Kickstarter has gone from a small crowdfunding platform to one of the juggernauts of the field since its creation in 2009. It’s accepted over $2.35 billion in project support from over 10 million backers on almost 300,000 projects.
But is backing a Kickstarter project a good idea from a financial point of view?
Deciding whether or not to back a Kickstarter project might not seem like a big deal, but when every dollar counts, it’s important to make sure that every purchase you make is a good one. So here are three things to keep in mind next time you think about helping fund a project.
1. The Developers Behind the Product
One of the most important factors to consider when you’re thinking about backing a Kickstarter is who the developer is. Some companies have done a great job with multiple campaigns, and they’ve developed a reputation for coming through on their projects.
If you don’t know the developer, you might want to do some research. I asked Bruce Alcorn, a backer of over 110 Kickstarter projects, how he makes decisions on which projects to back.
When he considers backing a game, he checks out the other projects the developer has had on Kickstarter, reviews of their other games on Steam, relevant sub-reddits, reviews from reviewers that he trusts, and even the professional quality of their posted bio on Kickstarter and their website to see if their games are likely to be worth the investment.
He’s especially interested in seeing how often the developers communicated with their backers and if the products and rewards were very close to what was promised. If the company hasn’t had great runs in the past, he’s not very likely to pull the trigger.
Then again, if you’re thinking about funding something just to help it along because it’s a cool idea — like a photography project or a podcast — you might not need to do this level of research.
Committing $1, $5, or $10 isn’t as big a deal as a $50 or $80 game or another big product, and if you’re less invested in whether the project succeeds, it’s not likely to warrant much investigation.
2. The Product’s Feasibility
Kickstarter is great for kicking off grand ideas, but sometimes the idea is a bit too grand. And even if it isn’t, it can be a lot more complex to get a finished product out to backers than the developers originally imagine.
That’s the story Jon Fawcett, creator of Une Bobine, told Fast Company. He paid over $25,000 in shipping costs, had to have a custom database designed, worked with a number of third-party companies, and delivered late. It just wasn’t easy to get all of that done.
Of course, not every project is going to have this difficulty, but remember that the bigger and more complex a project is, the more difficult it’s going to be to actually pull off. A lot of developers don’t have a handle on what’s necessary to get their product off the ground.
Kickstarter projects do fail, and when they do, you’re unlikely to get your money back. Some developers might send out refunds, but often by the time they realize their project vision was too big, your money has long been spent.
It’s a common refrain that Kickstarter isn’t a store, and it’s good to remember that. It’s an investing platform — and investments do go bad from time to time.
An undated study posted by Kickstarter states that “backers [of successfully funded projects] should expect a failure rate of around 1-in-10 projects, and to receive a refund 13% of the time.” A 10% failure rate isn’t bad, but it’s something to be aware of.
Alcorn has an interesting risk/reward hierarchy for the things that he tends to back.
Tech campaigns, he says, are high risk/medium reward, as there’s a good chance they’ll go through problems or fail outright. Books and comics are low risk/medium reward, as backers can almost certainly count on at least getting a digital copy, even if the physical one takes a long time.
Video games are medium risk/medium reward, as they very regularly go over their projected deadlines, but you can can help an independent studio get a cool game released. Board games have a lower risk/high reward, as the board game community is getting good at Kickstarting projects, and some fantastic games have come about because of it.
Of course, the risk and reward levels of any given product depend on your interests and how much confidence you have in the developers to successfully complete the project, but this breakdown can give you a good idea of how you might think about it.
And it’s good to remember that no matter how likely you think a project is to succeed, it might not get enough funding to get off the ground. There’s always an element of chance.
3. What You Get for Your Money
Many times, the good feeling you get for helping someone out on their project is enough reward for backing a campaign. But sometimes you’ll want to think about what you’re getting.
For example, a lot of board game Kickstarters come with exclusive add-ons, like extra characters or tokens. A Kickstarted video game might include a copy of the soundtrack or an exclusive costume or weapon.
These sorts of things are meant to draw you in with an air of exclusivity. And it works — they offer you something extra in exchange for your money before release day. This is why a lot of video game preorders work, too, and we all know that preordering video games is a terrible idea.
Many companies are starting to use Kickstarter as their own “pre-order store”, says Alcorn, and that makes it easy for people to get into the mindset that they’re buying something ahead of time, instead of investing in it, and that can lead to a difference in how they make their purchases.
He also points out that there are a lot of products that will either be upgraded or sold at a lower price within a year or two of their initial release date.
For example, tech products are often improved upon quickly, and you can regularly find video games on sale in bundles a few months after their release date. If you feel strongly about the product and want to help it make it to completion, you’ll be getting more than just the product out of backing the campaign.
But if you’re just interested in getting the product itself, you may want to consider waiting until it gets released, when you can check reviews and wait for a good deal to come along.
Good for Developers, Good for Backers
If you know what you’re getting into, using Kickstarter can be very rewarding for backers of projects.
By doing your research into the developers of the project, thinking about whether the project is actually doable, and giving some thought to whether or not it’s a good investment for you, you can make sure that you’re making a good financial decision.
How do you decide which Kickstarter projects to back? Or do you just back anything that looks cool? Do you feel like it’s a good use of your hard-earned money? Share your thoughts in the comments below!