I can’t find an answer to this basic question. Is kickstarter like a venture capital investment where if the product turns a profit, you get your money back or not?
I know if they do not reach their fundraising goal, the money is returned w/o the project starting. I also know if you give money there are various perks you can get like a first edition of the product they are making, etc.
But if a kickstarter campaign actually works and makes a profit, does that profit reimburse the initial investors?
If not, is there a site that does as well as offer the perks? Like if someone is designing a product and you put $50 in, they send you a first edition of the project and on top of that, if they turn a profit you get your $50 back?
No. It’s not. You pledge your funds to help them start their project and if it gets kicked off you get any rewards promised when you made your pledge. Otherwise you get your money back.
Despite the language used, with a Kickstarter you’re not “investing” in an enterprise in the sense of buying a stake in it, or a right to a share of profits, or anything of the kind. You are a customer, buying goods or services (the “rewards”) and once the reward is delivered the transaction is concluded.
If you were buying a stake in the enterprise, then Kickstarter and similar sites would be channels for soliciting investment funds from the public, and the whole weight of securities law (and not just US securities law, but the securities law of every country from which the enterprise accepts investments ) would come crashing down on top of it. And the compliance costs would make the whole thing completely unviable.
The earlier posts are exactly right that Kickstarter is a way to commit upfront to buying a product or service from a company. It is not a way to invest in a company to get a financial return.
The U.S. Securities and Exchange Commission has a adopted rules that allow individual investors to make investments in ventures with the expectation of profit. Now, small companies can raise funds from the general public. Confusingly, the SEC also calls this “crowdfunding” but they are using the term differently than it used to be used. See SEC.gov | SEC Adopts Rules to Permit Crowdfunding for a description of the rules.
The rules only recently came into effect so there is not a lot of experience with whether companies can efficiently raise money this way or whether the companies raising money this way will generate returns for investors.
There’s all sorts of rules that allow you to get away with not registering small offerings of securities, the limit on the lowest of which is something like $1million, which is probably more than most people ask for on Kickstarter. However, none of them allow you to advertise and accept money from the general public. The SEC rules are designed to allow people to make private placements of small stock offerings, as well as offerings that are strictly confined to one state so as to not involve interstate commerce, as the SEC is only theoretically constitutionally allowed to regulate interstate commerce. They do not, however, let people advertise these deals in public media. I understand the idea to be that you can get some close group of friends, acquaintances, business connections, etc., together to start a company and issue everyone securities without having to go through a formal registration process on the securities, but anyone wanting to enlist the general public throughout the nation needs to meet the very strict registration requirements.
Glowacks’s information is outdated. There are companies called “Funding Portals” that allow individuals to invest small amounts of money in companies with the hopes that the investment will make a profit. Here is a list of registered funding portals:
That’s right, you may not get anything. You’re really just giving your money away and hoping that you’ll get something in return. It may be whatever was promised, something less, something better, or absolutely nothing.
The* Veronica Mars* movie is an example of a quite successful Kickstarter campaign. Raised over $5M in a short amount of time, got made and released.
Donors got various rewards depending on the amount. E.g., $25 got you a t-shirt. Higher levels got digital downloads and DVDs.
The movie made about $3M gross but the makers rented the theaters instead of the usual deal with theaters. So it’s hard to say how much of that they netted. The usual estimate of half might be low. In addition, I don’t know how much it made thru VoD, DVD, etc. But even if it made well over $5M, the donors got zip of that. It all went to the production company.
OTOH, novelist Neal Stephenson thought he could make a sword-fighting video game for $500K.:smack: Raised more than that on Kickstarter. It eventually ran out of money, closed down and the donors got nothing. Why the donors thought such a game could be made for such a small amount of money is another issue.
If I’m remembering, he didn’t think the game could get made for $500k, he thought that would be sufficient seed money to develop a proof of concept that would attract a publisher with sufficiently deep pockets.
The one Kickstarter I participated in was to get some books reprinted. The amount I pledged was about the market value of three books, and in return I got three books (plus some minor knickknacks like a pad of notepaper and a fridge magnet, plus access to some digital content).
I could have pledged more, and gotten more books. And I could have pledged more than the value of all of the books, and gotten various difficult-to-value intangibles like a custom portrait of me hand-drawn by the artist, or a cameo appearance in the next book. But in any event, I was getting some specific thing(s) for my money, something which I considered worth the price I was paying for it. I (like the other backers) was getting goods and services in exchange for money, not money in exchange for money.
I’m leery of these sorts of schemes (including Go Fund Me), as there is too much room for fraud. I much prefer to donate to Kiva. The money goes to monitored tiny businesses in the third world, many of which are women-owned. I have yet to be stiffed on a repayment, and just keep reinvesting the money. You don’t make a monetary profit on these loans; the payback is that you’re improving someone’s lot in life in the hopes that they can eventually be self-supporting and collectively help raise their respective countries out of poverty.
It seems pretty clear what Kickstarter you are referring to. I think that’s the only Kickstarter I’ve participated in that has both gotten funded and delivered the promised reward (although we’re still waiting on some of the rewards). But it was totally worth it; I have little Order of the Stick magnets on my computer, battling it out right now.
There are probably a lot of people for which that was the only Kickstarter they’ve ever backed, given its record-breaking numbers. But yeah, while I’m still looking forward to the other rewards when they come (especially the O-Chul story), I feel that I’ve already gotten good value for my money: I participated because I wanted three books, I paid for three books, and I’ve gotten three books.