A Kickstarter Economy

Willy Staley

By Willy Staley
Posted on Thu Mar 22, 2012, Last Updated on Wed Jul 16, 2014

Willy Staley is a staff writer and columnist for MyBankTracker.com. His columns cover banking, policy, and culture. More Columns »

Of the many things I could have never predicted that the Internet would enable, Kickstarter has to be the most infuriating. If you told me, as I was setting up my Facebook account in 2004, that technology like this would enable acquaintances and people I haven’t even met to ask me for money to finance their vanity projects, and I would receive petty rewards in return, I would have never believed it.

I likely had no idea I would end up in Brooklyn at that age and this has likely amplified my feelings about Kickstarter — the website is based in the borough, which just so happens to breed the sort of person who uses Kickstarter. The social fundraising platform seems to only exist to create music videos and ‘zines we don’t necessarily need, by asking for small donations to help get the project rolling. In return, donors get gifts that range in size depending on the size of the donation. Small donors frequently get thank you cards, while large donors’ prizes can be quite odd: a personal concert, say. I’ve even seen a magazine offer $500 donors a 2,000 word think piece on a topic of their choosing. At least two people bought it.

It’s a nice gesture, but it brings out the Scrooge in me (or maybe the Baby Boomer you-kids-are-so-damn-entitled side of me). As a freelance writer, I routinely sign contracts where — if I’m lucky — I agree to either paltry or generous per-word rates for work that can be killed by an editor, in which case I get a 25% “kill fee.” It has taken me years to get to this point, but the same is true for actually talented and intelligent writers — David Foster Wallace likely signed one of these before Harper’s sent him on a Caribbean cruise. Fair or unfair, this is life for people in creative fields.

What rubs me the wrong way is that Kickstarter — in tandem with the Facebook, Twitter and email missives a Kickstarter campaign begets — has created a dynamic where I feel bad for not doing something I would never do under any other circumstances: give acquaintances or strangers money for a creative project that might not have seen the light of day were it not for a risk-free source of funding. The only risk Kickstarters take on is that people like me might be bothered.

But not all Kickstarters are vanity projects

Some people use Kickstarter to finance the manufacturing of goods, for instance. They likely could have secured private financing, but then they wouldn’t build the buzz around their project that consumer buy-in engenders. Geode, the new mobile wallet product from iCache used this tactic, and it was quite clever. Those who finance the manufacturing get first dibs on the hot new gadget — not a thank you card, not a think piece, but something tangible.

With credit so tight these days, this could be a wise decision for entrepreneurs working in fields with unproven business models. Banks don’t have underwriting standards for businesses that don’t exist yet. But just because the market doesn’t recognize the value of an innovation that doesn’t mean the innovation isn’t necessary to capitalism’s long-term survival. Our whole system of global commerce is propped up by a fuel that is made of the remains of large reptiles that have been dead for 65 million years — is this priced in to banks’ lending criteria?

Kickstart an energy revolution?

Which brings us to a story from today’s New York Times: Tesla, the electric car manufacturer, has been financing their manufacturing with down payments from prospective buyers. Some have plunked down $40,000 cash on a car that doesn’t even exist yet — but they hope it will. This strategy has saved the company tens of millions, according to the Times. It’s also provided them with an interest-free source of financing.

The down payments are incredibly risky loans, explains the Times. Not only do they not pay interest, but they also don’t offer the prospective buyers many protections. The down payment debts are not sequestered into accounts specifically for manufacturing, and they are junior to “major creditors like the federal government.” There are a lot of ways this could work out very poorly for prospective Tesla buyers.

But if it does work out, it could be an interesting model for future manufacturers. That’s the sort of Kickstarter we need: one free of vanity projects, and strictly focused on the sorts of companies that capital, in all its wisdom, ignores. While this isn’t exactly the case with Tesla — they have had all sorts of different financing — if it can work with something as expensive and durable as a car, it can likely work for almost anything.

 

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  • http://www.marketsandpatents.com Mark Nowotarski

    A number of my patent clients have posted projects on Kickstarter (I’m a
    patent agent)  Some of them have been quite successful in raising funds.

     

    The key benefit for inventors is demonstrating that there is a market for the
    invention.  Once a project is successful, the national retail chains start
    calling.

     

    Mark Nowotarski

    Patent Agent

    http://www.marketsandpatents.com/crowdfunding.php