MONEY Investing

Kickstarter Backers Are Investors, and It’s Time They Got Used To It

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Many Kickstarter users still don't quite understand what they're getting into, or why the site is predicated on risk.

It’s been a rough September for Kickstarter. After a three-week period during which two major projects—each of which had raised more than $500,000 on the site—failed spectacularly, the crowdfunding platform has begun to look a little less like a harmless way for underdog visionaries to fund their passion projects and a little more like a casino. It hasn’t helped that a handful of Kickstarter scams and con men were exposed in recent months.

Recently, Kickstarter appeared to respond to the bad press by revising its terms of service. The new document does a better job of laying out the responsibilities creators have to their backers. No scamming, do your best, try to make it up to people if you fail, and so on. But that move likely won’t fix the deeper problem: That most of the site’s users believe that their donations entitle them to some kind of tangible reward, be it a smart watch or a bamboo beer koozie. In reality, nothing of the sort is guaranteed. That’s because Kickstarter backers aren’t customers making a purchase. They’re investors. And like all investments, Kickstarter projects have a chance of going bust.

To an extent, the confusion is understandable. Kickstarter calls itself “a new way to fund creative projects,” which sounds a lot more innocuous than “Craig’s List for angel investing” — even though the latter may be closer to the truth. Backers generally have limited information about the people they are supporting. And once a project is funded, they’re on their own when it comes to enforcing contracts with a creators — to the extent that such contracts even exist. In the event that a scammer takes everyone’s money and runs, Kickstarter won’t offer a refund or even chip in for legal fees. But at least in those cases there’s a clear basis for taking legal action (fraud); when money is squandered in a more conventional way — through bad business decisions — funders have no recourse at all.

However, before anyone deletes their Kickstarter app or swears off crowdfunding for good, it’s worth pointing out that you may have staked your retirement on a similar system: The stock market. Equity ownership, after all, comes with startlingly few guarantees. If Tim Cook decides tomorrow to spend all of Apple’s capital on a strategic Cheetos reserve, there’s really not much the average investor (without a controlling stake in the company) can do about it other than sell off the stock. Sure, the stock market does have additional important protections: greater transparency; legally empowered and (theoretically) independent boards of directors; dedicated regulators and watchdogs, and more. But in both cases investors take on a large amount of risk.

Does that make Kickstarter a bad deal? Not at all. In fact, the risky nature of Kickstarter is arguably the very thing that makes it worth using. Project creators offer something to backers — even if it’s just early access to their product — as a reward for taking a chance on a risky idea.

But it’s important to remember why the maker of that sweet felt iPhone case is giving you priority treatment: Things could all go south. And if they do, you’re the one who’ll take the hit.

TIME Video Games

Neal Stephenson Sheathes Crowdfunded Swordfighting Game for Good

Speculative fiction writer Neal Stephenson's ambitious history-minded swordfighting simulation will go no further than crowdfunded prototype, says the author.

So long, Clang. You were a very, very expensive curiosity, in part because your lead proponent is something of a literary treasure.

The crowdfunded project to develop an ultra-realistic motion control driven sword fighting simulation, which originally generated over half a million in funding but ran out of money in September 2013, has been officially shelved — it sounds like for good.

In a “final update” to Clang‘s Kickstarter site, Stephenson writes that he’s decided to “cut the cord, and announce the termination of CLANG.” He says he delayed announcing the end sooner because of “new ideas and opportunities” that were happening, and that he says “may ultimately wind up in some of the same places we wanted to take CLANG.”

But he says as far as Clang-the-Kickstarter-project is concerned, it’s over. He expresses regret that it couldn’t continue further, but makes it clear he believes it delivered on its promise, though assuming much of the blame for its inability to continue.

Last year, Subutai Corporation delivered the CLANG prototype and the other donor rewards as promised. The prototype was technically innovative, but it wasn’t very fun to play.

Stephenson, author of speculative fiction novels like Snow Crash, Cryptonomicon and Anathem, launched Clang in 2012 as a project he hoped would “revolutionize sword fighting video games.” Stephenson is a self-described “swordsmanship geek,” though I’m not entirely sure what that means. I can’t find anything about him actually hefting blades or suiting up to fence with sabers, foils or épées, but he often talks about sword history (at least in the many interviews I’ve read over the years), for instance admiring the way a show like Game of Thrones is careful to represent aspects of swordsmanship realistically.

Here’s Stephenson’s original pitch for the game:

Clang sounds like a classic example, by Stephenson’s own admission, of someone relatively un-versed in the insanely byzantine complexities of game design (and bringing a concept to fruition), but very well-versed in the history of sword fighting, over-obsessing about the latter and not enough over the former. As he says of the reasons that ultimately led to Clang‘s termination:

Some of these [reasons] were beyond our control. Others are my responsibility in that I probably focused too much on historical accuracy and not enough on making it sufficiently fun to attract additional investment.

The debate from here out, I suspect, is going to be over whether Stephenson and his cohorts delivered the goods. The promise made on Clang‘s Kickstarter page, somewhat buried in the print, does seem fairly unambiguous: “The next step is to build a functional proof of concept in the form of an exciting prototype we can share with you and use to achieve our next level of funding.” Anything subsequent to that prototype would have required additional funding, writes Stephenson — funding beyond the project’s original Kickstarted $526,125, that is.

I’m not sure anyone’s verified whether Stephenson and Subutai delivered their prototype or donor rewards to backers as claimed (it doesn’t seem that anyone’s yet written about their experience with the prototype). Stephenson says he’s issued $700 in refunds to “around two dozen CLANG backers” who’ve asked for their money back. He adds that the financial burdens on members of the design team, as well as himself, have been substantial, above and beyond the money spent from the Kickstarter pool:

Members of the team made large personal contributions of time and money to the project before, during, and after the Kickstarter phase. Some members, when all is said and done, absorbed significant financial losses. I am one of them; that has been my way of taking responsibility for this.

There are no further formal plans to return backers’ money (or at least no obvious ones). Stephenson ends his final update by offering a link to sign up for a list to receive updates about future projects, but cautions those projects may or may not come to anything. The reactions to the announcement, restricted to backers, have been mixed, from folks chiming in to express their support for Stephenson and satisfaction with the project, to others asking for their money back.

TIME celebrity

For $40,000 Run The Jewels 2 Will Be Remixed With Cat Sounds

"Meow the Jewels"

Run The Jewels—the rap duo made up of Killer Mike and El-P—really wants people to pre-order their second album, Run The Jewels 2 (or RTJ2), so they made some very enticing packages on Kickstarter to encourage it.

Their pre-order packages include basic t-shirt and record bundles and deluxe vinyl editions. Or, for $40,000, Run the Jewels will remix their entire album with nothing but cat sounds.

The band was probably just joking around when they devised that option and weren’t expecting anyone to pony up $40,000 to hear cats “sing” RTJ’s “All Due Respect” with added vocals from a cat version of Travis Barker, but they underestimated their fan base.

Now, one ingenious fan has started a Kickstarter campaign to make so-called “Meow the Jewels” a reality. The goal is to raise $45,100 (the cost plus Kickstarter and Amazon fees, plus rewards and shipping) so that Run the Jewels can re-record RTJ2 using all cat sounds instead of music. The band is on board with the plan, too. El-P took to Twitter to confirm that he would remix the album with cat sounds if the money came through.

The Kickstarter still has a long way to go (as of this writing, it only has $5,210 of their $45,100 goals). Run the Jewels 2 comes out October 28.

TIME technology

Three Ways Smartwatch Upstarts Can Survive the Apple-anche

Apple unveils new gadgets
Left: Pebble watch Right: Apple watch Oscar Galvan Felez—Getty Images; Monica Davey—EPA

The little guys who were on their way up the mountain now have to fight for air

The wearables market is technology’s latest battleground with small upstarts like Pebble and Omate, as well as early entrances from big players like LG, Samsung, and Google. Today, with their announcement of the Apple Watch, Tim Cook officially entered the race and upped the ante with Apple Pay. With Apple in the game, can a young, upstart company like Pebble, maker of the popular Pebble Steel smart watch, go the distance? Or will the small players with early leads get trampled?

In the technology world, the winners are rarely those with the best product, but rather those who have created the most ubiquitous platform. However, established companies that offer the advantage of experience often operate from a defender mentality – protecting their market leadership and brand. Small companies like Pebble offer a challenger mindset. Less tethered to existing platforms, they are free to push boundaries and explore new possibilities.

Consider the differences in how newcomers vs. veterans tend to think and act. I studied over 400 workplace scenarios inside corporations, comparing how inexperienced versus experienced professionals approach a particular type of work. My research shows that being a rookie – facing a new problem or a challenge for the first time – can provoke top performance. In knowledge work, rookies often outperform experienced players, particularly in the realm of innovation and speed.

Rookies tend to be unencumbered, with no resources to burden them and no track record to limit their thinking or aspirations. Because they face a daunting challenge, a desperation-based learning kicks in, causing them to work both hungry and smart. They reach out seeking guidance and feedback. They operate in lean, agile cycles and learn through experimentation and improvisation. While veteran players are pacing themselves for a marathon—rookies are sprinting.

Pebble CEO, Eric Migicovsky exemplifies much of this mentality that I call “rookie smarts.” When venture funding fell short of their need in 2012, he launched a Kickstarter campaign securing a record-breaking $10-million in crowdfunded cash. Migicovsky quickly ventured out of his native Ontario to scout for talent and build a network of advisors across Silicon Valley. When the company faltered from an early bet on the Blackberry platform, he quickly course-corrected and rebuilt the device to pair with Android and iPhone handsets. Through scrappy, fast, but smart action, Pebble boasts over 400,000 users.

Rookies can certainly outperform the incumbents, but they can also flame out fast or fail to marshal the resources needed to sustain victory in the long haul.

Newcomers like Pebble have several options:

  1. Find a new game. Rather than to go head-to-head with the bigger, established players, upstarts like Pebble may be better suited to continue playing the challenger role but in a different corner of the market.
  1. Stay in the race and compete on innovation and speed. With their small size and agile cycles, start-ups may be able to move faster and build a loyal fan base for their device and platform. But, even if they can out-innovate a proven innovator like Apple, it is only a matter of time before Apple produces a more distinctly wearable device and ubiquity beats out ingenuity. Without a partner to achieve scale, they will likely become another casualty along the path of technology evolution. They will have labored to loosen the lid, and then the veteran player will move in and open the jar.
  1. Play on a larger team. By partnering with or being acquired by a big infrastructure player, a start-up like Pebble can combine their fast-cycle innovation and rookie smarts with the critical mass of an established company. As the market continues to consolidate around platforms, the final victors are likely to be the established companies who can acquire the upstart leaders and then embed and nurture this rookie thinking inside their own company.

With today’s announcement, it is tempting to assume Apple will repeat its winning streak and will dominate not only the e-payment market but also the wearable technology market that allows users even greater ease and visibility to these transactions. But it’s too early in the race to dismiss the challengers. If companies like Pebble are in it for the long haul, they will need to do more than just think like rookies and sprint for 26.2 miles. To win big, they need to draw on the strength of the peloton and pair their capability with the power, savvy, and resources of industry veterans – those who are defining the rules. The challengers may stand ready to change the world, but they will need the help of those who know how this world works.

Liz Wiseman is the author of Rookie Smarts: Why Learning Beats Knowing in the New Game of Work and is a former executive at Oracle Corporation.

TIME Crowdfunding

This Smart Cooler is Now the Most Successful Kickstarter Project Ever

Coolest Cooler

Ice bucket meets challenge

Experts say wearable technology is the next big thing, but now the people have spoken. And the people don’t want smartwatches — they want a cooler that will make margaritas and charge their phones while blasting the latest Pitbull song.

The Coolest Cooler, which has a built-in blender, waterproof speakers, USB chargers, LED lights and other features, become the most successful Kickstarter campaign ever on Tuesday, the crowdfunding site announced. The project raised $13,285,226 from more than 60,000 backers in 52 days, beating previous record-holder the Pebble smartwatch, which raised more than $10 million in 2012.

The historic Kickstarter campaign marks the second attempt by creator Ryan Grepper to fund the cooler of the future. In 2013, his design failed to meet its $125,000 funding goal in time, so this year, he opted for a more modest $50,000 goal — that ended up raising $2 million in 24 hours.

Alas, the Coolest Cooler won’t be ready for any Labor Day bashes (Grepper is still finalizing the design and choosing a factory), but it is still coming to a pool party near you: backers who donated $165 or more are expected to receive the cooler in February 2015, and the item will likely retail for $299.

MONEY online shopping

WATCH: Kickstarter Raises a Record $11 Million…for a Drink Cooler

The Coolest Cooler comes loaded with USB chargers, a cutting board and a Bluetooth speaker. It'll even cool your food and drinks!

TIME Innovation

You Can Unlock This High-Tech Padlock With Your Phone

noke
FUZ

We’re almost to the point, technologically, where you won’t have to remember a single thing.

This newfangled padlock — called Noke — has no keys, keyhole or combination for you to remember, instead relying on your iOS or Android device to unlock it via Bluetooth. Get within 10 feet of the thing, keep your phone in your pocket and you’ll be able to unlock it. You can share access with other people as well, turn off the auto-unlock-within-10-feet feature and receive alerts whenever Noke is unlocked by someone else.

“But what if I lose my phone?!” you bellow, your face red with Internet nerd rage, your hammy fists pounding against your desk until they leave C-shaped sweat rings. You can unlock the lock by pumping the doohickies in a Morse code-like fashion you set in advance, like so:

noke code
FUZ

The padlock has a battery, which lasts a year and can only be removed when the padlock’s unlocked. If you manage to run it dry, there’s an emergency backup feature as well. It’s water resistant, and there’s a special bike cable available for $20.

This is a Kickstarter project that’s been fully funded, with the promise of the padlocks being shipped out early next year. Early backers can get a padlock for $59; the final retail price is set to be around $89.

[OhGizmo!]

 

TIME Internet

Kickstarting Equal Pay: Women Out-Raise Men on Crowdfunding Sites

Call it the funding gap instead of the pay gap

It’s an unfortunate but well-known fact that women trail men in most metrics of business success. But a recent study shows there’s one area of enterprise where women are surging ahead: raising money online via crowdfunding.

On Kickstarter, where backers make monetary donations to projects and businesses in exchange for small rewards, about two-thirds of women-led technology projects reach their fundraising goals, compared with a little less than one-third of male tech ventures, according to the July study from the University of Pennsylvania. Overall, the study found that women are 13% more likely to meet their Kickstarter goals, after controlling for factors like project type and amount of money.

Ethan Mollick, an assistant professor at the Wharton business school at Penn who co-wrote the study, told the Wall Street Journal that women’s success on Kickstarter may be precisely because they are so underrepresented in areas like gaming and technology. These female-started ventures get backed by “women who are activists who want to reach out and help other women,” he said.

That was certainly the experience of Joanna Griffiths, who raised $100,000 on Indiegogo, another crowdfunding site, for her women’s underwear line Knix Wear Inc.. The money came largely from women backers. “It’s a female product. It’s a female team,” she told WSJ. “There’s very much a connection there.”

Alicia Robb, a senior fellow at the Ewing Marion Kauffman Foundation, authored another study on crowdfunding that found 40% of Kickstarter ventures funded by women were led by women, compared with only 23% of projects backed by men.

In other words, women are more likely to support other women than men are.

TIME Food

This Is How the Potato-Salad Kickstarter Guy Plans to Spend the Money

Potato salad at a picnic
Lauri Patterson—Vetta/Getty Images

The guy who raised over $55,000 to make potato salad is throwing a festival and donating money to fight homelessness in Ohio

The guy who raised over $50,000 on Kickstarter to make potato salad has big (and charitable) plans for the funds 6,911 people helped him raise.

On Sept. 27, Zach Brown will host a free family-friendly festival called PotatoStock in a Columbus, Ohio, park. The festival is set to feature local artists and reportedly boasts relevant sponsors like Hellmann’s and Idaho Potatoes.

On Twitter, the account for Idaho Potatoes seemed excited about the event.

The festival, which Mashable reports will feature an estimated 200 lb. to 300 lb. of potato salad, also has a philanthropic ingredient. Proceeds from concessions sold at the festival will be donated to help end homelessness in Central Ohio.

“We are going to contribute a significant portion of the remaining money to the fund at the Columbus Foundation,” Brown wrote in July announcement. “This will create a permanent fund to help Central Ohio’s non-profits end hunger and homelessness. These types of funds gain interest every year and grow over time, so, while our little internet joke will one day be forgotten, the impact will be felt forever.”

In an interview with Mashable, Brown said he’s still working to secure a big name that will draw a significant crowd to his potato fest — but he’s sure his Kickstarter backers will show up.

“I keep hearing people saying that they plan to road trip to PotatoStock from [out] of town,” Brown told Mashable. “I’d love to see a huge pilgrimage to Columbus.”

TIME Crowdfunding

More Than 4 Million People Visited the Potato Salad Kickstarter

Scandinavian potato salad from Silver Palate. (Bob Fila/Chic
Scandinavian potato salad from Silver Palate. Chicago Tribune—MCT via Getty Images

Forget Oculus Rift and the Reading Rainbow reboot—a bowl of potato salad was better able to hold the attention of the Internet this summer.

Crowdfunding site Kickstarter today revealed a bevy of stats related to what has become one of its most famous (or infamous) projects, an initiative by a random guy to make his first-ever bowl of potato salad. The project gathered widespread media attention and ultimately attracted 4.1 million visitors to its web page, making it the fourth most-viewed Kickstarter project of all time:

 

tater sald views

 

Unlike many widely-viewed Kickstarter projects, almost everyone who viewed the potato salad project got a hearty laugh and then went about their business. In the end, the project earned just $55,492 from 6,911 backers. Oculus Rift, for comparison, made $2.4 million, and Reading Rainbow racked up $5.4 million, though both attracted fewer visitors than potato salad.

On the other hand, though, a guy made a cool $55,000 just by saying he wanted to make potato salad. This is the great, democratizing force of the Internet.

Unsurprisingly, most of the project backers came from the U.S., with the United Kingdom and Canada being the next-biggest potato salad backers. Among U.S. states, the most backers hailed from Ohio (potato salad connoisseur Zack Brown’s home state), California and New York.

tater salad map

Brown is planning to host a festival called PotatoStock2014 in Columbus, Ohio with live music and, of course, lots off helpings of the tasty side dish. Proceeds will benefit a charity aimed at ending homelessness in Ohio. A portion of his potato salad money will also be used to start a for-profit venture to “spread humor and joy around the world,” he said on his Kickstarter page.

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