When Kickstarter launched in 2009 I was sceptical. I'm still sceptical in 2016. Whilst I thought the concept of crowd-funding was an interesting open door for a lot of new projects, I also saw the downside - the potential for a lot of people to take money and not deliver.
The market for crowd-funding has bloomed and there are now 30+ sites you can browse for projects and products to back. I've put money into two gaming projects (as that's my background) but more to see what the process was rather than I was desperate to back these specific games. Neither of them have made it to market, reinforcing my scepticism.
Projects that fail to find backing
If your project isn't good enough it just won't get traction and therefore wont get funded. There is no mystery here. The public is more educated than ever and project that isn't worthy of attention will not draw the cash. In the early days a slick marketing campaign could help a less than interesting project get its funding, but those days are long gone.
Projects that find funding
These projects/ideas fall into 3 main categories in my mind:
- Marginal
These are projects that just scrape past the post. There was probably a concerted effort by the founders and some pre-awareness, but they just made the target
- Mainstream
These are projects that make their target in less than 60% of the available time and end with 150%-200% of the target. The product is probably a reasonable idea but typically the amount invested in these is on the low side - so the risk level is average.
- Mega
These are well marketed and slickly put together. The bulk of the funding was pre-arranged before the campaign went live and the over-performance in crowdfunding probably means that they could and should have gone through another funding route.
Here are my top-6 things to consider:
#1 Founders
One of the bigger issues is the background of the founders of the projects seeking funding. There is no way that the crowd funding sites can sanity check the people behind the projects so it really needs to come down to the individual to take a closer look. Its the case that some of the people looking for crowd funding don't have the background and track record that would make funders hand over cash outside of the crowd funding sites. Its one of the areas where the sites could do a lot more/better to protect the users. The projects I have backed - I knew the founders and was happy to fund their projects - but this is not typically the case.
#2 Tracking
Lets assume that you've backed a project that is interesting and that the founders are capable of delivering the idea. Project management of the delivery is often completely anonymous. Getting the semi-regular update emails is OK, but if like me you have a technical background, you want a bit more insight into the delivery, the problems, the solutions etc. Even if you're not technical then a more granular insight on the delivery schedule would be more inclusive.
#3 Trust
Thinking about the above, if you don't know the founders and you can't get a good oversight on how the project is progressing then how can you build trust? You cant, plain and simple. So without transparency and trust between the funders and the founders then why are we surprised that there is a disquiet with many crowd funded projects?
#4 Realism
Do your homework. Make some enquiries into how the project should be put together and then judge whether the founders have a realistic time frame or funding amount to turn the project into reality. Even if your understanding is basic it should be enough to broadly assess the projects credentials. If it doesn't look realistic, it probably isn't.
#5 Copyright
So many crowd funded projects run into copyright issues. They unknowingly infringe on someone else's IP and end up getting bogged down with due process. Google around and see just how many other products are similar before committing. The more you can find the more wary you should be. Its part of the taking-your-time and do-your-homework approach you need before crowd funding.
#6 Compliance & Accounting
There are different schools on thought over if crowd funded amounts are Capital or Revenue. Look at the location that the founders state as the home of the project and then look at the rules relating to that location. If the project is likely to loose funds through an overly aggressive tax regime then its also likely to run out of money, or that's what history would suggest.
Closing Summary
In the end its a case of buyer beware. If you just don't take the time to go through some simple due diligence checking then every now and then your not going to get anything for your money. It's not hard these days to get some baseline information that can give you a better sense of who is involved and what the potential issues might be in delivery - you just need to spend the time.
