Crowd funding - how does it work?
Discussion
I was looking at Kickstarter recently, and I don't really understand how the £ of it works.
Someone posts a project and asks for small amounts of money from people who like the idea. In the end they get (if successful) the money.
They then invest in the business and it grows (hopefully). But when does the shareholder get any return? Is the owner a 51% shareholder and the rest are all 0.1% shareholders?
Someone posts a project and asks for small amounts of money from people who like the idea. In the end they get (if successful) the money.
They then invest in the business and it grows (hopefully). But when does the shareholder get any return? Is the owner a 51% shareholder and the rest are all 0.1% shareholders?
Kickstarter is almost a pre-sale platform these days. Someone has a product designed well enough to show what it'll do, people can pledge money to get it developed and made, they get the product (often with different tiers/versions) as a reward for their pledge. It works well for things like board games, books, etc where they can more easily gauge how big a print run to do.
Crowdcube and the like are (private) shares of companies - sometimes with small rewards/perks attached (discounts on their products, events, etc).
Crowdcube and the like are (private) shares of companies - sometimes with small rewards/perks attached (discounts on their products, events, etc).
Nothing, about 8-9% of Kickstarters don't deliver the goods, and there's been some spectacular failures of "too good to be true" projects that promised way too much, got overfunded to a ridiculous degree and then they either burned through the cash trying to get it to work, make big mistakes when gearing up for production, or in some cases just string people along for months before disappearing.
I think the most I've pledged on a project has been £50 and it's mostly been for printed stuff that's quite straightforward.
I think the most I've pledged on a project has been £50 and it's mostly been for printed stuff that's quite straightforward.
Simpo Two said:
What's to stop someone saying 'Sorry, it didn't work out' and pocketing all the money?
Nothing. There's plenty of projects that don't go anywhere. Hopefully people 'investing' understand the risk.
The only Kickstarters I've done have be 'pre-order' affairs, you're basically paying upfront for a book from someone you already have experience of their work. In these days of cheap on demand printing from Amazon it is easy to self publish a quality product if you can get some money up front for some professional proof reading/editing/design.
Edit: outside of Kickstarter, but on similar lines, I invested £500 in Brewdog years ago and got £514 back when the venture capitalists bought in, and still have 90% of my shares on paper that might be worth something or nothing in the future.
Edited by Truckosaurus on Friday 10th September 15:15
Frimley111R said:
I was looking at Kickstarter recently, and I don't really understand how the £ of it works.
Someone posts a project and asks for small amounts of money from people who like the idea. In the end they get (if successful) the money.
They then invest in the business and it grows (hopefully). But when does the shareholder get any return? Is the owner a 51% shareholder and the rest are all 0.1% shareholders?
Have a look at a club members Kickstarter google - Antur Kickstarter - one guy making jeans, I won’t spoil it. Anything you need to know I can advise / clarify etc. This was a low cost pitch no bespoke video. Someone posts a project and asks for small amounts of money from people who like the idea. In the end they get (if successful) the money.
They then invest in the business and it grows (hopefully). But when does the shareholder get any return? Is the owner a 51% shareholder and the rest are all 0.1% shareholders?
sjg said:
Nothing, about 8-9% of Kickstarters don't deliver the goods, and there's been some spectacular failures of "too good to be true" projects that promised way too much, got overfunded to a ridiculous degree and then they either burned through the cash trying to get it to work, make big mistakes when gearing up for production, or in some cases just string people along for months before disappearing.
I was thinking more of deliberately fraudulent people promising magic beans, anti-gravity boots etc. and never intending to deliver. What's to stop them and can they get away with it?Thanks for the replies but my question is really about what an investor gets back.
So, I pledge £25 to a project. Am I a shareholder with X shares or am I just someone essentially getting a product first/free/cheaper that I want?
And, as a project owner do I have loads of small shareholders who all need a bit of £ every so often?
So, I pledge £25 to a project. Am I a shareholder with X shares or am I just someone essentially getting a product first/free/cheaper that I want?
And, as a project owner do I have loads of small shareholders who all need a bit of £ every so often?
Frimley111R said:
Thanks for the replies but my question is really about what an investor gets back.
So, I pledge £25 to a project. Am I a shareholder with X shares or am I just someone essentially getting a product first/free/cheaper that I want?
And, as a project owner do I have loads of small shareholders who all need a bit of £ every so often?
Not a shareholder in 99% of projects, some offer lifetime discounts or other long term offer, So, I pledge £25 to a project. Am I a shareholder with X shares or am I just someone essentially getting a product first/free/cheaper that I want?
And, as a project owner do I have loads of small shareholders who all need a bit of £ every so often?
the jeans Kickstarter was done to gain marketing, cash and pre orders. The money you spend gets you heavily discounted jeans or you can pledge £5 to support the cause - that gets you nothing.
It’s pretty well explained on each project exactly what you do get.
Simpo Two said:
What's to stop someone saying 'Sorry, it didn't work out' and pocketing all the money?
Indiegogo is famous for this there are at least 3 from China I know that raised millions but when dark.Some on Kickstarter run late then panic when people want refunds, just take it as can I afford to lose this money.
I have backed a couple, Potato pirates, exploding kittens. Electrical ones I am very wary of now
Simpo Two said:
I was thinking more of deliberately fraudulent people promising magic beans, anti-gravity boots etc. and never intending to deliver. What's to stop them and can they get away with it?
There is meant to be a bit of a check before you can launch a project (no perpetual motion machines or free energy devices), but caveat emptor and all that. It's policed a little more tightly these days - they want to see a "working prototype" of tech projects now, when people used to be able to put up a 3D render and launch a campaign with that.For fun, search out Thunderfoot on YouTube - he spends quite a bit of time debunking the more silly projects.
The point on Kickstarter is it's NOT an investment platform. You're donating towards a project, and they may offer rewards in return, whether it's a t-shirt, a dinner with the project team or to be the first to get their new wonder product. The intention is to enable teams to commit to developing "a thing", knowing that they have enough people interested to make it financially viable. It is made clear (though people forget) that donating to a campaign does not guarantee you'll receive anything - you are meant to do due diligence with the information provided. Kickstarter themselves are not responsible for the projects they host.
These days, you cannot just turn up on Kickstarter and expect people to find and back your project. You need to build up a reasonable audience and bring them with you to the platform - that initial wave of interest is necessary to get wider attention for your project and (hopefully) boost it past the goal. There are a load of stats about the way projects perform on Kickstarter - apparently they can tell if your campaign will succeed after a couple of days.
If you want to invest, there are other platforms that do allow you to 'own' some part of the company, and a number of variations on the Kickstarter theme such as Indigogo. There are also alternatives to 'pure' crowdfunding, such as Patreon or Ko-Fi which allow 'the crowd' to support people and businesses in a more open ended way.
Dedshott said:
No, you’re just (for the most part) pre-ordering. You help supply the money to put the item into production. Then you receive your item. No shares, no dividends.
When this crowdfunding first started I didn't think it would take off due to no shareholding on offer. But people like the idea of helping a product to launch that they want to buy.
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