Advertisement

SKIP ADVERTISEMENT

Success of Crowdfunding Puts Pressure on Entrepreneurs

Kickstarter’s booth at the XOXO tech conference. Kickstarter has helped about 30,000 projects raise money.Credit...Leah Nash for The New York Times

PORTLAND, Ore. — An effort to build a sleek aluminum charging dock for the iPhone generated fervor online when it was announced last December. The project’s creators raised close to $1.5 million through Kickstarter, a crowdfunding Web site, and promised to start shipping their Elevation Dock in April to those who had backed the project.

But last week Apple announced a redesigned iPhone that is not compatible with the dock — and because of manufacturing delays, some of the project’s original backers were still waiting to receive theirs. The designers are now scrambling to make an adapter and update the product.

“I’m just hoping to get mine before the iPhone 6 ships at this point,” one backer wrote on Kickstarter.

Crowdfunding sites like Kickstarter and Indiegogo are letting designers and other creative people connect with audiences who want to finance their dreams, and they are becoming increasingly popular. Nearly three million people have helped a total of 30,000 projects meet their fund-raising goals on Kickstarter, the largest such site, to the tune of $300 million in pledges.

But for the creators of these projects, getting the money is sometimes the easy part. They then have to turn their dreams into reality, with a crowd keeping an eye on their progress.

This new model comes with a host of potential pitfalls that are often difficult for project creators to anticipate, and hard for the armchair philanthropists who back them to grasp. Backers are essentially putting their trust in the project creators, giving them cash in return for the promise of a future reward.

Those who give a few dollars to a moviemaking project may get their names in the credits, while someone who puts up $100 to support development of a smart wristwatch might be promised one of the finished items.

Much of the time this works out. But some projects, including several prominent and in-demand ones, have run into missteps and lengthy delays. The permits for a new food truck might not come through. Or a gadget like the Elevation Dock might be harder than expected to manufacture and ship.

Image
The XOXO tech conference ended Sunday. The challenge of crowdfunding sites like Kickstarter was a popular topic at the event.Credit...Leah Nash for The New York Times

The rise of crowdfunding came up often over the weekend here at the debut of the XOXO Festival, a conference that focused on new models and outlets for creativity on the Internet. The conference was co-founded by an early Kickstarter employee, Andy Baio, who sold $400 tickets on Kickstarter itself to gauge interest in the event and raise money for it.

The relationship between creators and backers on crowdfunding sites is still being worked out. The backers play the role of philanthropists, investors, customers — or all of the above. And when promised rewards are slow to materialize, eager backers can get cranky.

“It’s definitely a lot of pressure,” said Eric Migicovsky, whose Kickstarter project to create a line of “Pebble” wristwatches with innovative displays raised more than $10 million — more than 10 times what he had hoped to get. “There are 65,000 people who have preordered a watch that doesn’t yet exist.”

Mr. Migicovsky hired someone to help manage his in-box — nearly 9,000 people have e-mailed him about the project — and to post updates. He originally hoped to start shipping the watches in September, a date that he has had to push back, although he declined to say by how much.

A study by Ethan Mollick, a professor of management at the Wharton School of the University of Pennsylvania, found that 75 percent of design- and technology-related projects on Kickstarter, most of which involve physical products, failed to meet their promised deadlines. In general, project backers seem to be understanding of hiccups and willing to wait as long as they are kept informed.

“The honeymoon period that we are experiencing around crowdfunding is beginning to come to a close,” said Wil Schroter, co-founder and chief executive of Fundable, a company that is applying crowdfunding to the venture capital process. “People realize there is real risk involved in investing in anything early-stage, whether it’s an idea, a charity or a product, and they’re starting to understand they aren’t buying off of Amazon.”

Kickstarter says it is not responsible for making sure a project is completed on time, or at all. It says project creators are legally obligated to fulfill their promises, but if they do not, Kickstarter has no mechanism for refunding the money that was pledged. The project creators can refund the money if they choose.

Sometimes project creators can be overwhelmed by the success of a crowdfunding campaign.

The four college students behind Diaspora, a project that aimed to build an open alternative to Facebook, began with the modest goal of $10,000. They raised $200,000 from around 6,500 people. But after three years, they decided to start on another venture and turned the code over to anyone who might want to keep working on it. (One member of the team committed suicide last year.)

Max Salzberg, who was part of the team, said they had become so consumed with things like answering e-mails and making T-shirts for their contributors that they had little time to build the software.

Image
An attendee, Will Turnage, wearing a Twitter-activated hat at the XOXO conference.Credit...Leah Nash for The New York Times

“We thought this would be a summer project,” Mr. Salzberg said. “We wanted to make it because it was something we believed in, but we got roped into maintaining a relationship with a lot of people. We weren’t prepared to have to deal with that.”

The hardest part, he said, was the perception they had squandered the money. “It sounds like a lot of money, and people were like, ‘Where did it go?’ But the reality is that for four guys for two years, we scrounged.”

“Going viral was crippling,” he said. “It was mayhem.”

Some retrench before trouble hits. When Kelvin Geis had the idea to create a stylus for use with iPads last spring, he decided to put it up on Kickstarter. “I just really wanted to see if I could make this thing work,” said Mr. Geis, 41, who works in construction in Draper, Utah. “But everything was so much more difficult than I’d anticipated.”

Mr. Geis found that he had drastically underestimated his manufacturing cost and the time it would take to make the stylus. He canceled his fund-raising, consulted designers and manufacturers, and put it back up a few months later. He wound up raising $35,000 in three weeks and shipped out his first order of 1,500 units a few months later.

Several projects on Kickstarter that began with modest goals have taken off and skyrocketed into the millions, sometimes in a matter of days. Yancey Strickler, one of the founders of Kickstarter and who spoke at the conference, said this phenomenon was new for the company, which introduced its site in 2009.

Kickstarter projects are “primarily patronage,” Mr. Strickler said. “But as a product reaches a certain scale, a person is expected to be a corporation.”

“It’s an economy that is being created by the minute,” he said.

The Elevation Dock was the first Kickstarter campaign to soar past $1 million. Casey Hopkins, the project’s founder, said his company would be selling an inexpensive adapter for those who ordered docks and wanted to use them with the iPhone 5.

Mr. Hopkins said that, over all, he was thrilled that he was able to create “a business out of thin air” through Kickstarter.

“When you’re in the trenches, it’s so incredibly stressful,” he said. “But I think we’ve done well.”

The company is close to shipping the last of its 19,000 preordered docks, Mr. Hopkins said.

“It’s definitely been a huge net positive,” he said. “At least, it will be after I take a weeklong vacation.”

A correction was made on 
Sept. 19, 2012

An article on Tuesday about the challenges of entrepreneurs who finance their enterprises through crowdfunding misspelled the surname of the co-founder and chief executive of Fundable, which is using crowdfunding for start-up companies. He is Wil Schroter, not Schroeter.

How we handle corrections

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Instant Internet Heroes. Order Reprints | Today’s Paper | Subscribe

Advertisement

SKIP ADVERTISEMENT