Despite its popularity, I hate Kickstarter

Crowdfunding resource site Kickstarter is the ultimate in financial freedom for many who couldn't fund their projects any other way. But I hate it. It has one significant flaw that I can't get past: all or nothing funding.
Written by Ken Hess, Contributor

Kickstarter is kind of a cool idea. It's a place where people can pimp their pet projects and have people like you and me fund them. It's great for those who could never realize their dreams any other way. Banks won't loan them money. They don't have enough spare assets to leverage for the project. They don't have rich relatives to call on. Kickstarter is the perfect opportunity to launch a product or creative project that you feel strongly about. But, for all the positive things it does, the all or nothing funding concept is total garbage and that's why I hate it.

I love startup companies. I love the pioneering entrepreneural spirit. And I love creativity, anything that's disruptive, or a bit off the wall. I like the idea of crowdfunding, though I really hate that term, it's a great way to fund a project that the world might never know otherwise. May the force be with you when you go for it.

If your project is clever, creative, useful, or interesting, I'll help you pimp it by giving you some ink and my impressions of it either here or on my Frugal Networker blog. Either way, you'll have some help in getting started.

I've helped fund projects on Kickstarter. I enjoy helping other people realize their dreams. And maybe, just maybe, by helping them, I'll reap some sort of satisfaction from it as well. At least I feel good for helping and that's really all the reward I need.

Kickstarter has launched some great products, films, art projects, books, restoration projects, studies, and thousands of interesting and useful projects. I don't hate that part. I like that.

But I've seen some really good projects go unfunded because of Kickstarter's all or nothing funding scheme. 

Here's how it works, in case you don't know.

Let's say that you want to acquire funding for a film project and you need a total of $50,000 to make that happen. You need money to pay for equipment, rentals, location leases, clothes, props, lighting, sound, actor pay, festival entry fees, travel, and distribution. It doesn't take long to see how you could burn through $50,000.

I chose $50,000 arbitrarily. Film projects aren't cheap. So, $50,000 is a low budget film.

The point isn't to debate the amount here; it's to point out the great Kickstarter flaw.

OK, you've signed up with Kickstarter. You've submitted your information. You've setup your funder rewards, which are thank you gifts to the people who fund your project. These rewards can range from a Thank You postcard to a Director's Cut DVD of the film, to a trip to the set to meet the cast and crew. Rewards can be just about anything. What you get as a reward depends on how much you donate to the project.

I have always turned down the rewards because I don't want the Kickstarter person to have to mess with them. That, plus it takes money away from the project. So, I really think rewards are kind of bad too. I think that if someone wants to fund a project that he or she should do it because they want to and expect nothing in return except gratitude. Maybe I'm wrong but that's how I feel.

You've now applied and poured your heart into the presentation, rewards, and description of the project. You've created a budget that you think will work for you and you've clicked the Submit button.

Now you wait.

You wait for the Kickstarter vetting process.

The Kickstarter people, whoever they are, look at your project, your rewards, your descriptions, and then they respond with "Your project is approved" or "Your project needs work". Possibly you could get turned down if you don't meet the criteria or follow the rules.

We're going to assume that our film project gets approved with no hitches or glitches.

You post your project link on Twitter, Facebook, LinkedIn, Google+, and every other social network and site that you can think of. Heck, you might even post it on MySpace, just in case anyone still types that into their browsers.

You've tried to get some media coverage for your project with some success. The clock ticks away on your project deadline (usually 30 or 60 days).

You wait some more.

You wait until there's only a few days left on your project and it's 80 percent funded. Woo hoo! You're almost there!

You're excited and scared.

You're excited because your dream is within reach. You're scared because you might never reach it.

So, now you've arrived at the final day of your project and you have $48,700 pledged.

Only $1,300 to go. You make a final push and plea for funding.

The curtain falls on your project at a final total of $49,721.

You're 99.44 percent funded. You're within $300 of your final goal.

You get NOTHING.

That's right. Nothing. Nada. Zip. Goose Egg.

Sorry, Charlie, it's been nice workin' with ya. Have a nice day.

Isn't that great?

No, actually it isn't great. In the dictionary, next to the term "Sucks" is the description of Kickstarter's all or nothing funding scheme.

Does it mean that the project isn't worthy of funding? No.

Does it mean that those who pledged are just out of the money? No, if the project doesn't fully fund, you don't get charged for the pledge. And you don't get your rewards. 

Hey, I hope the Kickstarter project person didn't go and buy reward stuff thinking that his or her project was going to fund.

So, now you know why I hate Kickstarter.

There is a better alternative. It's called Indiegogo.

Indiegogo allows a wider range of fundable projects and it also allows partial funding. In other words, if you take my film project scenario above, the project starter would have received $49,721, less fees.

Now, here's the rub. Indiegogo charges 4 percent for funded projects, compared to Kickstarter's 5 percent. Indiegogo also passes along Paypal and credit card charges to you (Flexible funding option). Kickstarter is funded through Amazon payments, so it's only 5 percent. But signing up to use Amazon payments is a pain for the project starter.

Indiegogo charges a whopping 9 percent fee for non-funded projects plus Paypal fees and credit card transaction fees. I guess there's some incentive to beg people to fund your projects.

So, even with higher fees, why do I support Indiegogo as a project backing scheme?

Let's look at a comparison of what you get with each platform.

You raised $49,721.

The maximum fees you'll pay with Indiegogo, even if everyone pays you with Paypal or credit cards is: $5,966.52 (9 percent underfunded fee, plus 3 percent for Paypal and credit card fees).

Your net from Indiegogo is: $43,754.48.

Your net from Kickstarter is: $0.00

Now, let's say that you fund at exactly $50,000, which gives you your money on either platform.

Indiegogo: $50,000 - $3,500 = $46,500.00 

$3,500 is Indiegogo's 4 percent plus a maximum of 3 percent if everyone funds you through Paypal. 

Kickstarter: $50,000 - $2,500 = $47,500.00

[Update: I've been corrected. Kickstarter charges 5 percent, if your campaign is successfully funded but also charges from 3 to 5 percent for Amazon transactions. So, thanks for the tip on the extra fees from Kickstarter.]

Now, to be fair, you'll pay more money if you choose flexible funding with Indiegogo but it also gives you more funding options and partial funding. That means that if you'll accept credit card transactions, then you'll also have to pay 3 percent for each credit card transaction. Fixed funding works just like Kickstarter. If you don't meet your funding goal, you get nothing but at least you have a choice with Indiegogo.

Indiegogo offers flexible funding (partial funding, credit cards, Paypal) or fixed funding (All or nothing, Paypal).

I guess the bottom line here is that I'd rather have 80 percent of something than 100 percent of nothing. So, for me, if I ever attempt to fund my film projects, book projects, or server lab, I'll use Indiegogo. Sorry, Kickstarter, the world may love you but Ken Hess does not.

What do you think of Kickstarter and Indiegogo? Do you have success stories or failure stories? Talk back and let me know. If you have a really interesting story to tell, contact me via email.

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