Crowdfunding AKA Cowfunding

Crowdfunding is a sexy word that’s arisen and become a bigger part of the social lexicon over the last few years. Investment, of course, has always been a part of economics and helps make the world go round but shows like Jim Cramer’s Mad Money and Dragons Den (or Shark Tank if you’re American) have turned investment and speculation into an exciting game of risk and reward. This is coupled with the rise of crowdfunding websites such as Kickstarter and Indiegogo. Giving average Joes the chance to invest their own money into a variety of projects like consumer products, visual and audio media and charitable ventures. Many projects allow the user to donate from as little as £1 to £10000. It’s become big news and famous faces have turned to crowdfunding for funds to make their project a reality. Most notably we’ve had Zach Braff using Kickstarter for his small film and of course the Kickstarter behemoth that was the Veronica Mars film.

Despite my gushing of this investment revolution laid out above, I am not a fan of crowdfunding. There are a few reasons for my judgement on this. The most obvious and most widely highlighted downfall to crowd funding (which crowd funding websites would rather you not hear) is the number of products that actually come to fruition upon successfully reaching their investment target.

Let me first lay out the basic structure behind a crowdfunding project in case you’re not aware of how this brand of crowdfunding works. For the purpose of this article I’m going to start using Kickstarter as an example all the time as a catch all term for all crowdfunding websites because Kickstarter is probably the most notable example.

  • A person or group of people put up a page on Kickstarter. This will lay out the project leader’s vision, the aims of the project, what that project can do for you, the audience/target market and then there will be a fancy video hyping up the product.
  • Next to that will be an investment target and a deadline for those funds to be raised. For this example, let’s say I want to film a documentary highlighting the effect cow’s methane gas has on the ozone layer. I think that this project will cost me £6000 to produce. I set a deadline of forty days to raise the money and then on my Kickstarter page, I make some fancy writing about how this documentary will push politicians to focus more on dealing with cow’s methane gases. There’s also a fancy video to back up my point.
  • Next to all that, I lay out some “Rewards” for donators to earn by donating a certain amount of money. These are incentives to bring the investors in. For example, for donating £50 to the project, I will send that person a signed DVD of the documentary. Or for donating £1000, I will give that person two tickets to a film festival where the documentary will have it’s premiere.
  • After that, it’s a matter of waiting and using the time before the deadline to spread the word of my project on Social Media and through word of mouth.
  • If my project fails to reach it’s target, then the Kickstarter is a fail and any money pledged by fundraisers already will be nullified. Should my Kickstarter succeed, I now have the mission of making my project a reality and get those rewards I promised shipped out to all my fundraisers.

…but what if my project doesn’t become a reality and I let down those people who have given me their own money in the agreed transaction that their return would be a genuine end result at the end of this? What if I fail to follow through on my promise to give out those special rewards for donating to my Kickstarter? This is something that is fairly common in the world of crowdfunding. Partially this is down to the people behind these kickstarters being out and out scam artists. But I suspect more often than not. These people that set up these Kickstarters are unaware of the spiraling costs that go in to producing a product. When setting up a Kickstarter, you need to come up with a figure to aim for that you believe will cover all the costs that go into producing a product. But no matter how much research you put into devising a figure, you can never be prepared for any sudden shifts in the market or hidden costs that arise when you come to make the product. Anything can happen that can put the project into jeopardy. Just a hypothetical example for you: A guy has a kickstarter for a new type of shoe that molds to your foot (Hey I know it’s a terrible idea, I’m not an inventor damnit, I’m a ‘blogger’  on the internet!). To make these shoes, they need a certain type of gel that’s only produced in a factory somewhere in Japan. The kickstarter is a success, hooray. But oh wait, there’s an earthquake which leads to the factory in Japan being flooded and put out of operation for two months. Or there’s a worker’s strike at the factory. Suddenly you have no gel for the shoe and no alternative place to get the gel. Your kickstarter is a failure. Let’s take a real example:

Harry Knowles is a fairly famous film reviewer on the internet. He created the news site aintitcool.com back in the late nineties and is revered by some while ridiculed by others. He had the idea of creating a web series a few years ago where he got to wax lyrical about films for an audience. He got the funding from a production company and made one season of his show: Ain’t It Cool With Harry Knowles. It apparently was a bit of a flop and the production company that funded the first season pulled out of doing a second season leading Harry Knowles to turn to Kickstarter as an alternative mode of funding. With a little help from Guillermo Del Toro and Peter Jackson, Harry achieved his investment target….that was on September 5th 2013. Since then nothing has come of Season 2 and nobody has received any of their pledging rewards. News of Season 2 is almost non existent. The Kickstarter page has not been updated since completion of the Kickstarter campaign and nothing on Social media. Adding more s*** to the fan is the reports that Harry Knowles owed $300,000 in back taxes. Harry also bought a car a few months after the campaign ended. The car is estimated at $24,000.

The reasons behind this huge delay are not known because Harry Knowles has been so quiet on the matter. Maybe it was a case that Harry underestimated the actual cost of producing a web series…or maybe Harry Knowles has fleeced some innocent pledgers out their money?

 

One of the biggest problems I have with crowdfunding is that you’re essentially putting your money into something based on the pitch that’s communicated to you via text and video on each Kickstarter page. Essentially, you’re trusting somebody based on the song and dance they put up on Kickstarter, there’s no really useful information uploaded to anybody’s kickstarter. To be honest, the useful information I’m talking about is the nitty gritty parts of the project. But although these sometimes are lacking in excitement, they are often the core parts of  a project and the factors that can make or break a project. Let’s take a look a high profile Kickstarter from last year, the Kickstarter for the next Spike Lee film joint. Spike Lee did a whole big song and dance for his movie. He had a fancy video with MTV style editing detailing his background in filmmaking, how he leads the film programme at NYU, how he got into the business etc and then he told the audience everything about the film. “It’s about the addiction of blood…lotta sex in it too.” Cut to Spike with a huge grin on his face! What else can Spike say about this new film he wants your money to make? Well not a lot. He’s happy to list all of the films he has made though.

That’s all well and good but there are some more important things I would like to know such as, is there a script? Who wrote the script and more importantly is it any good? What actors do you have lined up (whether that be verbally or contractually), have you located a crew to work on this film? WHAT IS THE FILM CALLED?! Spike Lee was so vague in his Kickstarter pitch that it’s hard to find an incentive to get involved unless you happen to be a huge fan of Lee’s body of work and was willing to go on that alone. Spike Lee actually took to Kickstarter to defend the vagueness of his pitch:

The reason I have not disclosed more info on the story is because: It’s a THRILLER. In order for a film of this type to work the less details the better for this Film to work with the Audience, they can’t know a whole lot before they sit down in a Theatre to see it. Yeah I know, I’m asking for BACKERS for a film they don’t know a lot about. My answer to that is TRUST ME. I hope you have seen some things over the past 3 decades making FILMS that can earn your TRUST.

TRUST ME?! How can anyone put huge sums of money into a project based on a guy saying ‘Trust me.’? Spike Lee is not alone in this. There are other people who’s Kickstarter pages can be summed up in two words, ‘Trust me.’

 

The Oculus Rift’s Kickstarter launched in the summer of 2012. The Oculus Rift is a virtual reality headset that was supposed to bring virtual reality into the 21st century. It was designed “for gamers, by gamers” and would be the “first truly immersive virtual reality headset for video games.”. There was a lot of buzz for the Oculus Rift with videos appearing online showing people using the Rift and almost falling over because they felt so immersed in the simple tech demos of riding roller coasters and flying through the air like Superman. The Rift was aiming for $250,000. It raised nearly $2.5 million. You can see how serious Virtual Reality has become since the Rift’s Kickstarter because Sony have their own Project Morpheus in the works right now for PS4 and Samsung are gearing up to release their own headset soon. It wouldn’t surprise me to learn that Microsoft are currently in the earlier stages of their own headset to be used with the Xbox One. Virtual Reality is looking to become the next BIG thing in gaming so what could go wrong?

In March 2014. Oculus, the team behind the Rift, were bought out by Facebook for $400 million. There are two reasons this has riled up the gaming community and in particular the many backers who pledged to the Rift’s Kickstarter.

The first reason for the backers is that they are not going to see a single penny of that $400 million. Oculus’s popularity and notoriety in gaming was largely down to the Kickstarter and subsequent money raised therein. Were it not for the average Joe’s who donated their own money. Oculus could have just been another of the many startups that close early in their lives or plod along in relative obscurity. Facebook would not have given Oculus a single moment of attention. So if it’s down to these many pledgers that Oculus grew in size and stature, does that make these pledgers essentially something of a shareholder in Oculus? Does that mean that they have a say in the direction of Oculus and more importantly in some people’s views, does that not entitle the pledgers to a piece of the profits, especially when it’s a huge $400 million dollar buyout by a major internet company?

The other reason why gamers have been so miffed by this buyout is that the original intention for the Rift, as laid out on the Kickstarter page, was that it was intended for games! But it could be argued that this buyout may be changing the direction that the Rift is going to take. Now, I am speaking too soon here as so far, Facebook have yet to outline their plans for the Rift and I don’t foresee them revealing them any time soon either. Maybe not until 2016 when the consumer version of the Rift has been out for a few months. Right now it’s unclear whether the Rift is going to be for games or some kind of larger more social applications which I can’t imagine right now but many internet users have amusingly mocked up:

What’s important to take away from this example, is that projects can change. They can take a new direction. Those people who invested in my Cow Methane documentary might be angry when I decide, after raising the initial funds, that I am taking a different approach in my documentary. I may decide to completely drop the documentary aspect and have a go at making a scripted comedy about farting cows. Maybe I’ll use some of those Kickstarter funds to pay Ricky Gervais to do the voice of an animated cow. Would you like that?

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