What you need to know before you take plunge with Kickstarter crowdfunding

It’s a phenomenon. Since its launch in 2009, some $1 billion has been pledged to projects ranging from the ridiculous, such as a cat calendar project featuring pictures of cats dressed up as magical creatures which raised more than $11,000, to the truly innovative, such as the Puzzlebox Orbit, a toy helicopter which is controlled by human brainwaves and which raised more than $70,000.

More than seven million people have pledged money to the site and of the 182,000 projects listed, nearly half have been successfully funded. And now the crowdfunding pioneer Kickstarter is in Ireland, having launched a dedicated Irish website, and competing with the likes of incumbent players such as FundIt. But if you have a Kickstarter project in mind, what do you need to know before you take the plunge?

It’s

in Ireland Irish companies and projects have been using Kickstarter for quite some time either through its UK or US platforms.

Back in 2013 for example, Galvanic used the US platform to become the first Irish company to raise over $100,000 on the site for its Pip product, a consumer friendly biosensor which measures stress.

Since September however, the process has become a lot easier and the first projects are due to launch for funding tomorrow.

According to spokeswoman Julie Wood, in the past it wasn't possible to set up a Kickstarter project using an Irish bank account. "Now it will be much easier for anyone who lives in Ireland to start a Kickstarter project," she says, noting that Ireland is now one of 10 countries where creators can be based.

Build a community

Listing a project on Kickstarter enables you to access a readymade community. But it also helps you to build your own.

When Galvanic was looking to launch the Pip for example, it opted to allow backers to pledge upwards of $1 to show their support, $79 for the product, all the way up to $5,000 to spend three days with the team and visit Johnnie Fox’s pub (the company sold six of these).

Galvanic chief executive David Ingram notes that "there's a formula that's there in most projects" and you have to pitch your pricing levels appropriately.

Pitch it right, however, and you’ll create a community who cares about your product – enough to both pay for it and also offer useful feedback.

“The profile that you can get can be just as important [as the money]. Early adopters give you a huge amount of feedback on your product,” says Ingram, noting that the company has since taken many of these suggestions on board.

Lack of success

Yes, more than 70,000 projects have been successfully funded on Kickstarter – but that means that more than 110,000 projects were unsuccessful, a failure rate of about 60 per cent.

In 2013 Dublin glove-maker Paula Rowan launched a project to raise £30,000 to fund the international expansion of her brand. She offered a myriad of ways in which people could back her, including £35 for a pair of classic leather gloves and £320 to have a glove named after you.

However, Rowan did not reach her goal, and only raised £1,751 from 21 backers. She puts her lack of success down to several factors. “It’s a combination of things; the project wasn’t exciting enough, and the social media campaign I ran around it wasn’t strong enough,” says Rowan, noting that her gloves were competing with more innovative and media friendly projects.

But she doesn’t regret her efforts.

“It made me really sit down and look at a campaign and look at the business in a different way,” says Rowan adding, “it also made me look at other innovative products and what other people are doing”.

Typically, dance projects have the highest success rate (68 per cent) followed by theatre (63 per cent); and music (54 per cent). Technology (27 per cent) fashion (27 per cent) and journalism (29 pre cent) are the poorest performers.

It’s hard work

Prepare to sign away your life for six weeks if you want to commit to Kickstarter.

“It’s not for the faint-hearted. Get ready for a six week period with very little sleep and very little work done in the company. The time cost is huge,” says Ingram, adding, “The easiest part is deciding you want to do it. You’ve got to prep for it, and during the campaign you have to down tools and work hard to get the money raised. Then, once you have the money raised, you have to deliver”. Rowan agrees.

“You need a massive amount of preparation and money behind it – which is ironic given that you’re trying to raise money,” she says, noting that she put money into getting pictures taken and a good video made to promote her project.

VC funding

Some venture capital funds are using Kickstarter as a filter to weed out profitable projects. Galvanic for example, had succeeded in getting angel investment before it went on Kickstarter, but is now in a position to get Series A funding.

“From a VC perspective, if you were successful [on Kickstarter] it shows that you were able to deliver what you said you would, and if there were any speed bumps along the way you coped with it,” says Ingram.

Stand out

As Rowan notes, Kickstarter is a competitive environment and you need to make your project stand out. Video is strongly encouraged but not required, and more than 80 per cent of projects have them. Indeed Kickstarter says that those that don’t have a much lower success rate.

If you’re making something, like a gadget, you’ll also need to be able to show a prototype of what it is, as the site prohibits photorealistic renderings.

Qualifying

projects Before you spend too much time considering how much money you could raise on the site, take a close look at Kickstarter’s rules.

Typically, projects in 15 diverse categories ranging from technology, to journalism, publishing, crafts, games and food, will be allowed post on the site. However, many exclusions apply. For example, you can’t fundraise for charity, offer financial incentives such as equity or repayment, put up a contest or raffle, offer lifetime memberships, or engage in political fundraising. The crowdfunder also prohibits specific items such as anything that claims to “cure, treat, or prevent an illness or condition whether via a device, app, book, nutritional supplement, or other means”.

Kickstarter says that about 80 per cent of applications make it to becoming a project.

It may be the case that some products are intrinsically more suited to the vehicle. Rowan for example wouldn’t discount using the platform again.

“If I had a different product I would,” she says, noting that her iPhone glove, which allows the wearer to use a touch screen phone, might be more appropriate for the market than the traditional glove she already tried.

Target failure

All-or-nothing funding is a core part of Kickstarter, which makes the venture less risky for backers.

This means that if you back someone with $50 and the project doesn’t go ahead, then you won’t lose out. For the creator however, it’s tough raising €2,500 and not being able to benefit from it as you didn’t reach your target of €5,000.

It’s not free

Kickstarter takes a 5 per cent fee from each project’s funding total – if the project is successfully funded. If it isn’t, then it won’t cost you anything.

In addition, payment processing fees of between 3 and 5 per cent also apply. So, for example, if you raise €20,000, you will have to pay Kickstarter €1,000. Pledges over €10 will incur a processing fee of 3 per cent + €0.20 per pledge, while pledges under this limit are charged 5 per cent + €0.05 per pledge.

So, this see you give up a further €600-€1,000. It takes about two weeks to get your money once the project has been successful.

Not an investment Crowdfunding is not akin to equity investing. Creators keep 100 per cent ownership and control over their work on the platform

– regardless of how much money they raise.

Look at the example of Oculus. Back in 2012 the Oculus Rift virtual reality headset raised $2.4 million on Kickstarter – a year and a half later, Facebook paid $2 billion in stocks and cash for the company.

But what did the original Kickstarter funders get? Zero. If they had swapped their $300 headset for stock in the company, they could have earned about $43,500, but this isn’t how Kickstarter works.

While the the US Jobs Act now allows people to advertise private investments to high net worth investors online in the US, Kickstarter has said that it will never allow creators offer equity on its site.

Prior

investment Depending on what your project is, you may need to secure outside investment before you start selling it on Kickstarter.

According to Ingram, if you’re manufacturing a product on a crowdfunding platform you’re unlikely to raise enough to cover costs to produce the product.

“If you think you’re going to be able to do it on a crowdfunding platform you need to think about it.

“If you’re manufacturing hardware you’d want to be raising north of €500,000,” he advises, noting that the company raised money from angel investors before embarking on Kickstarter.