8 ms·

Kickstarter Sets Off $7 Million Stampede for a Watch Not Yet Made

72 points by mattewing 14y ago

mattewing 14y ago
Love this line: “The terms on Kickstarter are more attractive than any bank loan or venture capital amount”
- catch23 14y ago
  I wonder if this will make angels worry, the same way that angels made VCs worry. And if so, I wonder if we'll be seeing better terms for future founders from the old system investors.
  - glennos 14y ago
    It might but there's a couple of reasons that Angels/VCs need not lose too much sleep. Kickstarter only accepts "projects" that have an end point. To be fair, they're perhaps loose in their application of this, but generally speaking, the project needs a finish point. For example, Pebble will ship the core product, a completed watch. When it comes to software/web apps, there's a less definitive end point. Games seem to get through ok, because they reach a pretty clear release point. "Projects" like Instagram would likely not have made it through as a Kickstarter project, because they're designed to be iterated on. Getting to the "first release" is not generally what Kickstarter accepts... unless you're Diaspora... or anything open source.
  - InclinedPlane 14y ago
    Yes and no. Yes because Kickstarter has a high profile now, and there is rather significant amounts of money flowing through it. Angels and VCs sometimes only put in a few k or a few mil. for a company, and now it seems as though you can just go to kickstarter for that amount. No because kickstarter isn't for everything. The closer your project is to the ideal of a semi-artistic one-off project with a timeline of months that produces a tangible product that the backers can receive the more likely it is to be approved and funded. But not all businesses fit in that model. More so, that model of venture isn't necessarily the sort of thing that is most attractive to an investor. Kickstarter projects are the sort that scale up slowly and carefully. But a lot of the most desirable investment targets are software companies which provide a service who can scale up by a factor of thousands or millions in a matter of months. Now, there is still a sizable niche that straddles both worlds (such as game development) and you can expect a lot of interesting things to happen in that space in the near future.
  - jmitcheson 14y ago
    I think they probably should be. Kickstarter may not fund all types of projects but Kickstarter is only the beginning. The world works on trends right? Put all these things together and look forward 2-3 years: AngelList Kickstarter JOBS Act Software boom Open hardware innovations (Arduino, Raspberry Pi, Open 3rd printers, etc.) I'm not really certain that things at the VC level would be a whole lot different but I would sure be worried if I was an angel or earlier. Pretty soon, we'll be far less dependent on them than they are used to. If you ask me seed stage may have so many options that they'll have to reverse-pitch ;)
- brk 14y ago
  It's really not comparable to VC money in any normal way though. When you're raising VC money, especially early rounds, you're trying to prove and build a business model. You're trying to get market awareness and acceptance, develop your product, etc. There is a statistically high probability that you will fail entirely, or will at least fail to achieve the progress intended (meaning you may have to raise more money, affecting valuations and dilutions). One upside to VC money is that you get to use all of it in almost any way you like. Kickstarter, especially in this case, is people pre-ordering an already more fully defined and developed product. The money raised is going more or less directly to people purchasing product. It is assumed that there is a profit margin on the product, but it's also reasonable in these early cases to assuming the manufacturing costs may overrun estimates, and that roughly 10-25% of the money raised will actually end up being "profit". Sure, even 10% of $7M is a nice chunk of money, but $7M of kickstarter money is way less working capital than $7M of VC money.
  - Retric 14y ago
    For digital goods you can probably spend 85% of the funding on building the product AND you don't need to give up shares of your company to a VC. As for physical goods I don't think most physical kickstarter projects aim for 25% margins, especially when you look at all the diffident tiers. Many of which end-up as 1,000$ twice what you would get for 200$ but we will say thank you on our website.
  - mason55 14y ago
    Kickstarter, especially in this case, is people pre-ordering an already more fully defined and developed product. The money raised is going more or less directly to people purchasing product. It's funny because Kickstarter is intended NOT to be pre-purchasing but to be an investment in something that might not pan out. People have gone out of their way to point that out when some of the high profile failures have happened.
egypturnash 14y ago
I'm trying to decide if Kickstarter is the blossoming of a new way to do business, or a bubble fueled by a few hits that came at the same time. I'm hoping it's the former, as I've got a campaign going to print a comic book that's close to being funded, and I'm hoping to have it around as a viable option to repeat this stunt to fund future books, and ultimately maybe even support myself this way. The limited duration makes stuff MOVE which is great.
- mattewing 14y ago
  It's hard to see kickstarter as the same type of bubble we saw in real estate or web 1.0. That type of bubble is driven by investor group think leading to absurd valuations. Kickstarter is based on purchases (or donations), not investments. In other words, I don't think people are paying irrational amounts for your comic book because Kickstarter is so hot right now. Now, if the pebble watch I just bought turns out to be a POS, I'm probably going to be a lot less likely to buy other new untested products on Kickstarter. So, a few high profile flameouts could damper the whole marketplace, but I don't think could lead to value crushing collapse like when a bubble bursts. Good luck with your comics!
  - egypturnash 14y ago
    Yeah, I'm mostly worrying about what happens if some of these million-dollar projects fail horribly. Especially if some HOT GADGET turns out to be a scam and they just vanish with the funds. Games, I don't think that's a possibility - you have to have a giant reputation to raise the money to make one happen. I'm also pretty hopeful this is just paranoia talking, and that folks quickly realize they need to do a sanity check. Maybe Kickstarter will end up with a tighter TOS and will send lawyers after a huge scam if one happens, I dunno. While people are definitely paying for my own personal awesomeness rather than Kickstarter's awesomeness, I think the fact that people know and somewhat trust the model and te middleman is helping. Break the trust and it doesn't work. And thanks for the well wishes, the comic leapt from 80% to 121% around the time you sent them!
    - Impossible 14y ago
carbocation 14y ago
Unless I'm missing something, Kickstarter sure seems like the closest thing I've seen to a tool that enables closer-to-perfect price discrimination.
- InclinedPlane 14y ago
  That's an excellent point that I haven't seen anyone else make yet about Kickstarter, and does help to explain a bit of their runaway success. Though it does seem rather obvious that a higher level of transparency and a stronger customer-maker bond would also be useful in capturing a greater amount of the consumer surplus than an average, faceless megacorp would.
- bostonvaulter2 14y ago
  Could you expand on what you mean by closer-to-perfect price discrimination?
  - guard-of-terra 14y ago
    You pay however much you are ready to pay. Traditionally if you price a ware 100$, you'll lose all the money from those who can only afford 10$, and if you price it 10$, you lose all the extra money from those who would have paid 100$. With Kickstarter, some people pay 10$, some 100$ and some 1000$, and they are all very happy about that. This is achieved by: Giving nice perks for extra money; Buyers understanding that by paying less they only steal from themself.
    - _delirium 14y ago
      That's not that uncommon a pricing model in the arts even pre-Kickstarter. You've got the $10 CD, the $25 limited-edition CD with bonus tracks, the $100 super-limited leatherbound box set signed by the artist, etc.
      - guard-of-terra 14y ago
        I'll argue the incentive is different for goods that already exist. Also kickstarter takes this to a radical new level with tens of price tiers compared to two or three.
markerdmann 14y ago
A word of warning for anyone considering funding a software project through KickStarter: they may reject it. I recently spotted this blog post written by a team trying to fund the development of an iPhone app: http://famnerd.com/2012/02/update-famnerd-rejected-by-kickstarter/ http://famnerd.com/2012/02/update-famnerd-rejected-by-kickst...
pronoiac 14y ago
Nice graphs - http://www.nytimes.com/interactive/2012/04/30/technology/three-years-of-kickstarter-projects.html http://www.nytimes.com/interactive/2012/04/30/technology/thr...
spdy 14y ago
Would love to see the margins of popular products. By the end the will probably sell over 50k+ watches. Im sure they now negotiate better terms. Direct Kickstarter link: http://www.kickstarter.com/projects/597507018/pebble-e-paper-watch-for-iphone-and-android http://www.kickstarter.com/projects/597507018/pebble-e-paper...
pepijndevos 14y ago
It saddens me that Kickstarter is US only. I know there are some equivalent european websites, but I haven't heard of any big success stories about them. HN bias? or is Kickstarter-the-brand really that much more successful than Kickstarter-the-concept?
- naish 14y ago
  From my understanding, the US requirement is due to Amazon Payments. It would be great if they could offer an alternative to those who are ineligible for Amazon's service. I'm not sure what incentive there is for Kickstarter to explore other options--they are likely happy to enjoy their current growth and success. That said, as a backer of many Kickstarter campaigns from north of the border, it would be nice to be able to tap into their momentum with projects of my own.
  - TazeTSchnitzel 14y ago
    You can still use Amazon Payments outside the US. Unfortunately, unlike PayPal, they bill you directly in the target currency which means your bank or credit card company may charge you fees - they did for me :(
- deleted 14y ago
  [deleted]
igorsyl 14y ago
What would happen if the company fails to deliver the watches? Give a refund? What if the company has no cash left?

72 points by mattewing 14y ago

mattewing 14y ago

Love this line: “The terms on Kickstarter are more attractive than any bank loan or venture capital amount”

catch23 14y ago
I wonder if this will make angels worry, the same way that angels made VCs worry. And if so, I wonder if we'll be seeing better terms for future founders from the old system investors.
- glennos 14y ago
  It might but there's a couple of reasons that Angels/VCs need not lose too much sleep. Kickstarter only accepts "projects" that have an end point. To be fair, they're perhaps loose in their application of this, but generally speaking, the project needs a finish point. For example, Pebble will ship the core product, a completed watch. When it comes to software/web apps, there's a less definitive end point. Games seem to get through ok, because they reach a pretty clear release point. "Projects" like Instagram would likely not have made it through as a Kickstarter project, because they're designed to be iterated on. Getting to the "first release" is not generally what Kickstarter accepts... unless you're Diaspora... or anything open source.
- InclinedPlane 14y ago
  Yes and no. Yes because Kickstarter has a high profile now, and there is rather significant amounts of money flowing through it. Angels and VCs sometimes only put in a few k or a few mil. for a company, and now it seems as though you can just go to kickstarter for that amount. No because kickstarter isn't for everything. The closer your project is to the ideal of a semi-artistic one-off project with a timeline of months that produces a tangible product that the backers can receive the more likely it is to be approved and funded. But not all businesses fit in that model. More so, that model of venture isn't necessarily the sort of thing that is most attractive to an investor. Kickstarter projects are the sort that scale up slowly and carefully. But a lot of the most desirable investment targets are software companies which provide a service who can scale up by a factor of thousands or millions in a matter of months. Now, there is still a sizable niche that straddles both worlds (such as game development) and you can expect a lot of interesting things to happen in that space in the near future.
- jmitcheson 14y ago
  I think they probably should be. Kickstarter may not fund all types of projects but Kickstarter is only the beginning. The world works on trends right? Put all these things together and look forward 2-3 years: AngelList Kickstarter JOBS Act Software boom Open hardware innovations (Arduino, Raspberry Pi, Open 3rd printers, etc.) I'm not really certain that things at the VC level would be a whole lot different but I would sure be worried if I was an angel or earlier. Pretty soon, we'll be far less dependent on them than they are used to. If you ask me seed stage may have so many options that they'll have to reverse-pitch ;)
brk 14y ago
It's really not comparable to VC money in any normal way though. When you're raising VC money, especially early rounds, you're trying to prove and build a business model. You're trying to get market awareness and acceptance, develop your product, etc. There is a statistically high probability that you will fail entirely, or will at least fail to achieve the progress intended (meaning you may have to raise more money, affecting valuations and dilutions). One upside to VC money is that you get to use all of it in almost any way you like. Kickstarter, especially in this case, is people pre-ordering an already more fully defined and developed product. The money raised is going more or less directly to people purchasing product. It is assumed that there is a profit margin on the product, but it's also reasonable in these early cases to assuming the manufacturing costs may overrun estimates, and that roughly 10-25% of the money raised will actually end up being "profit". Sure, even 10% of $7M is a nice chunk of money, but $7M of kickstarter money is way less working capital than $7M of VC money.
- Retric 14y ago
  For digital goods you can probably spend 85% of the funding on building the product AND you don't need to give up shares of your company to a VC. As for physical goods I don't think most physical kickstarter projects aim for 25% margins, especially when you look at all the diffident tiers. Many of which end-up as 1,000$ twice what you would get for 200$ but we will say thank you on our website.
- mason55 14y ago
  Kickstarter, especially in this case, is people pre-ordering an already more fully defined and developed product. The money raised is going more or less directly to people purchasing product. It's funny because Kickstarter is intended NOT to be pre-purchasing but to be an investment in something that might not pan out. People have gone out of their way to point that out when some of the high profile failures have happened.

egypturnash 14y ago

I'm trying to decide if Kickstarter is the blossoming of a new way to do business, or a bubble fueled by a few hits that came at the same time. I'm hoping it's the former, as I've got a campaign going to print a comic book that's close to being funded, and I'm hoping to have it around as a viable option to repeat this stunt to fund future books, and ultimately maybe even support myself this way. The limited duration makes stuff MOVE which is great.

mattewing 14y ago
It's hard to see kickstarter as the same type of bubble we saw in real estate or web 1.0. That type of bubble is driven by investor group think leading to absurd valuations. Kickstarter is based on purchases (or donations), not investments. In other words, I don't think people are paying irrational amounts for your comic book because Kickstarter is so hot right now. Now, if the pebble watch I just bought turns out to be a POS, I'm probably going to be a lot less likely to buy other new untested products on Kickstarter. So, a few high profile flameouts could damper the whole marketplace, but I don't think could lead to value crushing collapse like when a bubble bursts. Good luck with your comics!
- egypturnash 14y ago
  Yeah, I'm mostly worrying about what happens if some of these million-dollar projects fail horribly. Especially if some HOT GADGET turns out to be a scam and they just vanish with the funds. Games, I don't think that's a possibility - you have to have a giant reputation to raise the money to make one happen. I'm also pretty hopeful this is just paranoia talking, and that folks quickly realize they need to do a sanity check. Maybe Kickstarter will end up with a tighter TOS and will send lawyers after a huge scam if one happens, I dunno. While people are definitely paying for my own personal awesomeness rather than Kickstarter's awesomeness, I think the fact that people know and somewhat trust the model and te middleman is helping. Break the trust and it doesn't work. And thanks for the well wishes, the comic leapt from 80% to 121% around the time you sent them!
  - Impossible 14y ago

carbocation 14y ago

Unless I'm missing something, Kickstarter sure seems like the closest thing I've seen to a tool that enables closer-to-perfect price discrimination.

InclinedPlane 14y ago
That's an excellent point that I haven't seen anyone else make yet about Kickstarter, and does help to explain a bit of their runaway success. Though it does seem rather obvious that a higher level of transparency and a stronger customer-maker bond would also be useful in capturing a greater amount of the consumer surplus than an average, faceless megacorp would.
bostonvaulter2 14y ago
Could you expand on what you mean by closer-to-perfect price discrimination?
- guard-of-terra 14y ago
  You pay however much you are ready to pay. Traditionally if you price a ware 100$, you'll lose all the money from those who can only afford 10$, and if you price it 10$, you lose all the extra money from those who would have paid 100$. With Kickstarter, some people pay 10$, some 100$ and some 1000$, and they are all very happy about that. This is achieved by: Giving nice perks for extra money; Buyers understanding that by paying less they only steal from themself.
  - _delirium 14y ago
    That's not that uncommon a pricing model in the arts even pre-Kickstarter. You've got the $10 CD, the $25 limited-edition CD with bonus tracks, the $100 super-limited leatherbound box set signed by the artist, etc.
    - guard-of-terra 14y ago
      I'll argue the incentive is different for goods that already exist. Also kickstarter takes this to a radical new level with tens of price tiers compared to two or three.

markerdmann 14y ago

A word of warning for anyone considering funding a software project through KickStarter: they may reject it. I recently spotted this blog post written by a team trying to fund the development of an iPhone app: http://famnerd.com/2012/02/update-famnerd-rejected-by-kickstarter/ http://famnerd.com/2012/02/update-famnerd-rejected-by-kickst...

pronoiac 14y ago

Nice graphs - http://www.nytimes.com/interactive/2012/04/30/technology/three-years-of-kickstarter-projects.html http://www.nytimes.com/interactive/2012/04/30/technology/thr...

spdy 14y ago

Would love to see the margins of popular products. By the end the will probably sell over 50k+ watches. Im sure they now negotiate better terms. Direct Kickstarter link: http://www.kickstarter.com/projects/597507018/pebble-e-paper-watch-for-iphone-and-android http://www.kickstarter.com/projects/597507018/pebble-e-paper...

pepijndevos 14y ago

It saddens me that Kickstarter is US only. I know there are some equivalent european websites, but I haven't heard of any big success stories about them. HN bias? or is Kickstarter-the-brand really that much more successful than Kickstarter-the-concept?

naish 14y ago
From my understanding, the US requirement is due to Amazon Payments. It would be great if they could offer an alternative to those who are ineligible for Amazon's service. I'm not sure what incentive there is for Kickstarter to explore other options--they are likely happy to enjoy their current growth and success. That said, as a backer of many Kickstarter campaigns from north of the border, it would be nice to be able to tap into their momentum with projects of my own.
- TazeTSchnitzel 14y ago
  You can still use Amazon Payments outside the US. Unfortunately, unlike PayPal, they bill you directly in the target currency which means your bank or credit card company may charge you fees - they did for me :(
deleted 14y ago
[deleted]

igorsyl 14y ago

What would happen if the company fails to deliver the watches? Give a refund? What if the company has no cash left?