Kickstarter is More “Pre-Ordering” Than “Investing”

Ben Brooks made two great comments on Kickstarter:

Do we back something because was see it as a pre-order? Do we back things because we want to support our friends? Why does this work on the web, when you would have laughed if it came in the mail to us? Are we backing ideas, or are we wanting products?

And:

Elevation Dock, Flote Stand (to be fair I am not a backer, I just pre-ordered after it was funded), and a few other smaller projects have yet to ship anything to me. I knew the risks, but it has made me become very picky about what I do back now — and ultimately that hurts Kickstarter and other potential products.

By design, Kickstarter is a way to crowd source funding of ideas by spreading the funding across many people for small amounts. Usually giving money would guarantee a supporter at least one free instance of the item, and depending on the level of donation could result in more exclusive versions, or other perks.

But some people have soured on the creative system because items either don’t live up to their hype/potential, or never make it to completion at all. Defendants of the system argue that like a straight monetary investment in a company, there is a risk that your money will not return anything, but that’s not how Kickstarter is setup.

Instead Kickstarter lies somewhere in-between a regular investment and a pre-ordering system. When a Kickstarter member finds an item they want to back, they donate their money, but they are fully aware of how much money the company is asking for, and how much has been pledged so far. And if the company does not hit their goal by the designated time, the money is refunded. If the goal is hit, the expectation is that the items will be made and whatever was promised will be delivered.

Because there is no time limit, and no real guarantee of quality, these projects could take years to come to fruition and could change for better or worse in that time. That is what makes this so much more similar to pre-ordering, rather than investing. The difference though, is that usually with pre-ordering, an order can be cancelled at some point between when the order is placed and when it ships. Here, once the funding goal is met it can’t be refunded even if the item is never made.

The reason this isn’t like investing, is that when someone like an angel investor puts up money, there are three possible outcomes:

  1. They will get exactly the same amount of money back
  2. They will get less money back
  3. They will get more money back

It’s #3 on this list is what makes investing so much different. There is always a chance that an investment will yield more than you put in. With Kickstarter, that almost never happens((There are occasions where the company includes a little bonus, but this is no guarantee)), and when it does, it’s not monetary gain.

To get back to Brooks’ points, I think most of the people who fund a Kickstarter project are backing products, not ideas. And they are not backing them as much as they are pre-ordering them. I would guess that a vast majority of people would say they are not OK with funding an item that never gets made. And as Brooks’ second comment says, most people would probably agree that one bad experience will make them extremely hesitant in the future.

I backed the Wingstand a while back. It came relatively soon after funding closed. They even gave me a free one to go with the one I actually thought I was getting. But it didn’t “wow” me like I thought it would, and I have been hesitant to back anything since. While I am all for supporting innovation, I would rather pay a bit of a premium later to know that something actually exists, and have a chance to read some reviews to know if it’s what I am looking for. I am sure I am not alone in this mindset, and that is why I don’t think Kickstarter is all it’s cracked up to be.