The golden age of irrational exuberance on Kickstarter has ended — Pebble is shutting down, marking the fall of crowdfunding’s white knight after a string of other high-profile closures and failures.
Originally positioned as a medium for (especially arts-related) projects to garner modest seed funding from a diverse group of supporters, crowdfunding platforms like Kickstarter and Indiegogo have obviously evolved since their respective launches in 2009 and 2008. Yes, crowdfunding has produced some inspiring success stories that have grown into innovative businesses, like Peak Design and Flow Hive.
However, it also has facilitated the transfer of significant sums of money to teams that ultimately proved themselves to be incompetent, leaving backers with nothing. Recent headlines have been chock full of projects that have declared bankruptcy or otherwise betrayed their early backers, exposing cases where founders’ and companies’ egos have simply overtaken their ability to reason, plan and communicate logically or truthfully.
Quite frankly, there’s no excuse for receiving an interest-free advance payment of X million dollars to manufacture a drone or other gadget, only to spend it all on God-knows-what and declare bankruptcy.
As a campaign creator who has delivered despite facing significant adversity, I was wondering if this worrying trend toward failed projects would affect the “fundability” of my future crowdfunding projects. For a while, it looked to me like these runaway-creators may be getting away with blowing consumers’ money on their behalf. However, while running my most recent campaign, it became clear the market is shifting — and the new reality may not be encouraging for aspiring crowdfunding campaign creators.
I launched my second Kickstarter campaign for a traditional-style razor in March 2016, 18 months after launching my first campaign for a similar product. I noticed that this time around, while pitching press on the project, I would get far fewer responses from bloggers and journalists on pitches that mentioned I was reaching out about a Kickstarter campaign.
It struck me that the recent negative press around crowdfunding campaigns may be influencing writers to reconsider whether they want to effectively endorse products that don’t yet exist. This suspicion was confirmed when countless journalists I spoke to indicated they weren’t interested in covering crowdfunding campaigns after the recent high-profile failed campaigns.
Crowdfunding is all about backers trusting a founder.
In some ways, I sympathize with the founders of failed projects. It’s admittedly exhilarating to have backers believe in you enough to help fund your new project or product launch. I fear that as the average sums raised from crowdfunding campaigns have increased over the last several years, humble commitment to deliver products to backers has been overtaken more and more frequently by egotistical overspending and over-hiring, with potentially disastrous effects on product deliverability.
Ryan Holiday’s book Ego Is the Enemy identifies repressing ego as being “humble in our aspirations, gracious in our success, and resilient in our failures.” I feel this framework could also act as a simple blueprint for aspiring crowdfunders looking to build a sustainable business — loosely translated as being “realistic with our product, economical with our funding and tenacious in facing our challenges.”
There’s certainly nothing wrong with a campaign that is off on its schedule by a few months (maybe even more!), as long as transparent and respectful communication is maintained between the project creator and backers.
It is time to consider the next generation of crowdfunding. If we want this innovative economic vehicle to continue to grow, we need new rules and expectations to restore the balance of trust between project creators, backers and crowdfunding platforms:
- Project-creation teams should be assigned a “relevant experience” grade before their crowdfunding campaign goes live, especially in high-tech and manufacturing-centric projects. This would allow backers to better understand the level of risk of deliverability there is related to projects they are backing.
- Project creators should set clearer communication expectations with their backers, and requirements for monthly meaningful updates should be enforced by crowdfunding platforms. With Rockwell, I’ve communicated to my backers that project updates are sent out on the last Friday of every month, which has nearly eliminated cases of backers feeling disconnected or “un-updated” on the progress of the campaigns. This has led to a much more amicable relationship between my backers and myself than I see on many other campaigns that have raised $100,000+.
- For campaigns raising more than $250,000, there should be some degree of manufacturing auditing provided or required by crowdfunding platforms to ensure the project is properly set up to succeed and deliver. This would better allow backers to trust that their pledge is in good hands. There would be added costs to the platforms associated with this level of campaign involvement, which could be offset with a small increase in fees applied to the campaign creator’s fees — this would be worth it in the interest of maintaining the integrity of the campaign’s reputation.
I’m thrilled that crowdfunding has developed as an opportunity for entrepreneurs to secure alternative financing for innovative ideas, whether those ideas relate to the arts, technology or another field. For entrepreneurs like me, it’s beneficial that consumers have accepted the concept of pre-paying for a new product in exchange for higher involvement in the founding of a company and the feeling of supporting a founder they believe in.
It’s a shame that some of these founders egotistically overestimate their ability to manufacture new technology, overspend on advertising during the campaign or choose to keep their backers in the dark about project progress. Crowdfunding is all about backers trusting a founder, and these breaches of trust are having a negative impact on the outlook for all crowdfunding founders. Doing anything less means you’re guaranteed to fail at your campaign — even if you get funded.
Featured Image: Bryce Durbin/TechCrunch