Kickstarter expects to provide more arts funding than the NEA

Cafe Society
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Expect scandal. Heck there’s already been one plagiarism scandal, detailed on Kickstarter’s wikipedia page.

While there is much to like about kickstarter (and I am a supporter), applying due diligence seems hard, perhaps impossible. There’s something to be said for a formal review process, which kickstarter is not.

They could report more statistics. Their website states: Overall success rate

Kickstarter has raised $125 million dollars and has had more than 15,000 successfully funded projects since April 2009. The project success rate is 44%.[17] In the year 2010, Kickstarter had 3,910 successful projects, $27,638,318 dollars pledged, and a project success rate of 43% [18]
Ok. But how is success defined? The success rate is calculated by counting the total number of projects that finished in each year rather than the total launched, so the raw numbers look a little skewed. The 2011 launched number also includes roughly 3,000 projects that are still funding. We’ll have a more in-depth update on project success rates in the coming months. Great. What I’d like to see is the success rate of 2010 projects as of, say, March 31, 2011. While I’m at it, I think it’s time for a 3rd party review of kickstarter. More stats: http://www.kickstarter.com/blog/2011-the-stats

Let’s look at some statistics for 2011:

Launched Projects: 27,086
Successful Projects: 11,836
Dollars Pledged: $99,344,382
Rewards Selected: 1,150,461
Total Visitors: 30,590,342
Project Success Rate: 46%

Here’s 2010:

Launched Projects: 11,130
Successful Projects: 3,910
Dollars Pledged: $27,638,318
Rewards Selected: 322,526
Total Visitors: 8,294,183
Project Success Rate: 43%  Also, 84% of pledges are eventually collected. That's lower than I would have thought. (I took that from my notes: did I get this right?)

All that said, methinks the kickstarter concept has legs. For the producer, it’s a great way to build a committed audience. For the backer, following these projects as they develop is highly entertaining, at least until they go sour.

Yes. But the amount pledged can exceed the rewards. Take Order of the Stick. Total up the award categories, and Bulow raised $1,031,977. But total pledge revenue was actually $1,254,120 which works out to an additional $15 per backer. You can also think of this as an patron of the arts model. When royalty hired an artist for an official portrait, they typically paid above market rates. So there is a donation embedded inside the outlays.

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News: “Caveat Backer! Vere Sandals, Overfunded Kickstarter Project, Fails to Deliver”

Personally I am not outraged. Two guys try to start up a sandal factory in upstate New York and run into problems. (USA! USA! USA!) Some of their customers don’t like the delays. Now the US doesn’t exactly have a comparative advantage in light manufacturing, and this is probably a good case study of why that is. In China, they would tell their engineer to stop screwing around and just knock the products off when they are good enough. But in the US, you will poison your brand that way. So we face a steeper learning curve here, which can be deadly.

Cite from China

China Makes, The World Takes - The Atlantic

Did this discussion occur during the original kickstarter funding cycle? I dunno, but I doubt it. Only backers can post comments on their website after all. Then again, this isn’t necessarily an awful thing: a new manufacturer needs lots of funding sources and perhaps it is the role of the bankers and VC men and women to ask the hard questions before the big bucks are loaned or invested.

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The notion that some kickstart project will fail is hardly a horrifying one, I’m vaguely surprised at both the success rate and the successful collection rate. What really surprised me is the lack of fraud. Kickstart should be attracting fraudsters from all over the world. Announce a project, set up a shell to make it look serious, and vanish when the bucks arrive. I mean, there’s a site that lets freelance programmers hook up with indie businessmen from all over the word, it has had a lot of problem with (mostly Russian and Indian) programmers faking up expertise and past mission and then taking the money and running as soon as it arrives.

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:smack: I meant as of March 31, 2012. That would be a better metric. Though the former might permit comparisons between the 2010 and 2011 funding cycles.

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There is one more controversy that involved a project which I pledged. It was the card game Eminent Domain. The pledgers were promised copies of the game before the store and conventions (which was kind of the point for Kickstarter) but due to printing problems, the preorder batch did not come in time.

A few copies did make it to the designer and he decided to sell them at a convention. Many backers were not pleased and decide to ask for a refund. The designer then decides to attach an exclusive free gift as apology.

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I was surprised too, but I trust their growing media profile will rectify matters.

Here is Kickstarter’s FAQ: http://www.kickstarter.com/help/faq/backing%20a%20project Accountability

How do I know a project creator is who they claim they are?

Perhaps you know the project creator, or you heard about the project from a trusted source.

Maybe they have a first-person video. That would be hard to fake. "Is it really U2?!" Well, it is if Bono's talking about the project.

Still not sure? Ask the project creator a question via the "send message" button next to the creator’s name at the top of the project page.

At the end of the day, use your internet street smarts.  That could be better.  But I see that they only support US permanent residents: Am I eligible to start a Kickstarter project?

To be eligible to start a Kickstarter project, you need to satisfy the requirements of Amazon Payments:

Be a permanent US resident and at least 18 years of age with a Social Security Number (or EIN), a US bank account, US address, US state-issued ID (driver’s license), and major US credit or debit card. …

I’m not in the US. Can I start a project on Kickstarter?

You don’t have to physically be in the US, but there are some US requirements to be eligible. Please read: “Am I eligible to start a Kickstarter project?”

We’re working hard to open up to more countries. If you’ve been waiting, we really appreciate your patience.
Methinks the fraud problem could be addressed and maybe will be addressed after a few unfortunate incidents. A foundation could offer to issue standardized private investigator reports on project creators. I see no reason why their credit report couldn’t be characterized (very roughly), with their permission of course. Intrusive? You’re asking hundreds or thousands of strangers to send you money: putting yourself through a few standard banking loan hoops seems reasonable. Now all crooks have their very first encounter with wrongdoing and dedicated scammers can find front men. So there are no silver bullets. But I think a few more precautions could help.

Then again, careful study of Kickstarter experiences in, say, 2015 might reveal better methods of backer protection.

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Ok, some think that the Tech-Sync Power proposal may have been a scam. They offered a $20 wall outlet that could be controlled from Wi-Fi. For $500 you could have 25 of them installed by a team. Some backers wondered whether the offer was too good to be true, in a bad way. Backers asked for pictures of the device, which were not forthcoming because patents were pending. Except that according to Betabeat there were no records of such pending patents.

Luckily, the creator shut down the account 5 days before 419* backers were due to lose over $27,000 pledged. Kickstarter has 8 employees evaluating thousands of proposals a month – again, I think third parties will eventually need to become involved in the process.

http://geekscape.posterous.com/kickstarter-caveat-emptor

In the meantime, caveat backer.

  • Yes, there were indeed 419 backers.
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D’oh!

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But then again - IndieGoGo

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I’m trying to fund recording+mixing of a quadrophonic album on Kickstarter. I don’t have any other options for doing this in a true professional studio in the near future. I will update if there are any interesting developments. This project is somewhat of a longshot.

[QUOTE=ultrafilter]
Does crowdsourced funding represent the future of the arts? If so, is that good or bad?
[/QUOTE]

Certainly a growing portion of future of the arts. I say it’s a good thing overall both for artists and consumers/fans/investors. Creative people have more options for funding and buyers have a wider variety of music/films/art to choose from and directly support.

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IndieGoGo has looser rules. You can explicitly fund raise there, while Kickstarter is for specific projects. Kickstarter is limited to projects by US residents, though they are considering expanding to other countries. And money is only delivered to the fundraiser on the project closing date. At IndieGoGo, they work with Paypal which delivers the funds as they are pledged. If the project goals aren’t met Paypal refunds the money-- assuming they can.

So Kickstarter is somewhat less scammer-friendly, though methinks they have a ways to go.

I was hoping that somebody more articulate than myself would jump in and explain why Kickstarter isn’t that bad. There should be some sort of checklist procedure for responsible backers. Crowdsourcing certainly has potential, especially to the extent that it supports worthwhile projects that otherwise would never be funded.

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Kickstarter and Amazon Payments verify bank account, Drivers license / ID, credit card, SS #, phone, and billing address of artists and entrpreneurs seeking funds. It’s not totally scam-proof with identity thieves and desperate meth heads out there, but it would be difficult on an epic level to dodge legal trouble after taking the $$$ and running. Artists are expected to update their investors if any delays arise.

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I have to respectfully disagree. The country and the world is full of fraudsters. Look at the Tech-Sync Power story, and imagine what an enhanced scammer might do. Criminal courts would be mostly unable to distinguish between “A project that didn’t work out”, and a scam beyond a reasonable doubt. And I can’t see any civil recourse, since the law is geared around investments, not donations. There’s no case law around crowdsourcing, so to some extent we’re operating in the wild west.

It will take a while to work all of this out, and there will be ripoffs along the way. This is something that is worth the attention of academics, non-profit foundations, concerned citizenry and the authorities. Crowdsourcing has great potential, but long term viability will require proper and additional safeguards.
That said, anybody trying to scam via kickstarter risks taking terrible hits to their reputation, especially in these early days. There are those who are beyond caring about such matters. But most do. And if the pitchman has a pre-existing reputation, it may be frankly rational for them to do the hard work and follow their dreams rather than running off to Tahiti. Burlew won’t just pocket his cool $1 million+, but I expect that his success may inspire some with less than honest intention.

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[QUOTE=Measure for Measure
]
I have to respectfully disagree. The country and the world is full of fraudsters. Look at the Tech-Sync Power story, and imagine what an enhanced scammer might do. Criminal courts would be mostly unable to distinguish between “A project that didn’t work out”, and a scam beyond a reasonable doubt.
[/QUOTE]

Admittedly, I could have used better phrasing.

There are no ways to completely fail proof crowd funding; the backers’ faith in a project will always be part of the magic and also part of the risk. I don’t wish to downplay that.

You quip that…from a legal perspective with legalese language…all Kickstarter backers are donors and not investors or customers? Personally, I don’t know, IANA lawyer. Certainly the low money backers on some projects are donors (e.g. $1 of support gets the backer a ‘thanks’ and virtual hug…rather than $15 gets the backer a CD or DVD or other physical product). There is existing case law related to fraud and consumer protection.

I’d be hesitant to financially back any business startups and inventions through a crowd-funding site beyond a few dollars.

Backers of artistic endeavors are at risk to get screwed due to an artist delivering a low quality finished piece, i.e. poor quality film, music album, book, et cetera. It’s impossible to enforce artistic quality or product quality, so that seems to be the risk focus in most cases. Blatant fraud could happen too, but that doesn’t appear to be happening outside a few isolated cases. The artist/inventor could get sick or hit by a bus, too. No backer is immune. Caveat backer indeed. Acts of god. Force majeure. Sh** happens.

I recall that the KS user agreement includes threats of legal action for those don’t deliver to backers as promised with some flexibility on deadlines as long as updates are provided to backers or refunds are given.

It seems that the potential for one or more of the following would be ample deterrents for most people not to take the money and deliver nothing at all: a frozen bank account, frozen Amazon account, tanked credit rating, ruined reputation (the feedback comments sections of each project lingers indefinitely), and possible arrest warrant. Serial spam scammers can repeatedly send emails and ask for money orders to be sent to Nigeria, then start new email accounts, repeat process. It would be difficult to keep starting new accounts that require verified bank account, drivers license, phone, credit card, billing address, SS#, etc.

The Tech-Sync Power situation certainly smelled of fraud, but the funding was cancelled by Kickstarter if I understood the article correctly. That result suggested some level of effective fraud prevention by Kickstarter exists.

The viability and reliability of Kickstarter will be easier to gauge a couple years into the future.

[QUOTE=Measure for Measure]

Burlew won’t just pocket his cool $1 million+, but I expect that his success may inspire some with less than honest intention.
[/QUOTE]

^^Valid point. So far, KS doesn’t seem to suffer widespread fraud as far as I can discern. I won’t yet shy away from throwing a few bucks at KS film and music projects. The final product (DVD, CD, digital download) is not too abstract or out of reach, and the price to fund each project is low enough to mitigate risk.

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I am not afraid of the fraud angle myself, I hafve done some crowdsourcing funding, with an artist who has a track record, not through kickstarter. The track record is the thing. Some indication that you CAN do what you propose to do. Though I’d fund a beginner too under the right circumstances.

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I’m having difficulty grappling with this issue. Let me try to present the other side. An interesting thread at Slashdot notes that kickstarter is one of many crowdsourcing vehicles. Some were deluged by scammers: Kickstarter hasn’t suffered that fate due to careful rulesetting. Of course a few may have squeeked through.

But c’mon MfM. Let’s work through an example. These guys run 1/24 scale fighting robot contests. Their arena is made of PVC and canvas. They want to build one out of aluminmum: it would be safer for the spectators. They hope to raise $6000. They have a website. They have a forum. Now I guess this could be identity theft, but that sounds perposterous: the vics would have noticed. Remember at Kickstarter you only receive the funds on the closing date (not so at other crowdsourcing websites). The leaders could in theory run off to Tahiti with, um, $6000. Rrrrr-ight. Then again, simply pocketing the funds and making excuses can seldom be ruled out.

Poor planning might lead to an inevitable and possibly bitter project collapse. Methinks that while malice is a something to be aware of, insufficient competence is probably the greater threat. The latter isn’t straightforward to evaluate either. But there are track records that can be analyzed: Mech Warfare has already organized about 4 fighting robot competitions in fairly built-up arenas. There are no guarentees, but backers can weigh risks.

In other cases the creators have received mainstream media attention. Then again so has the Moller Skycar.

Googling, I see a few artists have complained about Kickstarter’s stringency. I have little sympathy. Indeed, “Kickstarter reserves the right to cancel a project listing and refund all associated members’ payments at any time for any reason. Kickstarter reserves the right to remove a project listing from public listings for any reason.” There are plenty of crowdsourcing sites without filters. Others have moaned that Kickstarter won’t always promote your project. How true: that’s your job.

Reuter’s financial blogger Felix Salmon, discusses kickstarter. Apparently recent legislation in Congress will permit Kickstarter to offer equity as a reward. Hoo-boy: that’s taking things to a more dangerous level. Though I’ve criticized Kickstarter in this thread, I happen to be backing more than one of their projects. But I would balk for years before investing funds, absent much tougher protections.

WANTED/NEEDED: Backers with experience evaluating small business plans. Exposure to failed projects a plus. Also, engineers with a nose for identifying physical or economically implausible proposals.

Here I offer a few tips for backers. Some of the advice will be bad and some good advice will be absent. I disavow expertise and even meaningful experience.
[ol]
[li] Don’t conceive of it as an advance purchase. You may not receive anything at all: not all projects succeed. I would start off with the donation/patron model in mind. [/li]
[li] Keep a diary. Take notes on your expectations and fears for every project you back. That way, you can compare your expectations to what happens. If you don’t do that, you risk unconsciously revising your memory to make yourself feel better. Actually you will probably do that regardless, but the diary can be a useful anchor. Expect project failure and build such probabilities into your bids. Compare and re-evaluate your experiences in another year. [/li]
[li] Ask yourself: is the creator a company, institution or individual with a public reputation, perhaps to lose? What’s the potential for absconding with the funds? What’s the potential of project collapse? Is the creator who he says he is? [/li]
[li] Use google: check out the backers. Do they at least have an entry at LinkedIn? Sketch out worst case scenarios in your diary. [/li]
[li] Fees. Kickstarter charges 5%. Amazon tacks on about 3-5%. Total fees are 11% at $10, 9% at $30, 8.5% at $50, and approaching 8% at $100 and above. I round. [/li]
[li] Start lower than your maximum: you can always increase your bid if funding is less than, say, 120%. [/li]
[li] Try to avoid acting on impulse. Before you make your first bid, think about how much you might want to increase it later, should the project be at 90% with 3 days to go. Plan. [/li]
[li] Beware of over-funded projects. You might support them anyway, but give the matter some serious thought. [/li]
[li] If you see a project that you suspect is a scam… don’t libel anybody. But consider chipping in a dollar so that you can post your concerns or maybe share them with management. Try not to be a loudmouthed moron though. [/li]
[li] Think critically. But obey the rules: “Be courteous and respectful. Don’t harass or abuse other members. … If you don’t like a project, don’t back it. No need to be a jerk.” [/li]
[li] Consider your participation to be experimental. [/li]
[li] Revise and second guess your perceptions. [/li][/ol]

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Kickstarter needs to open up to non-US residents!

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Here’s something interesting: a professor at U Mary Washington is using Kickstarter to put his course online.

I saw this in a story from the Chronicle of Higher Education that talks about a few other educational endeavors that have been funded through Kickstarter. This is a pretty interesting idea.

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Kickstarter did provide more arts funding than the NEA during 2012, but there’s a case to be made that the NEA is not trying to do what Kickstarter does.

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I am sure that using Kickstarter as an excuse to defund the NEA is going to show up on the Stupid Republican Idea of the Day thread any time now, if it hasn’t already.