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The problem seems to be that no one has figured out the "right" balance of power for these projects. With VC, they're a small, tight-knit group and can ruin yo

The problem seems to be that no one has figured out the "right" balance of power for these projects. With VC, they're a small, tight-knit group and can ruin your reputation if you waste their money or fail in bad faith (or if you fail in good faith and they're upset about it). However, this capability is abused all over the place. One of the reasons why extortions like multiple liquidation preferences and participating preferred exist is that the VC can pick up a phone and turn off other interest in firms that should be competitors. On the other hand, with Kickstarter, average donors on the scale of $100 don't have the "teeth" or incentive to fairly punish those who fail them in bad faith, and in the absence of such punishments, you either get a scammer problem (bad-faith failure is unpunished and recurs) or an overreactive "lynch mob" behavior (good-faith failure is punished). What's right for a growing business and artistic projects is between those two points, I would think. That said, if anywhere close to half of all Kickstarter projects succeed eventually, then it's doing way better than corporate software. I'd bet that what is completed is of high quality, as well. Also, the reason I really want to see Kickstarter succeed has less to do with the funding model and more with the making of cool stuff. Kickstarter means more people can work on useful, meaningful projects rather than serving The Man, and that's a great thing there should be more of.

jaaron 14y ago
This is why I prefer bridge loans for seed phase startup funding (project funding, like kickstarter is completely different). With convertible notes, the early owners retain control and there's less risk for the investor. If everything goes well, the early investors get in on a "proven" success. If things go sour, there's still some chance of debt being repaid in a bankruptcy. Also, there's less pressure all around, as early investors can opt to just have their debt paid off, so they aren't anxiously waiting for the next round of funding or a liquidity event.
- michaelochurch 14y ago
  I really dislike the idea of entrepreneurs taking personal debt, if that's what you're suggesting. I think that's horrid. And when a software company goes bankrupt, how much is there to pay investors back with? Here's an idea, more oriented toward software but applicable to hardware as well. Every project has a hard deadline that is some multiplier (maybe 5-20x) on the expected time-to-completion (i.e. the soft deadline). That's mainly intended for work that is abandoned, not regular shit-happens lateness. If you're within the deadline, you own the IP outright. If you miss it, or abandon the project, the code is open source and the work is in the public domain, so anyone who wants to pick it up can.

jaaron 14y ago

This is why I prefer bridge loans for seed phase startup funding (project funding, like kickstarter is completely different). With convertible notes, the early owners retain control and there's less risk for the investor. If everything goes well, the early investors get in on a "proven" success. If things go sour, there's still some chance of debt being repaid in a bankruptcy. Also, there's less pressure all around, as early investors can opt to just have their debt paid off, so they aren't anxiously waiting for the next round of funding or a liquidity event.

michaelochurch 14y ago
I really dislike the idea of entrepreneurs taking personal debt, if that's what you're suggesting. I think that's horrid. And when a software company goes bankrupt, how much is there to pay investors back with? Here's an idea, more oriented toward software but applicable to hardware as well. Every project has a hard deadline that is some multiplier (maybe 5-20x) on the expected time-to-completion (i.e. the soft deadline). That's mainly intended for work that is abandoned, not regular shit-happens lateness. If you're within the deadline, you own the IP outright. If you miss it, or abandon the project, the code is open source and the work is in the public domain, so anyone who wants to pick it up can.