Crowdfunding – What Can We Learn from Kickstarter Stats?
July 22, 2012 | By Kevin Vela
Mashable released a fascinating set of infographics regarding Kickstarter from a recent Appsblogger.com story (I’m not clear on who created the infographics, so I’ll credit them both – they are beautiful), so I wanted to discuss a few key stats.
Before we get going, remember that Kickstarter is a Crowdfunding platform whereby the startups requesting money give rewards to their investors (instead of equity, which I generally prefer for my investor clients; though for my startup clients, I prefer to give away rewards). Though Crowdfunding for actual equity will change the game significantly, sites like Kickstarter and IndiGoGo can provide a glimpse into how SEC regulated Crowdfunding may work.
So, back to the Mashable/Appsblogger story. There are a lot of interesting data points, but the one that jumped out at me was that only 25% of funded tech and design Kickstarter projects actually deliver on time. And 8 months after the initial delay, still only 75% of the funded products have delivered. This is going to create an interesting dynamic between investors and startups. I’m guessing that in the reward based model we don’t get a bunch of irate investors. But we’ve seen what happens when public companies don’t deliver in time…while private companies may not suffer the media scrutiny, I think there will be a lot of unpleasant phone calls and emails to answer from investors if we see this level of delay.
Another number that jumped out at me is that 44% of projects get funded. On Kickstarter, if you don’t get fully funded, you don’t get a dime. 44% doesn’t seem high or low to me, perhaps this is setting the bar. But it jumped at me because of the questions it raised – what will happen to Crowdfunding funds for projects that don’t get funded? I’m certain they will be returned to the investor, but how quickly? Will there be a service fee? Can the investor leave the funds in trust with the Crowdfunding platform? If so, will they earn interest? Will the Crowdfunding platform carry insurance? What about fidelity insurance?
There will be dozens if not hundreds of Crowdfunding platforms (Launcht, for one, offers white label platforms). Are they going to make all of their money on funded projects? Or will they take a cut from investors who had the misfortune of selecting an unfundable project? How long will projects be allowed to be in “fundraising mode?” If I’m an investor, and the project is taking too long, can I back out? Will there be a charge?
So basically, we’ve learned that there are a whole lot of questions to be answered, probably even more than we thought before. Obviously, we’re all waiting on the SEC to come out with their regulations which will hopefully set guidelines that will answer most of these, but I think it’s helpful to discuss in the interim.
I’m working on my own framework for handling the legal issues associated with crowdfunding, and plan to share my ideas in a future post in the next month or two.
Posted in Crowdfunding, Funding & Capital Raising
Kevin Vela is the managing partner at Vela Wood. He focuses his practice in the areas of venture financing, mergers & acquisitions, corporate law, capital raises, and real estate investment activities. You can see Kevin’s attorney profile HERE.