Crowdfunding 201: Three Things We Must Never Speak Of Again

on Thursday, Sep. 13th

Read more of Lucas McNelly’s Crowdfunding 201 here.

I was on the phone the other day (actually talking!), venting to a friend of mine about how so much of the time I spend discussing crowdfunding with people comes down to the same couple of topics, explained over and over again, only to a new audience. Like every day is the first day of school and I’m having to explain to everyone where the bathrooms are. Nothing new has been “discovered” or explored or even broached in the 2 years or so since they were more or less settled, but still people keep asking. A lot. They also feel the need to argue about it and get all the reasons behind it. A lot. Naturally, this is kind of annoying. It’s also a pretty big time suck.

And, yes, I realize how that sounds, but I’m pretty burned out at the moment. My temper is short.

Kind of as a joke borne out of frustration, I told Noah I was going to write a column called “N Things About Crowdfunding I Will Never, Ever Discuss Again”. He thought that was a pretty good idea, and since he’s the boss, here we are.

Let’s start with a qualifier. Yes, these are all things I think have been argued to death, but that doesn’t mean someone can’t change the accepted wisdom. After all, the world used to be flat. But if you’re going to disprove it, really disprove it. With, like, research and data and things that would stand up to a peer review. Otherwise…go do all that.

[Uncover the Three Things after the jump...]


1. Kickstarter vs. IndieGoGo

The answer is almost always Kickstarter.

But, really, what people are asking here is if they should go with the all-or-nothing model or flexible funding, which lets you keep whatever you raise. And, yes, I realize there’s about 8,000 crowdfunding platforms that all do a variant of the same thing, but unless they’ve got some really compelling feature that just blows Kickstarter and IndieGoGo away AND have the foot traffic to compete, then there’s a pretty good chance you’re putting a hard cap on how much you can raise.

The biggest reasons to go with IndieGoGo are basically the flexible funding and, well, maybe Kickstarter won’t let you use them. [Update: Yes, they have an all-or-nothing option, but that's not what people are usually asking.] Kickstarter, on the other hand, is much more selective. IndieGoGo, for example, has a much more inclusive policy toward what they’ll allow. Kickstarter is much more selective.

But, for the purpose of this discussion, let’s assume the project is Kickstarter friendly. Why would you go with the all-or-nothing approach? Simple: The Kickstarter Effect.

My brother does research on negotiation. In one study, he and his colleagues examined eBay auctions of a certain type of camera. They found that the cameras that were offered at a very low opening bid sold for much higher than ones that started out with higher bids. Their research demonstrated that people who bid when the price was low became emotionally invested in the process and tended to bid repeatedly. I think that the same theory holds true with Kickstarter (and was borne out through our anecdotal evidence). People who pledge towards a project become invested in seeing the project succeed, so they are likely to reach out to others to help reach the goal. (Michael Galinsky)

This happens every day. A campaign goes into the final 72 hours and the story of the campaign transitions to “OMG, they aren’t going to make it!!!”. The existing backers start becoming your advocates, urging their friends to throw in a few bucks here and there. That’s why 82% of projects that reach 20% are successful.

You will almost always raise more money on Kickstarter.

We saw this on 4 Of A Kind. Even though it was unsuccessful, it raised a ton of money in the final days. Had it been on IndieGoGo, there’s no chance it does that.

Galinsky is absolutely right. Kickstarter is pretty much a perfect application of game theory to raise money. IndieGoGo is not. It’s a way to get money from your existing audience. But make no mistake, it will be less money. A lot less money. Also, the platform isn’t nearly as good.

My rule of thumb is basically that if you can raise $5K on IndieGoGo, you can raise $10K on Kickstarter. Only, there’s some risk of failure. Some creators like that risk, others would rather not. But you have to ask yourself: if you only raise 5% of what you need, where are you going to get the other 95%? Because you still need it. Ultimately, that’s a question only the project creators can answer.

But, seriously, all things being equal you should use Kickstarter.

2. I saw someone raise A LOT of money

Are you famous? Like, really famous? Like, has my mother heard of you?

Probably not.

Do you have a large audience in-hand that you KNOW will come out to support your project?

If not, you should probably lower your goal to something more manageable. If that isn’t enough to make the thing you want to make, well then maybe it’s not yet time to make that thing.

Let’s say you have a house. It’s a small thing–1 bedroom, 1 bath–in a small town in Nebraska. The kitchen could use some updating and there’s that part of the carpet where you can’t quite get the red wine stain out, but other than that it’s in good shape. When you go to sell this house, one thing your realtor is going to do is look for comparable houses and see what they went for. How many of those comps are going to be in US Weekly? Yeah, zero. The realtor is going to look in your neighborhood for similar houses to yours, things with 1 bedroom and 1 bathroom, and then price your house competitively for the existing market. The sale price of Miley Cyrus’ new place in the Beverly Hills has zero impact on the market for your house. [Yes, it might have some impact on the overall health of the housing market and blah blah blah, but you get the point.]

In the same vein, the fact that Amanda Palmer raised $1.2M for her new album doesn’t really impact the potential for the new band that formed last year in the garage down the street. It just doesn’t. They’re still going to have to scratch and claw and play gigs in nearly empty dive bars to build that audience.

Crowdfunding is an incredibly valuable tool for building your audience, but it can’t grow an audience out of nothing.

3. If it hits the goal, it must be a good campaign, right?

No.

You and I are playing poker. I don’t even look at my cards and go all-in. You pick yours up and see pocket Aces. Obviously, you call. I have a 2 and a 6. The cards come out and I end up with a full house, 2′s over 6′s, and win the hand. Did I play the hand correctly? No, of course not. Did you play it badly? No, of course not. But I won. Shit happens.

As the crowdfunding tools get better and better, one of the things we’ll hopefully end up with is a tool where you could punch in a bunch of information (like your Twitter handle, your Facebook fan page, etc, etc.) and get an estimate of the range of money you could expect to raise. Until then, I’ll keep hammering home this point: just because someone raised a lot of money doesn’t mean they know a damned thing about crowdfunding.

If you’re famous enough, like really famous, you could theoretically run the worst Kickstarter campaign ever made and break every record Kickstarter has. Someone like Kanye West could do that in his sleep.

Why does it matter?

Because every time someone puts up a big number on Kickstarter, you see people coming out of the woodwork to tell you what brilliant thing they did, and people who have dreams of some day raising a bunch of money on Kickstarter (i.e. everyone) eat that up. But that brilliant thing is that they got a lot of people to like them, and then they ran a Kickstarter campaign. Now how much does that help you with your 150 Twitter followers? Not very much.

It’s like that old Steve Martin joke: “How to make a million dollars: First, get a million dollars.”

It sounds dismissive, but the point is this: the existing audience is probably the most important factor in a potential campaign.

Extra Credit

The Flyway Film Festival hit their goal today. They have stretch goals that include people being thrown in a dunk tank. I’m the target at $12,500….The new pitch video for White Creek has a kitten in it. Awwww….This kind of got lost in the shuffle of our hiatus, but Goodbye Promise became the first film to be released via a crowdfunding platform…

Lucas McNelly is the filmmaker behind A YEAR WITHOUT RENT, UP COUNTRY, BLANC DE BLANC, and GRAVIDA. He worked on the 4 Of A Kind campaign. He hasn’t lived anywhere in a long time.

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