Kickstarter and IndieGoGo are fascinating in and of themselves given that they’ve opened up to the wider world an opportunity to attempt raising venture capital from a seemingly (though not actually) limitless funding pool. And with ever more people trying their hand at this method of fundraising I think people are looking at it as some kind of miracle solution to money problems, forgetting that raising venture capital, like any other aspect of financial planning, is a finely honed skill.
Personally, I think people have gotten extremely lucky thus far. I also think that many backers are seriously overextending their available capital.
But the point is this: Tobias Buckell posted his breakdown of The Apocalypse Ocean Kickstarter the other day, and Silvia Moreno-Garcia posted her breakdown of the IndieGoGo campaign for Swords and Mythos back in October. Both posts are worth reading for their discussions of what worked and didn’t work, and what both Tobias and Silvia would do differently given another chance.
Specifically of interest to this discussion is Buckell’s question (and the answers he gave to it) “What Makes a Successful Kickstarter?” Buckell asserts that the answer is threefold: 1) An interesting project, 2) A (proven) track record on the part of the fundraiser, and 3) Good (or better) public outreach/networking. I agree with all of these qualifiers as necessary components of running a successful fundraising campaign (though Buckell is right when he points out that combinations of only two of these elements can be used to run a successful campaign as well, it’s just harder).
Still, there’s a crucial element to this method of fundraising that often gets overlooked: the investor buy-in.
Many projects will succeed because their idea is interesting, others will succeed even when it’s not “cool”, or “trendy” – environmental, political, and activist campaigns don’t succeed because they’re especially trendy, or because they advertise well, they succeed for other reasons (which we’ll get to momentarily). And while the track record of a fundraising individual or body is a great incentive to aid a fledgling campaign, that’s proof of past work, not proof of concept going forward. And public outreach is an effective method of building momentum, but it’s not what sells us on the project itself, it’s what gets us to notice it.
The reason we fund projects asking for money? The same reason we help charities, really: an investment, usually emotional, always related to how the project defines us, or what it offers us.
And in this sense crowdfunding is no different from charitable institutions seeking money to do whatever their stated goals are (bear in mind that the word “goal” is important and we’ll be talking about it shortly). It’s also the same reason commercial advertising has been so keen to play on our understanding of “rewarding ourselves” (“reward” too will be important momentarily) with products and services, or selling us on them as a function of how, depending on the nature of the product, either we, as individuals, or our “family units” can benefit from the having and/or using of them.
And before you go off all half-cocked about how those North American media ads with the stereotypical interactions based in gender-“normative”, generally heterosexual individuals, or the nuclear family and all the absurd, parochial, Norman Rockwell baggage that comes with that don’t apply to you, kindly remember that those ads aren’t meant for you. They’re meant for the majority of North American individuals who either are, or would like to be, assimilated into a form of idealized culture that those stereotypes represent. We have built for ourselves a common language of want, centered around fitting in and finding a place within a society which does not exist, but which advertisement agencies who are still operating on the principles laid down in the America of the 1950s (these particular principles of advertising, not the longer running, more general principles) would very much like you to believe does exist. I would also have you note that in most American advertisements the typical family still consists of a father, mother, one daughter, and one son. Also, generally, a pet, thereby conforming to the ever-shrinking ideal of the two partner hetero-normative parenting model complete with 2.5 children.
But, to get back to charitable advertising: have you ever wondered why the vast majority of television advertisements paid for by charitable organizations show you two distinct sets, or types, of images – specifically horror, squalor, disease and dead bodies (that last one depends on the charitable institution and the cause in question) in the first group, and pictures of industry, infrastructure, and resurrected/rebuilt communities, or “rescued” individuals in the second group? The message the fundraising body is trying to convey is “The before pictures are the world without your help, the after pictures are the world with your help.” A simple message, but an effective one (and in a lot of cases one that is spoken, as well as shown, hitting as many sensory input options as possible). It’s also emotional blackmail, because the further implication is “If you don’t provide funds, the after picture doesn’t happen, and because of your unwillingness to help, others suffer.”
Crowdfunding operates on a variety of the same principle (if a far less insidious version thereof): an emotional investment.
Think of it this way: When you fund a project you get something for your financial stake or input. You get a “reward”. The term itself is an emotional trigger, tied (in North America, anyway) to formative years of being told that good behaviour or exceptional performance in a given environment produces a “reward”, and that you should be actively seeking these “rewards” because they are desirable and they will make you feel better about yourself. You get good grades in school? You get to advance. You do well in a corporate environment? You make more money (or, more realistically, someone else probably takes the credit for your work, but let’s talk about the ideal outcome for the moment). You do well socially? Your interactions bear fruit at varying levels: friends, lovers, and potentially a family of your own.
Rewards are very closely tied to goals (more often than not “life goals”), and “goal” is another term used in crowdfunding. Both terms are used in crowdfunding because they represent a cause and effect relationship. You meet your “goal”, or help someone else to, and you get your “reward”. These simple, readily defined cause and effect relationships are tied to the way we approach any long-term project, and are related very closely to the way we think about how investing in the project (monetarily, emotionally, or otherwise) will benefit us.
See, successful crowdfunding, like successful venture capitalism in the business world of suits, charts, graphs, presentations, and the almighty bottom line, is about telling the investor how the project benefits them. But what crowdfunding does is say “Not only am I going to give you the opportunity to come in on this thing on the ground floor and watch it grow, I’m going to give you immediate credit,” (acknowledgement, usually in print or other memorialized form) “and I’m going to give you a shiny gift,” (incentives ranging from copies and or iterations of the product produced to additional, related, or unrelated but appealing, products) “because you were willing to help us out on this one.”
And that, that is why crowdfunding works. We have a lot more in common with magpies than we like to admit, and a shiny object, specifically a reward, hooks us every time. It’s very hard to walk away from an incentivized sales pitch. It’s also why upselling in a commercial marketplace works, because the offer gets you thinking about the constituted value of the discounted and/or free material being offered to you in addition to the thing you actually wanted in the first place. Any sales transaction (which is really what a venture capital pitch is: someone is selling you an idea and you consider whether to pay for it or not) is a form of barter system. How much are you willing to pay for what the fundraiser wants to do, and how many other things will they have to load you down with before you pay them to go off and do what they want to do?
This may also be the reasoning why offering too many options for people to choose from sometimes backfires when setting up a crowdfunding project. Simple, defined choices allow us to debate between which option appeals most to us. What we ultimately decide on may not be the best thing for us, but it’s invariably what most appeals to us that ultimately sways our decision-making process – again, it’s tied to that magpie aspect of our collective nature. By being offered too many choices we are forced to weigh a vast multitude of variables and potential values against each other. What this often leads to is wanting to acquire multiple shiny objects, but knowing that we can only reasonably walk away with one. Contrary to what would ideally seem logical – multiple choices leading to opportunities for everyone to get something they want – too many choices potentially leads to a situation where decision making ceases to be a joyous thing and becomes a hassle. This can also happen with creating reward levels of the same monetary buy-in, but with differing actual rewards. Mileage, obviously, varies, but a clearly defined progression of reward levels presents a tiered reward structure which more closely aligns itself with our innate understanding of higher cost equating with better value.
However, irregardless of use or method – and for the record I think crowdfunding is an excellent tool for making projects that would otherwise be all but unfeasible happen – crowdfunding is a complex endeavour. And even understanding it does not mean one can readily game the system. Crowdfunding is, in the age of the internet, a self-correcting mechanism (people will be checking up on your projects, and they will spread word of fraudulent or unscrupulous activities). However, it is also an arena with the potential to do real damage. The latter I suggest because these platforms make it very easy to find projects we want to be involved in. And by be involved in I mean give money to. That’s a somewhat dangerous proposition in a society (again, thinking North America) where credit card debt in the U.S. alone (consumer credit card debt specifically, not federal debt) equaled $2.43 trillion as of May 2011, this information being the most recent I could find and it being cited from the US Federal Reserve’s G.19 report on consumer credit from July 2011 (by way of http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#Total-debt – fair warning: I have my concerns that that site may be too closely tied to the industry it “monitors” so take their information with a grain of salt).
So, what, really, is the point of all of this? Does crowdfunding work? Of course it does. It allows us to help others (meet “goals”) and feel good about ourselves (“reward”) and get something for ourselves while spending money (again, “reward”). It’s a good, if not sustainable, system: like all means of raising capital it’s a well that will eventually run dry.
But, if you’re going to be using it, use it well and intelligently. Read what other people have done and how they’ve done it. Understand that no project is foolproof, and further understand that just because a particular scenario worked for someone else that’s no guarantee that the same scenario will work for you. Unforeseen variables are now, and will ever be, the largest part of the equation.