Sunday, January 22, 2012

Crowdfunding - Micro No More!

Jan 22nd 2012, 13:42 by G.F. | SEATTLE

THE idea of collecting cash online through a mix of patronage and prepayment sprouted informally a few years ago. Initially bands used it to raise money for studio rental and the production costs for releasing an album. But the idea took off and is now offered by a plethora of middlemen, and embraced by all manner of creative types. In 2011 Kickstarter, the most successful of the online enablers, received nearly $100m in pledges for over 27,000 projects launched at its site.
This newspaper has written about Kickstarter several times in the past two years, including an overview of how crowdfunding works after the firm had raised about $15m in its first year. At the time, it was unclear whether such crowdfunding (also called micropatronage) was a passing fad or a rising alternative to conventional starter financing for creative media.
Kickstarter's performance in 2011 bolsters the latter case. The $99.3m pledge figure represents all commitments, backed by valid credit cards, to over 27,000 projects launched last year. The two biggest categories were film (with $32.5m pledged) and music (with $19.8m). Only those projects which reach a pledge target they set themselves within either 30 or 60 days receive the cash, which is charged to donors' credit cards. (These are validated on making the pledge, so Kickstarter's collection rate in close to 100%.) Last year 46% of the projects managed the feat; those that fall short do not get the cash and their donors are not charged.
In 2011 nearly 12,000 projects were financed through contributions by 960,000 unique donors with a median pledge of $25. Kickstarter's Medici, with the handle "H.T.", supported 724 projects. Yancey Strickler, one of Kickstarter's founders, says that just over $83m was collected. Projects which do reach their goal typically surpass it, typically hitting 130% of the target amount, and raising on average $4,500. However, ambitious ideas routinely muster $100,000 or more, and record holders have come within a whisker of $1m. (The company features a page listing its biggest success stories.) Unsuccessful campaigns rarely pass 20% of the goal. 
The remaining $16m in pledges was spread thinly among 34% of projects that win some support, an average of $1,000 each, but fail to reach their targets. One-fifth of launched projects do not receive a single pledge, a fact that Mr Strickler ascribes to project organisers who do not understand, despite his firm's best efforts, that they must actively market their effort to friends, family, fans and strangers. 
Kickstarter sends out a regular newsletter with editors' picks for the most interesting ventures. The site is curated to allow visitors (30.6m in 2011) to discover items of interest. But Mr Strickler says that the firm strives to remain behind the scenes and stays out of the relationship between organisers and funders. That can lead to disappointments, as Kickstarter disburses money for successful projects with no obligation on the part of the recipient to follow up. Kickstarter makes each project's creator responsible for delivery, and currently does not hold responsibility for late delivery or recipients who abscond.
Matt Haughey, a founder of MetaFilter, posted an account of an iPhone-case project he backed in which the delivered product did not live up to expectations. The comments on Mr Haughey's post feature a few prominent funded but unfulfilled efforts (as well as a spirited response from the iPhone-case makers). Projects that seem implausible or overambitious tend not to secure enough pledges to go ahead. Occasionally, those that do meet the bar fall through. For example, the developers of a wireless power-outlet control cancelled a Kickstarter effort despite surpassing their funding goal, after comments on the project raised doubts about its technical feasibility.
But Kickstarter seems to have vanishingly few of these. And proposals keep flooding in at a rate of 2,500-3000 a week. Micropatronage is growing bigger by the day.