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But Kickstarters aren't startups. This is specifically an avenue for lower-capital, lower-risk businesses to get the money they need to deliver products. If yo

But Kickstarters aren't startups. This is specifically an avenue for lower-capital, lower-risk businesses to get the money they need to deliver products. If you're an angel or VC, the low success rate is countered by the large upside - a Kickstarter has no upside besides the cool t-shirt/game/gadget you were promised. The risk needs to be commensurate with that.

Xylakant 14y ago
Kickstarter does have an upside: The option of actually receiving a project that was deemed commercially unviable by a VC or other investor/company. Something that no one wanted to produce since "there is no market for it". So by becoming a backer you might end up with a product that otherwise would not be available. Granted, it's a small upside, but the risk is also lower.
- graysnorf 14y ago
  An additional upside for some projects: you may actively dislike many distributors/publishers for some industry and want to support indie production.
jiggy2011 14y ago
So basically, a lemon market. When I see for example a kickstarter game that has a $20 price tag for a pre-order "donation" that seems like reasonable value. If however the delivery rate is only 1/10 then that game actually costs me $200 (since I probably need to fund 10 games in order to get one I can play). Therefor if I only want to pay $20 for a game, I shouldn't pay more than $2 for a pre-order. The result of this is that genuine projects who stand a good chance of delivering have to grossly undercharge for pre-orders which starves them of the level of funding that they actually need.
- lambda 14y ago
  When funding something, you should consider its likelihood of succeeding and its value to you. If its value is around the price you're funding it at or slightly higher, then you should only fund things which have a high chance of success; from a proven team, that has shipped plenty of products before. For instance, a band that you like that's released several albums and is raising money for a new one, a studio that is developing a new game based on an existing engine, and so on. If it's a riskier campaign, like development of a new hardware product from a new company that has never shipped anything before, or an artist's first album, or some amazing new game with an amazing new engine that has all kinds of really neat features, with a game designer you like but a rookie team, then you should only fund it if it has significantly more value to you than what you are funding. Maybe you just think it's such a good idea, that even trying and failing and learning from that is worth the money you spend. Or maybe you think that it is a game worth $200; it's such a perfect game for you, that you would be willing to shell out $200 for it, or the equivalent, fund 10 such games for $20 and get one working game out of it. Or maybe you're just a big fan of the person you are funding, and don't mind giving them $20 even if you think they might not complete the project. So yes, you should be aware of the risks when funding something; that's why it's funding, and not buying a completed product. You should decide if what you're going to get is worth the risk. Far too many people seem to see Kickstarter as a pre-order system, where the product is basically ready but they want funding to determine how large to make the first batch and fund just the final manufacture. Maybe people think that because it does act that way for some products; but you really should not expect it to work that way for all products. If Kickstarter limited themselves to the pre-order model, that would vastly limit the kinds of things it would be good for. You seem to want only pre-orders, not to fund development, so maybe that would work for you. But some people want to be able to fund riskier, more wild ideas, and accept that risk. I think that they should be able to; the only trick is that there seems to be a good deal of confusion on the part of funders as to which projects are which type; people don't seem to be very good at judging the risks involved when funding a project.
  - jiggy2011 14y ago
    The reason I use the lemon market analogy is that it is not always clear to the buyer what the level of risk is. Sure there are certain signals which indicate lower risk but I don't think there is yet enough data on completed projects to confirm this absolutely. Some buyers are also savvier than others, for example is it riskier to fund an indie platformer or an arduino replacement? A HN reader might be able to guess but the general consumer might well have no idea. There are also other factors, like might this fail because there isn't enough funding? or might this fail because it is just an outright scam? So basically what we have is information asymmetry which will lead a lot of people to assume some mean level of risk in funding a project so the required value payoff will be higher than something bought off the shelf, what the "value coffecient" will be will take time to discover though. The point is valid though that for example a game which I would love but would never be funded by a game studio might be worth $200 for me.
    - lambda 14y ago
      "...buyers..." "...consumer..." This is the problem. If people are thinking of themselves as consumers, rather than investors, then yes, you have a problem. This is why Kickstarter changed their rules on physical products, to not allow people to buy multiple quantities of something, in order to discourage people from treating it like a pre-order system. Yeah, there's a certain amount of information asymmetry. I'm not sure you can ever do away with that, without killing the idea of crowdfunding entirely. If you require legal filings and financial disclosures and the like, all of a sudden you can't do it for small projects, you need to hire lawyers and accountants and things like that. The best way to solve this is to convince people only to crowdfund people that they really trust. Don't look at an idea and say "hey, that's cool, I'll buy one of those." Look at the creator and say "this person can deliver, I'll give them some money to do so."
- josegonzalez 14y ago
  This makes sense if and only if those 10 games were produced by the same kickstarter creators.
  - jiggy2011 14y ago
    Not really, if I don't know what the exact risk level is I am going to assume some average level of risk across all projects. It's the same as buying a second hand car. I have no idea how well the last owner really looked after it so I either have to do a lot of due diligence (difficult with a kickstarter) or I have to guess how likely it is to have mechanical problems down the line.

Xylakant 14y ago

Kickstarter does have an upside: The option of actually receiving a project that was deemed commercially unviable by a VC or other investor/company. Something that no one wanted to produce since "there is no market for it". So by becoming a backer you might end up with a product that otherwise would not be available. Granted, it's a small upside, but the risk is also lower.

graysnorf 14y ago
An additional upside for some projects: you may actively dislike many distributors/publishers for some industry and want to support indie production.

jiggy2011 14y ago

So basically, a lemon market. When I see for example a kickstarter game that has a $20 price tag for a pre-order "donation" that seems like reasonable value. If however the delivery rate is only 1/10 then that game actually costs me $200 (since I probably need to fund 10 games in order to get one I can play). Therefor if I only want to pay $20 for a game, I shouldn't pay more than $2 for a pre-order. The result of this is that genuine projects who stand a good chance of delivering have to grossly undercharge for pre-orders which starves them of the level of funding that they actually need.

lambda 14y ago
When funding something, you should consider its likelihood of succeeding and its value to you. If its value is around the price you're funding it at or slightly higher, then you should only fund things which have a high chance of success; from a proven team, that has shipped plenty of products before. For instance, a band that you like that's released several albums and is raising money for a new one, a studio that is developing a new game based on an existing engine, and so on. If it's a riskier campaign, like development of a new hardware product from a new company that has never shipped anything before, or an artist's first album, or some amazing new game with an amazing new engine that has all kinds of really neat features, with a game designer you like but a rookie team, then you should only fund it if it has significantly more value to you than what you are funding. Maybe you just think it's such a good idea, that even trying and failing and learning from that is worth the money you spend. Or maybe you think that it is a game worth $200; it's such a perfect game for you, that you would be willing to shell out $200 for it, or the equivalent, fund 10 such games for $20 and get one working game out of it. Or maybe you're just a big fan of the person you are funding, and don't mind giving them $20 even if you think they might not complete the project. So yes, you should be aware of the risks when funding something; that's why it's funding, and not buying a completed product. You should decide if what you're going to get is worth the risk. Far too many people seem to see Kickstarter as a pre-order system, where the product is basically ready but they want funding to determine how large to make the first batch and fund just the final manufacture. Maybe people think that because it does act that way for some products; but you really should not expect it to work that way for all products. If Kickstarter limited themselves to the pre-order model, that would vastly limit the kinds of things it would be good for. You seem to want only pre-orders, not to fund development, so maybe that would work for you. But some people want to be able to fund riskier, more wild ideas, and accept that risk. I think that they should be able to; the only trick is that there seems to be a good deal of confusion on the part of funders as to which projects are which type; people don't seem to be very good at judging the risks involved when funding a project.
- jiggy2011 14y ago
  The reason I use the lemon market analogy is that it is not always clear to the buyer what the level of risk is. Sure there are certain signals which indicate lower risk but I don't think there is yet enough data on completed projects to confirm this absolutely. Some buyers are also savvier than others, for example is it riskier to fund an indie platformer or an arduino replacement? A HN reader might be able to guess but the general consumer might well have no idea. There are also other factors, like might this fail because there isn't enough funding? or might this fail because it is just an outright scam? So basically what we have is information asymmetry which will lead a lot of people to assume some mean level of risk in funding a project so the required value payoff will be higher than something bought off the shelf, what the "value coffecient" will be will take time to discover though. The point is valid though that for example a game which I would love but would never be funded by a game studio might be worth $200 for me.
  - lambda 14y ago
    "...buyers..." "...consumer..." This is the problem. If people are thinking of themselves as consumers, rather than investors, then yes, you have a problem. This is why Kickstarter changed their rules on physical products, to not allow people to buy multiple quantities of something, in order to discourage people from treating it like a pre-order system. Yeah, there's a certain amount of information asymmetry. I'm not sure you can ever do away with that, without killing the idea of crowdfunding entirely. If you require legal filings and financial disclosures and the like, all of a sudden you can't do it for small projects, you need to hire lawyers and accountants and things like that. The best way to solve this is to convince people only to crowdfund people that they really trust. Don't look at an idea and say "hey, that's cool, I'll buy one of those." Look at the creator and say "this person can deliver, I'll give them some money to do so."
josegonzalez 14y ago
This makes sense if and only if those 10 games were produced by the same kickstarter creators.
- jiggy2011 14y ago
  Not really, if I don't know what the exact risk level is I am going to assume some average level of risk across all projects. It's the same as buying a second hand car. I have no idea how well the last owner really looked after it so I either have to do a lot of due diligence (difficult with a kickstarter) or I have to guess how likely it is to have mechanical problems down the line.