It’s an exciting time for those looking to raise funding for the creation of products or a product range.

Previously, one would have to sink serious risk and cash into an idea – and that’s if you had any cash! Option 2 would be to take loans or raise some angel / friend / family funding.

The introduction of Kickstarter a few years ago kicked open the gates of crowdfunding for creatives minds and talents seeking to launch their ideas into product. It’s a pretty simple system, thats quite similar to a Groupon deal. You need enough people to take up the deal for it to go through.

When creating a product, very often there are complexities such as development or production sale issues that can only be solved by a specific sum that enables that development to occur or for a production order to reach enough size that the scale of economies kick in to make the production costs viable.

The great thing is that everyone is protected. Why? Because, say that you want to raise $5000 – when supporters pledge heir funds, until the full amount is raised, the funds sit in escrow with Amazon/ Paypal. As soon as the minimum amount is reached – the deal is on. If the minimum amount is not reached, the deal does not go through and the funds in escrow are automatically reimbursed to the people that pledged them.

That’s the difference between a payment and a pledge to pay. Of course, Kickstarter understand that a person promising to pay and actually releasing the funds could be a problem, so the ability to put the funds in escrow proposes an elegant solution where the pledge is upheld and the pledger is protected, in the event that the minimum amount of funding to make the project viable is not reached. How the heck will you make your project viable if you don’t have the minimum amount of funding, right? RIGHT!

Wanna see a great example? Check this one out of how to do a great Kickstarter project:

What’s the process on Kickstarter?

1. You have an idea that you submit at Kickstarter

2. You make a cool video telling people what product you want to make and convince them of how cool it is

3. Your objective is to raise enough cash to get the product manufacturing viable

4. You allow people to pledge different sums of money for different rewards.

Eg: a $5 pledge gets the pledger a mention and a badge, $15 gets the pledger a limited edition something notebook, badge and mention, $49 gets the pledger the product and the items from the lower level pledges and so forth. Go to the example above and see how how Pebble have rocked the opportunity since here.

5. You market your campaign (more on this later)

6. All things working out well – you should raise the minimum amount you need, and you could get over-subscribed.

7. If all went well, you now have your funds and you’re ready to rock the world with your project.

oversubscribed on Kickstarter

Getting oversubscribed on Kickstarter

If you achieve huge uptake and support from pledges on Kickstarter or crowdfunding, you can get oversubscribed. This means that you set a goal of how much you need to raise and it is exceeded due to support and popularity.

This has a positive and negative consequences, mind you. Positive aspects are obvious – but often you can get a bad rep if you cannot fulfil the orders on time. Some of the Kickstarter projects that got overfunded caused massive strain on the entrepreneur’s ability to deliver huge quantities in a proposed or reasonable time-frame.

It’s important to remember this where a project has production involved (ie it’s not a game that can easily be virtually distributed once the game is ready) that you keep the pledgers informed on the status of their orders as well as discussing this element with the manufacturers to make sure that they have measures in place to handle the possible surge in production.

REMEMBER: You’re raising the funding to create a product range with longevity. There could be other versions or other products to follow. You don’t want to raise funding from a huge amount of people and then piss a huge amount of people off. That’s a lot of pissed off or disappointed people.

Sounds great… but is there a catch?

Well… Despite there being a lot of projects on Kickstarter – there are far more projects that didn’t see the light of day. Kickstarter rejects a heck of a lot of projects for a variety of reasons. As I often say: in all aspects of crowdsourcing/ crowdfunding… curation is key. Curation and management is probably one of the most important aspects of the entire journey.

If Kickstarter has too many projects that fail, it could discredit the platform – so they chose which ones to let through – hoping that they choose the winning concepts with the best executors.

What about Indiegogo? Is there a difference?

Indiegogo is not technically a direct competitor to Kickstarter. Both do crowdfunding, but Kickstarter is only for projects that are orientated around bringing a product or creative project into commercialisation. They do not accept crowdfunding for NGOs or selling products to raise funds for a cause. On the far end of the crowdfunding scale is Causes. Causes is a platform created by Sean Parker (of Napster, Facebook, Friendster fame – amongst many others) for the raising of funding for a worthy cause, getting petitions signed and galvanizing support for a boycott.

Indiegogo kind of sits in the middle. They allow Causes-esqe fundraising, Kickstarter-ish product funding or a blend of the two.

So in summary, I hope this helps as a good overview of Kickstarter and Indiegogo and how the system works.

Kickstart forth and prosper.

Spockickstarter

Eran Eyal
Eran Eyal
Eran is the founder of StartupHat, Springleap, Evly (acquired), iDea (acquired), eSquared (acquired).

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