As Dominic Basulto put it in a Washington Post essay, “There is a unique, underground venture capital economy happening right now in America that is, in many ways, off the radar screens of economists. When we tally up the economic indicators, the conventional wisdom seems to be that economic growth in this country has stalled. Yet, that same conventional wisdom ignores the economic activity on DIY sites like Kickstarter.”
Consider the advantages ....by going the Kickstarter route...., rather than to a bank or traditional investor:
1. He raised the money without having to pay interest or give up a portion of the company.
2. The process of raising the money also served as free market testing. If he hadn’t been able to hit his target, he probably also wouldn’t have been able to sell the tank. Raising money directly from your future customers improves the chances that you’ll be successful once the product hits the market.
3. The public fund-raising effort got attention from everything from popular blogs to NBC television, serving as free marketing. Grassroots funding leads to word-of-mouth support. Crowdfunding is venture capital for the Maker Movement.
Just as the tools of production have been democratized, creating a new class of producers, so have the tools of capital-raising, creating a new class of investors. Not investors in a company but in a product or, to be precise, in the idea of a product.
The act of “making in public,” which is what Kickstarter project leaders do, turns product development into marketing. The creator posts an idea, then updates frequently on the progress to completion. Backers comment and the creator responds, evolving the product in response to feedback.
Most of Kickstarter’s magic mojo is simply that they made a game out of raising money.
Here are the rules to that game:
1. Set a deadline. Let people know there is a limited time to this campaign.
2. Set a minimum funding goal. “If we don’t reach this number, the project won’t have enough funding to happen.”
3. Enforce the deadline and the funding goal. The campaign STOPS at the deadline, and if you didn’t meet the goal, the project doesn’t happen. (This is where Kickstarter is most valuable: they play bad cop about the rules of the game, while you get to play good cop and try to get people excited.)
4. Set up tiered levels of giving, and promise people different thank-you gifts for each level.
5. Let the fund-raisers keep full ownership of their projects. (It’s not investment; it’s sponsorship. It’s pre-selling. It’s generosity.) This is not without risk, of course. There is no guarantee that the entrepreneur will actually make the product or that it will be a success.
Makers: The New Industrial Revolution by Chris Anderson
“We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side.
— Charles T. Munger”
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