Kickstarter: An Evolutionary Step in Entreprenurial Funding

 

Kickstarter

An Evolutionary Step in Entrepreneurial Funding Written by Mark Schenk

Table of Contents 2. Abstract 2. Introduction 3. History of Kickstarter 6. Category Participation 7. Successful Projects 11. Research 12. Kickstarter v. Competitors 13. Worldwide Recognition 14. Conclusion Written by: Mark Schenk Elon University 5.15.15

Abstract

This report articulates the success of Kickstarter in relation to its history, clients, and

individuals who fund successful venture. Crowd funding has grown considerably in the past several years, with websites such as GoFundMe and IndieGoGo raising tens of millions of dollars a year for independent projects. Yet, Kickstarter focuses mainly on for-profit ventures that need capital in order to further their idea. This study analyzes the continued success of attracting thousands of people to contribute towards the realization of their goals. Using key statistical data and examples from the company, this report shows how Kickstarter is the most successful crowd funding source available.

Above: Kickstarter connects you with your audience

Introduction Kickstarter is centered around creative and potentially profitable ideas for aspiring entrepreneurs. Yet, understanding what types of companies people are willing to invest in and how these start ups market themselves are relative to the growth of Kickstarter itself. Venture funding is an incredibly difficult and stressful undertaking, requiring endless presentations and

continuous rejection. However, the streamlined and easy process that Kickstarter has created has moved the industry to a completely new segment. By creating one simple page for a venture, usually attached with a video, startups have the opportunity to earn thousands or millions of dollars past what they originally requested. This is an opportunity not seen before in recent history and should only continue to grow into the future. The qualities of business, innovation and community involvement culminates in Kickstarter’s platform. Further, looking at Kickstarter’s success and the steps the company took to reach its goals are equally as important.

The process that Kickstarter used to become the most popular crowdfunding site on the internet helps to relate its business model to other companies. Since crowdfunding is a globally expanding area of business, its important to keep note of what companies are doing in order to maintain its relevance in the marketplace. Further, by looking at Kickstarter itself, we can better understand how its success could translate into other businesses by looking at what actions the company took to reach its current status.

History of Kickstarter In 2002, the beginnings for what would eventually become the largest crowdfunding source on the planet were starting to take shape. Kickstarter’s business model stemmed from a problem that Perry Chen, co-founder of the company, encountered in New Orleans. He wanted to bring the musicians Kruder and Dorfmeister to perform at a jazz festival, yet he couldn't acquire the necessary funding or support fast enough to make his wish this a reality.

Recognizing that this was a problem not exclusive to music festivals, he set out to create an online community where people could financially contribute to overarching projects. Chen became friends with Yancey Sticker, a man he met at a local diner while expressing his vision.

Through their collaboration, they created an initial design for Kickstarter's website. Recognizing the need for a professional designer, they brought Charles Adler on board to develop the product.

In 2009, the first inaugural edition of Kickstarter went live. The process for growth on the website was slow, but in time gained enough traction to be recognized by several aspiring entrepreneurs. The first product to reach its goal was “Drawing for Dollars�, an online website for illustrators and artists interested in starting their own business. By the end of the same year, the company had a new office in New York along with a growing staff.

By 2012, Kickstarter had more than one million backers and had grown to 32 employees.

In early February, the first million dollar project was funded through a Kickstarter campaign.

Progressively, many more followed suit boasting multi-million dollar achievements. The site had Below: The founders of Kickstarter

become so popular that its name was used in Jeopardy, mocked in the New York Times and the but of jokes in TV show Portlandia, twice.

The year 2014 demonstrated the exponential growth of Kickstarter and positioned the platform as the premier crowdfunding source internationally. In a single year, over 22,252 projects either achieved or exceeded their goal. This broke the companies’s 2013 record of 19,911 projects successfully funded. The most popular categories dominated the site with music related ventures amounting to 4,009 projects and film and video at 3,846 projects. The third most popular category was publishing, which came in at 2,064 successfully funded projects.

In 2014 alone, over $529 million was pledged to Kickstarter ventures by 3.3 million people internationally. Further, the number of people who had backed a project for the first time exceeded 2 million. Kickstarter was able to establish a large network of returning backers, with 773,824 people backing more than a single project. 2014 became the company's most successful year in its history.

Category Participation

The diversity of projects in Kickstarter’s portfolio is a testament to its versatility as crowd

funding source. However, the most popular categories of projects are not necessarily the ones that attract the most contributions.

5000.00

140

3750.00

105

2500.00

70

1250.00

35

0.00

Technology

Games

Music

Fashion

Art

0

Amount Backed (Millions)

Number of Projects

Number of Projects vs. Amount Backed

Number of projects Amount backed

Above: This chart shows the relationship between the participation and the amount backed for each category. It uses data from the 2014 Kickstarter analytical report.

As shown, the popularity of each category does not reflect the willingness of donors to give money. While there were only 1124 Technology based projects, they ultimately garnered $125 million in backing. This is in contrast to Music, which had 4,009 projects with only $34 million in backing.

The data in the figure above conveys the message that there is no direct correlation

between the number of projects in a particular category and the amount backed. For instance, the technology field had only a little over a thousand entries for 2014, however it yielded roughly $125 million from backers. On the contrary, the music industry had over 4,000 submitted ventures through the Kickstarter website but only received $34 million in funding. In addition,

the less saturated categories such as publishing, art and theater displayed a higher number of projects with less funding received. Yet, Kickstarter’s seemingly disproportionate funding statistics are not a reflection of simple category favoritism. Rather, the less popular categories generally required a lower target goal as compared to genres such as technology, design and games.

Further, these ventures have a more specific target audience and are centered with an interest based approach. This allows fashion brands, artists and theater producers to resonate with the audience who are most willing to contribute. Technology, design and game ventures market themselves to a wider crowd and therefore receive a higher amount. Yet, the highest total sum received by Kickstarter projects is not a reliable indicator of successful or unsuccessful categories.

Rather, it is the opportunity to engage with both interest based and universally minded products that sets Kickstarter’s platform apart from other sources of funding.

Successful Projects Source: http://www.businessinsider.com/the-highest-funded-kickstarters-2013-7

Kickstarter has a reputation to attract both unique and interesting enterprises that break

away from traditional business ventures. Historically, new ideas have been funded and sponsored by venture capitol firms whose sole purpose is to receive a profit. These firms look at statistics, data and marketability as the premier support in making a decision. Further, their main goal is to receive a profit in relation to their investment. Kickstarter entirely redesigns the way projects can connect with those with a similar passion, which results in concepts never seen before.

One of the most prominent and famous examples of Kickstarter's success is the Pebble

Watch. 68,929 backers pledged $10,266,845 to bring this product to fruition. Similar to the Apple watch, this device connects to your phone through a creatively designed and customizable user interface. It connects to both iPhone and Android devices to seamlessly merge these two forms of communication. Alerting you to incoming calls, texts and messages, the watch allows you to always feel socially integrated without ever touching your phone. Additionally, it is both a fashionable product that is breaking into the emerging wearable-technology platform.

The Form 1 3D Printer further shows Kickstarter's prominence in funding Above: The Pebble Watch

technology based products. This

product’s mission is to make affordable high-resolution 3D printer’s a household item. Yet, this initial iteration is targeted at labs, schools and designers capable of crafting detailed work. Its goal of $100,000 was far exceeded by the $2,945,885 raised.

Below: The Form 1 3D Printer

Kickstarter's ventures are not limited to simply electronic gadgets. In Barrington, Illinois,

the Catlow Theater was on the verge of financial collapse. The theater offered cheap tickets in a historic setting, but could not remain an affordable venue for its community at the current price point. In order to continue to be a source of affordable entertainment for its community, Catlow’s owners needed to retrofit the cinema with a digital projector. With a goal of $100,000, it managed to raised $175,000 which far exceeded its initial need. This not only improved the quality of the screen and imagery, but the extra funds allowed for structural and building upgrades such as a new heating system.

Above: Inside the Catlow Theater

In the field of photography, the ARKYD

Space Telescope was another incredibly successful Kickstarter venture. With an aim to become the world's, “first publicly accessible telescope,” it allows individual use for taking pictures in space.

This highly advanced product is capable of handling a multitude of users at a single time.

With a goal of $1,000,000 and $1,505,366 raised, ARKYD far exceeded its goal.

Below: Target vs. Achieved funding for ARKYD Space Telescope

In the ever-changing fashion marketplace, the 10-year hoodie proved to be one of the

most popular Kickstarter ventures of the year. With it’s 10-year warranty guaranteeing the buyer the highest quality garment, this product is a stark contrast to lower-quality goods found at the majority of U.S. based fashion retailers. While companies such as Forever 21 and Brandy Melville are centered around fast-fashion at an

Kickstarter Individual Donors 2013 vs. 2014 900,000

affordable price point, this product is aimed at a timeless design with lasting

675,000

450,000

quality. With a goal of $50,000 and $1,053,830

225,000

raised, this product far exceeded its initial goal.

0

MORE THAN ONE

MORE THAN 10

MORE THAN 100

Above: The majority of donors contribute to 1-10 projects

The distinctness of each entry reflects the endless potential of ideas and concepts. It is not

uncommon for projects to receive far past their target goal because passion and interest is a large part of the Kickstarter business structure. Further, between 2013 and 2014, there was an increase in participants who contributed to more than 100 projects. This commitment to investing through a single medium, Kickstarter, is a confirmation of the level of quality and satisfaction that that the company delivers.

Research

Kickstarter is also the perfect marketplace not just for products but also scientific

research. Nationally, scientific research funded through traditional means is significantly decreasing. Crowdfunding sites presents a new opportunity to raise capital for expensive research projects and bridge society with the scientific community. The research paper, “Raising Money for Scientific Research through Crowdfunding” was published to discuss the utility of crowdfunding from various perspectives of scientists or laboratory groups looking to fund research. Further, this piece discusses what separates successful crowd funding ventures from their unsuccessful counterparts.

The authors of this article are various scientists from several prominent research

universities. While they do not necessarily have a stake in the report itself, they are well aware of the efforts it takes to reach crowdfunding goals around a scientific goal. “The true potential of crowdfunding lies not in raising funds for conducting research, but in the opportunities for public outreach and science education engendered by this type of funding model. Presently, the great majority of research never reaches a broader audience, contributing to the mistrust and misunderstanding of science among the general public.” (Raising Money for Scientific Research through Crowdfunding, p.3). Not only is Kickstarter an effective business model, but it integrates an unconnected community of investors easily with needed research. This further creates a relationship scientists can use to built upon in the future.

Kickstarter Vs. Competitors

Kickstarter’s recognition as a premier platform is one of the main driving forces behinds

its success. It established itself early on as a setting for crowdfunding before sites such as GoFundMe or Rocket-hub entered the market. Kickstarter also dedicates its website to mainly entrepreneurial and for-profit ventures. The majority of their projects are from independent inventors or groups that want to see their project make a profit.

This separates Kickstarter from sites such as GoFundMe, whose business model is

centered around raising money for life events such as a celebration or challenging circumstances, like illnesses, that require medical treatment. However, a New York Times article expressed that Kickstarter is not immune to having its business taken away. “And unlike the individual projects featured on the site, Kickstarter, the business, is susceptible to market forces. If at some point we all decide that its fees are too high, there’s nothing to stop people from migrating to any of Kickstarter’s increasing number of competitors, like Indiegogo or RocketHub. Kickstarter is replaceable, in competition with other more-or-less-equivalent services, and it keeps no relationship with us after we’ve donated. We are free to leave it whenever we please.” (Why Would You Ever Give Money Through Kickstarter?)

In order to stay relevant, Kickstarter needs to continue offering an affordable and widely-

recognized base for crowdfunding.

Worldwide Recognition

The company has gained international attention that has positioned itself as a household

name in the crowdfunding industry. The New York Times recently published an article that shows the evolution of Kickstarter and its rise in popularity. Further, the article characterizes the relationship between the “backers” and the entrepreneurs by providing relevant examples of businesses that have succeeded and relating it back to the structure of Kickstarter. “ Kickstarter is as much about unlocking creators’ marketing potential as their creative potential. The company takes a cut — 5 percent — of the money raised on successful projects.” (The Trivialities and Transcendence of Kickstarter). This unique relationship between the investor and the creators is separates Kickstarter from the competition.

The, “Crowdfunding handbook: Using equity funding portals to raise money for your small business”

articulates the changing landscape of venture funding and how sites like Kickstarter are gaining traction and popularity. Its main purpose is to teach entrepreneurs how they can be successful at crowdfunding their respective projects. The author, Cliff Enico, has published a variety of business guides that have been met with positive reviews. Enico’s experience in the field of small business for years has typically been centered around appealing to venture capital firms and attaining loans. However, Enico’s most recent publication strays from tradition by recognizing how integral crowdfunding, and specifically Kickstarter, are to the foundation of business development.

Further, Enico’s book identifies changes in legislation that have paved the way for

companies like Kickstarter to flourish. Therefore, Enico’s data is useful for showing both the implementation of crowdfunding as addition to its history.

Conclusion Kickstarter’s history is rooted in the concept of innovation and solving a problem that was personal to the founder. This mindset structured the bedrock for the single most successful crowd-funding site available. It’s steady but consistent growth over the past decade will continue to build and further change the crowdfunding platform. Further, the range of projects and interests can resonate with people who share a common interest. The recent success of projects such as Pebble and the Form 1 3D Printer show how integral the relationship between the investor and the projects are. The qualities of business, innovation and community involvement culminates in this platform to create a permanent funding solution. Kickstarter has fundamentally altered the way ideas and ventures are funded and will continue to be a sound resource for entrepreneurs.

Sources A Brief History of Kickstarter. (2014, April 28). Retrieved March 14, 2015, from https:// www.youtube.com/watch?t=65&v=qcR_UHV0KE Ennico, C. (2015). Crowdfunding handbook: Using equity funding portals to raise money for your small business ... Place of publication not identified: Amacom.

Trump, R. (2013, February 9). Why Would You Ever Give Money Through Kickstarter? Retrieved March 14, 2015, from http://www.nytimes.com/2013/02/10/magazine/why-would-you-ever-givemoney-through-kickstarter.html?_r=0 Tweedie, S. (2013, July 17). The 13 Biggest Projects In Kickstarter History And Where They Are Now. Retrieved March 14, 2015, from http://www.businessinsider.com/the-highest-fundedkickstarters-2013-7 Walker, R. (2011, August 6). The Trivialities and Transcendence of Kickstarter. Retrieved March 14, 2015, from http://www.nytimes.com/2011/08/07/magazine/the-trivialities-and-transcendence-ofkickstarter.html?pagewanted=all White, R., Wang, Y., Byrnes, J., & Ranganathan, J. (n.d.). Raising money for scientific research through crowdfunding. Retrieved March 14, 2015, from http://scifundchallenge.org/files/2011/11/ trends-crowdfunding.pdf 2014: By the Numbers. (n.d.). Retrieved March 14, 2015, from https://www.kickstarter.com/ Images: http://www.dailydetroit.com/2014/12/17/two-detroit-kickstarter-projects-kick-local-entrepreneurshigh-gear/ http://i.istockimg.com/file_thumbview_approve/13363220/6/stock-illustration-13363220-moneytree-icons.jpg http://www.cnbc.com/id/101727845 http://www.huffingtonpost.co.uk/2012/11/22/kickstarter-sued-formlabs-3dprinter_n_2174936.html http://www.conceptgreen.net/ http://smart-wear.org.uk/shop/smart-watches/pebble-grey-the-e-paper-watch-for-android-andiphone/