Crowd Funding: Also A Method For Proving Marketability To Investors

from the in-the-pudding dept

As crowdfunding sites like Kickstarter continue to be a rising trend in content production, there's an important lesson that both successful and failed attempts can teach us all. That lesson is that the turnout for such a project tells the producer everything they need to know about the combination of the saleability of their project and their ability to properly market it. In fact, Mark Cuban recently came out in strong support of crowd funding, going so far as to suggest that every startup should be required to do a Kickstarter campaign.

“It's a way for you create demand and sell the product without giving up any equity. That is a compliment to what an investor might do. In terms of PE (price to equity), there are strategic investors and then there's just money. I'm not a big fan of money investors, which is what most angel investors turn out to be, because they just want their money back. I try to be very strategic, I try to add value, or I don't make the investment.”

It's a great way to look at things, but I wonder if we can take it a step further. There is no reason that a Kickstarter project cannot also woo more traditional investors. This is all the moreso if the Kickstarter campaign takes off like a rocket. Why wouldn't an investor want to back a project that has shown it is both in-demand and managed by competent business folks? Serving as one example of the ability to do this, not to mention the leverage such an approach provides content creators, is Chris Roberts, developer of the Star Citizen game, which was wildly popular on Kickstarter.

“We’re still doing investment,” Roberts explained to RPS, “but I’m going to be a bit more picky in choosing it, and I’m getting to dictate the terms better. I’m saying, ‘You guys have to realize about making the game as good as possible. No forcing us to go public or to sell out.’”

Far from well-known conditions of corporate or investor interests forcing an early release of a game, or nixing important but difficult to create aspects of one (ahem, Mass Effect 3), this diversification of backing dollars protects the creator and his or her vision for their creation. There are still going to be stipulations under which an investor may hand over their cash, but the control over the creator is mitigated by the other sources of funds.

Beyond that, Chris explains how crowd funding can be a great proving ground to current or new investors.

“It’s actually funny. Everyone I lined up is basically over the moon. Your big risk as an investor is, “I’m backing this thing. Does anyone really want it?” At this point there’s no question that people want it, and maybe a lot more than anyone was expecting.”

What does this mean in practical terms? Well, far from the the caution some issue that crowd-funded projects will naturally be lower-budget cousins to their corporate largers, being able to attract money from multiple sources, including a wider internet public, could make for huge budgets in games, films, and music. I would suggest creators heed Mark Cuban's words: crowdfund, both for the money you can generate for your product, but also to prove to traditional investors that you're going to be successful.

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Comments on “Crowd Funding: Also A Method For Proving Marketability To Investors”

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Zakida Paul says:

I have recently discovered that warm feeling one gets from contributing to crowd funded projects through Pledgemusic. It has made me feel a connection with the art and the artist in a way that I have never been able to before, and I imagine it is a similar story for the artists.

The fact that it sticks it to the major record labels is a very nice bonus.

jameshogg says:

No more free-rider problem, and no excuse for copyright anymore. Because everyone pays simultaneously, nobody is felt like they are being ripped off (which can get refunded if the project fails – if publishers pay this price under copyright anyway as a result of projects failing halfway through, they can offer to take the fall still when it comes to crowdfunding and refund everybody themselves). And for those who get it for free, well, how is that any different to borrowing a DVD from a friend and experiencing the creativity without paying anything? If copyright compensates for that by increasing prices, then crowdfunding can compensate for it too.

Here is one big change I would make to Kickstarter at the moment: if a project gets its initial funds, allow for funds to still be collected even after the deadline. This way people will very quickly realise that the more pledges, the higher quality stuff will come out as a result. Trailers, singles, concept art etc can encourage more pledges even after the initial receiving of funds.

Zac Shaw (profile) says:

Crowdfunding rules

jameshogg is right on the money. We are at a transition point in the content industry — particularly in music — from the exploitation of copyright to direct patronage. That’s why labels want 360 degrees. They know just as well as the tech industry does that eventually access to music will be free (or at least perceived as such and bundled in with a cell phone or internet bill).

Unfortunately, the rights morass is such a tough pit to crawl out — the inability to “undo” a century of bad deals and poorly defined authorship (particularly in music) and rescue any sort of viability from the once-unstoppable strategy of exploiting catalog. That’s the real issue that deserves more attention than file sharing. We can’t pretend to solve future copyright problems if we can’t clean up the mess we already made.

I think eventually not much will change in the copyright world — the powers are to large and entrenched — and crowdfunding will slowly but surely take over as the primary way content creators are compensated. The authorship problem is not immediately solved by crowdfunding, but it’s a powerful way to circumvent the so-called “protection” of copyright that often turns into a prison, both for authors of the work and new authors that require use of the work to spur new creativity.

jameshogg says:

I should also mention: we already have plenty of evidence that crowdfunding can replace copyright. Any form of entertainment that uses admission-based tickets – gigs, cinemas, plays etc – does not rely on copyright because tickets are the incentives, and are a form of crowdfunding if you think about it (refundable upon gig not going ahead, allows artists to know how much funds they are getting, equity is preserved because both the backers and creators are protected, etc…).

Everyone who pledges to Kickstarter is basically buying a refundable admission ticket.

jameshogg says:

Re: Re:

And I don’t think I need to explain the consequences of how well Open Source Software development can benefit from all of this. You always hear “Open Source is great and all, but it won’t work because programmers won’t work for free!”. Crowdfunding is the final piece of the puzzle here. Crowdfund programmers to improve Open Source Software, and we have a huge, huge opportunity indeed.

Anonymous Coward says:

I’m concerned that if this became commonplace, it would become somewhat self-defeating. If the pitch on Kickstarter and its ilk changed from “pledge to fund this so it can happen” to “pledge to fund this so we can convince the real investors to fund it” then people may start to wonder why they should bother. At that point it’s just a pre-order system. That may still be a useful thing, but it’s a different thing.

arango (user link) says:

Re: Response to: Anonymous Coward on Feb 21st, 2013 @ 1:31pm

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