Kickstarter is doing well. Project creators have launched 38,000 successful undertakings for $441 million in pledges since its launch four years ago. And it’s only expected to grow. So it’s no wonder that crowdfunding clones, imitators, and innovators are popping up like weeds. From the uber-broad to the niche, entrepreneurs have, are, and will continue to build platforms that fill holes in Kickstarter’s coverage, methods, or both.
These would-be Kickstarters are doing well, too. The (somewhat dubious) Crowdfunding Industry Report estimated nearly $3 billion generated through these sites in 2012, up 91 percent from 2011. But how long can it last? Is there a limit to how many bike lights, iphoness cases, and slim wallets the crowd will back? Crowdfunding is at a tipping point. We’re about to discover whether it’ll become endemic — a standard, behind-the-scenes, constant method of funding — or go the way of Groupon's daily deals, gradually fizzling out. And these innovators, depending on their success, are going to help answer that question.
“The harsh reality is that the economy was crumbling, and really the hope was dying,” says Jason Graf, CEO of new a platform called CrowdIt. “And crowdfunding is restoring that hope, and restoring those dreams, and driving economic growth and job creation.”
If that sounds massively optimistic, it should. Graf calls crowdfunding an “economic revolution;” meanwhile, his crowdfunding endeavor launches June 4. Yet while the field has lots of success stories and some under-reported failures, even the biggest platforms aren’t yet more than a blip in American enterprise with the only a few short years in existence.
Kickstarter wasn’t the first, but it quickly became the biggest. Its fame brought a level of public scrutiny that led to a few rule changes, and to Kickstarter cutting down on the amount of physical products it accepted in favor of music, film, games, and other media projects. Though Kickstarter founder Yancey Strickler points out that the platform’s changes have led to an unprecedented level of transparency among gadget manufacturers, the move also opened up the industry to competitors in the design and technology fields.
Indiegogo, which was founded the year before Kickstarter and has become a force of its own even in a distant second place, has distinguished itself in several ways, offering partial funding, funding for charity causes, and capitalizing on hardware rejected by Kickstarter.
Meanwhile, a host of others have sprung up, and are springing up, each looking to carve out a niche unfulfilled by these two.
But we’re not talking about the replicas here — the Kickstarter for bands, the Kickstarter for apps, the Kickstarter for porn, and other more specific versions of what Kickstarter already does (though there are many). No, we’re talking about the ones that represent a change in the platform itself, the innovation that could allow crowdfunding to dodge its coming comeuppance.
Perhaps the most significant entity rethinking crowdfunding is the government itself; late this year, pending SEC regulations, the equity crowdfunding part of the JOBS (Jumpstart Our Business Startups) Act will take effect, making it legal to seek investments by offering equity to crowdfunders. Where crowdfunding platforms like Kickstarter look like a way to give DIYers and makers a leg up without sacrificing control of their companies, equity crowdfunding is more of an alternative to venture capital and bank loans.
This is a very different definition of crowdfunding than the rewards-based backing we’re used to. In both cases, the crowd is tapped for micro-investments to get an entity (company, product, charity) off the ground. But with the rewards-based method, the creator knows exactly how much interest he or she has before beginning production.
As the act takes effect, we’ll see these sorts of crowdfunding platforms start to spring up as well. For example, CrowdIt plans to roll out equity crowdfunding when it becomes legal, according to co-founder Graf.
But before that happens, CrowdIt is launching a broad-focus platform with a $10,000 prize to the highest funded project. (They're accepting entrants until June 3, and the competition runs until August 16.) Like many Kickstarter alternatives, CrowdIt grew out of a frequent complaint about Kickstarter: that the process of approval (or rejection) and appeals is vague and opaque. For CrowdIt, the solution was the peer-review process it’s trying to integrate into the service.
The plan is, a set of power users will opt in to review categories they’re familiar with, and vote on whether projects are good enough for the site. Of course, notes Graf, this requires a certain activation energy -- a sufficiently large and active community -- so at first CrowdIt will perform the reviews itself.
“We feel that the crowd wants to be a part of something bigger than just the funding experience,” says Graf. “That’s really the backbone of our site, is that people are able to get more involved and be a part of something more than just the funding. They want to do that. And that’s been evidenced by people donating even a dollar to projects, expecting nothing in return, just to say Hey, I support you.”
Meanwhile, CrowdIt will also emphasize networking, collaboration, and team projects, through a mechanism they call the Dreamer console. They're not releasing details on how those functions will be integrated, aside from noting a direct messaging system and a chat room function, until launch. But it’s all opt-in, and CrowdIt is still pursuing engineers, incubators, attorneys, and venture capitalists for help.
CrowdIt’s problems here belie the struggle new crowdfunders face: the pond is growing, but the big fish is still Kickstarter, and it’s big enough to swallow everyone else whole. Two of the United Kingdom’s larger crowdfunding platforms merged shortly after Kickstarter launched its service there. The Indiegogo campaign for a paper USB drive called intelliPaper performed poorly, and its creators cited a lack of publicity as a major problem. For crowdfunding to be successful, you need the eyes of the crowd on you. And right now, all eyes are on Kickstarter.
“Many creators and entrepreneurs have high hopes of their event taking the world by storm and raising tens of thousands or hundreds of thousands of dollars overnight," Baker says."But, for many, the reality is that after the launch of their event they go largely unnoticed and struggle to pick up enough momentum to have a realistic shot at reaching their goal.”
With experience missing a Kickstarter payout, Baker and co-founder Billy Smith are building Jump Start City to offer backers more options than just funding projects, including social activities, active roles in campaigns, influence, and even financial compensation. Though he can’t share many details prior to the June 1 launch, he says the site will address publicity by facilitating and encouraging promotion through the backers themselves. Jump Start City currently has over 70 projects lined up for its launch, and will emphasize using a social community to promote them.
“No one has really ventured far from the basic model that [Kickstarter] had,” says Baker. “We are super excited about what we've developed and feel it is going to make a huge impact in the crowdfunding world.”
Of course, another big problem with crowdfunding is if and when backers get their promised rewards. Christie Street, which launched in December, has incorporated a patent-strategy service in response to the America Invents Act. But the platform also tries to guarantee backers their products by withholding funds from creators and doling it out as they reach production milestones, and returning remaining money if conditions are not met.
Christie Street isn’t the only service making guarantees where Kickstarter stays mute. Crowd Supply, which also incorporates expert support, is even more hands on. They target manufacturing projects, and dole out funds raised gradually throughout production, helping fill and distribute orders. It’s more of a crowdfunding front end on a traditional e-commerce distribution system.
To do this, Crowd Supply relies on a network of suppliers and distributors built by founder Lou Doctor, who started several online retail sites before joining the crowdfunding scene. For Doctor, it wasn’t the lack of transparency that offered an opening (though Crowd Supply seeks to address that as well), but the difficulty many creators have actually building and shipping their products – and Kickstarter’s insistence that it’s not a store.
“That in my mind changed everything, because we, of course, were a store,” says Doctor. He was approached by people who’d run successful Kickstarters, and didn’t know how to continue selling products.
“There was really a gap between their crowdfunding and their ability to deliver from stock,” he says. “Many of them had to hire programmers and set up their own small e-commerce websites.”
Though Crowd Supply launched March 20 with just 10 projects, the plan is for these creators (referred to by Crowd Supply as “companies”) to be more than one-off product builders. Crowd Supply is now seeking creators who’ll bring multiple or sequential products to the service.
“We have to treat each one of these project founders as though they are future successful entrepreneurs,” says Doctor. “And while it’s more labor intensive … I think we’re going to find a much higher loyalty rate.”
That way, it also helps answer the question of what happens after. Upon funding, Crowd Supply projects immediately transition to a pre-order phase and eventually a product retail site.
These are hard goods – products – notes Doctor, and Crowd Supply has compiled a handful of experts to assess whether a project can follow through on its promises. That’s not judging whether a project will be popular or will receive funding, just whether it can release a product on time and within budget.
Like Kickstarter, most of these services take 5 to 10 percent of a projects funds. But unlike Kickstarter, they’re putting a lot more effort into making sure creators follow through. It’s a common complaint about Kickstarter, but it’s also a savvy legal move, shedding responsibility for anything beyond connecting creators with backers. Many of Kickstarters unilateral project rejections are liability based as well. Whether CrowdIt and Crowd Supply face legal ramifications based on their projects remains to be seen, but entities are coming after Kickstarter already. Can these new versions navigate the legal and financial crowdfunding environment in Kickstarter’s wake?
