Via @ow on Twitter comes this little rant:
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.