist or that does exist but is not successful? The reason that I am asking you, Internet Stranger, for money is because no bank will give me money. This is most likely because I do not have a feasible business plan. Moreover, I lack the initiative to even attempt to develop a business plan. Additionally, I have hit up my family and friends for money but no one who knows me will give me money.

Please note that the people who know me and/or know my finances are unwilling to give me money. That is because they know me and my finances.

In all honesty, all I have is some half-baked, hare-brained, cockamamie scheme.

Do you want to know what the real kicker is?

The bank won’t give me money even with a promise from me to give them their money back, along with interest payments. For you, I won’t even promise that. Please give me money. In return, I might give you a tangible product once it is fully developed and in production. You will not receive your money back or any interest payments whatsoever. You will not receive shares of stock in my company (which does not exist yet).

In fact, if I abscond with your money – which I very well might do – you have no legal recourse against me. Sure, in theory you could sue me for fraud, but that would be a long, drawn out process which would involve locating an attorney willing to take your case, locating me, serving me, litigating the entire case against me, winning a judgment, entering judgment, and then locating sufficient assets to satisfy the judgment. I would say that you are giving me a non-recourse loan but you’re not. You are, practically speaking, giving me a donation.

For no valid reason at all.

So please, give me money.

Very truly yours,

A Stranger From The Internet

This was originally posted as a comment on a Gawker article about a Kickstarter that failed spectacularly, running out of funds to ship the products despite exceeding its original funding target by a factor of 12. The project’s backers were extremely disgruntled, and the project page is full of outranged comments using words like “fraud” and “blackmail”. (And before you sympathise too much, this Kickstarter is for dry-erase notebooks and pens. Most investors are losing out on, ooh, a good $25. The comment feed is also full of people being outraged about the pen colours available, because this is the internet, where people are entitled jerks.)

The comment above sarcastically likens backing a Kickstarter to making a donation, as if this was news to anyone. Apparently it was actually news to some people, who’ve confused backing a Kickstarter with placing an order in an online store. When you back these projects, you are indeed making a donation. It’s a donation with a chance of some positive payoff, so your expected return¬†is higher than if you donated to a regular charity (leaving aside the warm fuzzy feeling you would presumably have received for donating to some worthy cause, instead of backing a Kickstarter). Nonetheless, it’s still just a donation, and if any payoff eventuates then that’s a bonus.

The commenter suggests that Kickstarter projects do not measure up to the usual criteria for a good investment – “a feasible business plan”, “interest payments”, “shares of stock in [the] company”, or even backing by “people who know me and/or know my finances”. Of course they don’t meet those types of criteria! If these projects were such a great investment prospect, they would have been snapped up by real investors already.

The amateur entrepreneurs on Kickstarter are quite right to be seeking funding from amateur investors without much to invest. One side is saved the costs of preparing a business plan, doing hard financials and seeking traditional financing; the other side is saved the costs of due diligence and actual knowledge about what they’re investing in. Neither of them have any reason to believe it will work out. And let’s face it, neither of them is being particularly noble. They’re both cutting corners, saving time, and avoiding commitment. On some level, they’re both being dumb.

Here’s my failsafe Kickstarter investment strategy: seek projects that would genuinely make you happy if they came to fruition. Spread your support among many projects. Pledge¬†small, much less than you can afford. Forget about each pledge as soon as it’s done.

But for heaven’s sake, spread them out through time so, if they do all get funded, they don’t all hit your credit card at once.

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3 thoughts on “Kickstarter: dumb entrepreneurs, dumb investors

    • I was slightly amused by one sad non-recipient of a dry-erase notebook beginning their plea with “I’ve been looking at the whiteboard by my desk with sad eyes…”

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