Patent practitioners are often asked questions about business topics outside of intellectual property. One question I hear frequently is how to get funding for a new product. A newer source of startup capital is “crowd funding” through websites such as Kickstarter.com, Peerbackers.com, and IndieGoGo.com. These are examples of crowd-sourced funding platforms where backers financially support creative projects, including new product ideas. An inventor will post his idea and a financial goal for a set period of time to one of these websites, and if enough supporters back the idea by pledging small amounts, typically $25-$50, then the goal is reached and the credit card of each backer is charged. The crowd-funding website takes a cut, such as 5-10%, and the inventor gets the rest. If the goal amount is not met in time, none of the backers are charged and the project fails.
As an incentive to back the project, backers receive rewards determined by the inventor and the pledged amount. For example, at a $25 level the backer might get one of the first production units, or a signed copy of the patent, or some such. This seemed like a great way to test market an idea before spending money on it… “raise the flag” and see who salutes. If there’s demand for the product, the campaign should succeed and you’ll be on your way. If you can’t raise the goal amount it might be an indicator that the product would be a flop anyway and you’ve learned this without having to finance product design, tooling, and an initial production run. Pledges are not investments or loans, so there are no further obligations (after the rewards are delivered, of course).
New product ideas at these websites are typically listed under “technology,” and there have been several huge successes in this area. For example, if you click on Kickstarter’s “Most Funded” link you’ll see a product idea for a watch kit that raised nearly $1 million (the goal was $15,000). The next most-successful project was a rolling camera mount that raised nearly half a million dollars (the goal was $20,000).
I’ve been intrigued with this concept since first hearing about it, so after suggesting the website Kickstarter.com to a few clients I thought it would be good to try it out myself to see if it lives up to its hype. As an inventor as well as a patent agent, I had several product ideas I could have used to as a test. But looking through the various projects that were posted on Kickstarter, I determined to try a more “artsy” project. Many of the projects on these sites are geared towards the creative arts rather than technology or new products.
As it happens, I had just such a project in mind. Over the last several years conducting patent research, I have come across many patents that have amazing artwork. I started saving these patents in a file for an art book, since patent art is public domain and thus the bulk of the book would be free to create. With this project in mind, I launched a Kickstarter campaign aimed at raising $10,000… enough for an initial print run of 500 books, a suitably-artsy website, and enough funds for a reasonably-sized test mailing to, say, 5,000 patent attorneys (addresses free courtesy of the PTO). You can see the resulting Kickstarter campaign for The Art of the Patent book at http://kck.st/oRyLP8. It ran for 30 days (which I could have extended to 60 days), and raised $10,528, just over the goal. As a result I was able to finalize the book and get it printed, as well as finish the website at www.ArtofthePatent.com. I’m happy to report that the book is now available on Amazon and other on-line retailers (just in time for Christmas!).
So here’s what I learned about Kickstarter specifically, and crowd funding in general, after running a campaign. Please remember this is just one data point, so your results may vary.
1) The crowd-sourcing platform must accept your project first.
As mentioned above, the bulk of the projects tend to be in the creative arts: film, writing, music, theater. So your new tool invention for construction workers might not make the cut. But each of these crowd-funding websites has its own flavor, so hunt around for the one that looks to be the best fit. Also, be sure to analyze other campaigns on the site, and review any tutorials or help sites (such as http://www.kickstarter.com/help/school) before launching a project.
With this in mind, you might not want to spend money on the project, videos or 3D models or what-not, until you’ve been approved. I did this completely backwards, not fully understanding that if the Kickstarter folks had denied my project I would have been stuck with a video that I couldn’t use. Thankfully, my campaign was approved.
2) Every campaign needs a video and suitable rewards
If your project is accepted, there are some key elements to your campaign that must be complete before launching. By far the most important element to a successful campaign is your campaign video. You don’t have to be J.J. Abrams to make a successful video… it just has to be good enough to retain viewer interest and not turn people off. Nothing fancy… mine was just a “standard interview” type video with an upbeat intro. My main goal was to have good audio and lighting. Since that already exceeded my personal capabilities, I looked on Craigslist for “video” under services and emailed a couple of the wedding videographers listed, thinking that they might want to work on my project during the week between weddings. The result was a nicely done video for $400 after a three-hour shoot, all editing, effects and copyright-free music included. (Remember that you can also use your video on your product website or YouTube for marketing later, if it’s appropriate… you might want to plan for that when writing the script).
For an example of a very nicely-done “high-end” video, see the campaign for “the Oona,” a versatile smart-phone mount (http://kck.st/laiW7L, and also at www.theoona.com). On the simpler side, “Revolights” (http://kck.st/pfYXcN) is a basic video. Both of these campaigns were successful, and give you an idea of the range of what might work. Additional video tips can be found at http://www.kickstarter.com/help/school/making_your_video.
Also vitally important are the backers’ rewards, for two reasons. First, the rewards have to actually be motivating. Few people would be encouraged to fund your project if the reward isn’t commiserate with its reasonable retail value. To get a baseline for rewards that would be appropriate, I simply reviewed some of the successfully-funded book campaigns in the “art book” category to see what others had done. The main campaign I modeled my rewards after can be seen at http://kck.st/uBaeF7 (this art book of automobile sketches raised $55,857 with a goal of $10,000). If it worked for them, I figured, at least it’s a tested set of reward types and one less variable I have to worry about.
The second reason you have to get these rewards set correctly is that you don’t want to go broke when it comes time to make good on your promises. The idea is to make enough profit after you’ve shipped the rewards so that you can actually accomplish your other goals. For example, one of my clients was successful at raising over $5,000 (with a goal of $4,000) for his mustache comb (see http://kck.st/uUPTAi and http://www.cowboycomb.com). This was enough to cover his tooling cost and the initial production run of 1,000 units. Shipping costs for this product were relatively low due to its size, and so he was able to basically get his tooling costs covered by this campaign without taking the traditional risks of paying for tooling up-front. Now if you don’t set your goal high enough to cover these costs, or if your rewards cost too much to produce and ship, you could even lose money. So count the cost… if your goal is $5,000, and your average reward is $45, then you’ll have to get 120 backers in 30 days to succeed. But if your tooling cost is $3,500, that only leaves $12.50/ea to produce and ship the 120 rewards (and don’t forget that you might have a minimum order size on your first product run). It’s just a math problem, but one you want to get right.
It’s important, by the way, to consider the cost of shipping rewards overseas. Shipping is not something that’s automatically calculated by these websites, so you have to take it into account ahead of time. I asked foreign backers to add $15 for overseas shipping, but your cost may be considerably different based on the weight and dimensions of your reward. Nearly 10% of my backers were from foreign countries. Again, your results may vary, but there is a significant foreign audience.
3) Your goal amount should be the minimum required to launch
Setting your goal correctly is at least as important as setting your rewards. The FAQs on all of these sites all say to set your goal to the minimum that you need to launch the product, and after running a campaign I completely agree. I still could have produced my book with a goal of $5,000, and that would have been a much more reachable and less nerve-racking goal. But I wanted to hit five-figures, and when perusing all of those successful campaigns (some of which had hit six figures) it’s easy to have delusions of grandeur. I just barely made my goal, but I was sweating bullets at day 22 or so with another $2,500 to go and no good ideas for additional marketing of the campaign. Instead of risking the backing I had received by setting a goal too high, it would have been smarter for me to set a lower goal and hope for a 150% funding success instead of the 105% I did barely obtain.
The other school of thought, of course, is that you don’t get what you don’t ask for. So why not set a higher goal than you really need? Won’t people be disinclined to back a project that has already succeeded, and instead put their money towards getting someone else over the goal line? I think not, for two reasons. First, a campaign that is highly successful generates some if its own compounding success. You get listed on the “Popular this week” section, and people will want to why you’re getting such a large number of backers. It provokes interest from a larger audience, which can only be helpful to your bottom line. Second, I think people are more inclined to back a project that is clearly, overwhelmingly loved than one that is only marginally successful.
For example, take the Kickstarter campaign for “the Oona,” mentioned above (see http://kck.st/laiW7L). With a goal of $10,000, this campaign raised over $130,000 in thirty days. The goal was reached within seven days, and the campaign just built momentum from there. Sam Gordon, one of the three partners on this project, told me that they had calculated the goal as the minimum that would allow them to cover the costs to fulfill a couple of hundred units and be “in business.” But when they ended-up with nearly 4,000 backers, it changed the nature of their model. Suddenly they felt that they had to step it up a notch… retail packaging, legal issues such as consumer products safety and proper legal disclaimers, and how to fulfill thousands of units instead of a couple hundred. All good problems to have, but problems that require a recalculation nonetheless.
Also, the Kickstarter staff determines which projects they promote on the home page, in their emails, and on their featured sections of the website. I tried to get them to feature my campaign, like I’m sure every other campaign does, but it was never given any special promotion (neither was the Oona, by the way). It was an “editorial decision,” they said. Remember that Kickstarter doesn’t get paid their 5% unless the campaign successfully funds (which is great because if a campaign fails, at least you didn’t have to pay anything to Kickstarter). And I’m sure that the editors do pick some projects to feature that they just like, regardless of the funding status. But I’ve got to believe that another driver is the fact that promoting those projects that are clearly on a path towards early success, or even already over the top, helps their decision making process… at least a little. And this brings us to the fourth point, which is…
4) Don’t rely on the native audience
Upon launching your campaign, do not expect the Kickstarter native audience to get you to your goal. It’s easy to believe that if you launch the campaign, the backers will find you. After all, these websites market to some extent, don’t they? In this campaign I estimate that about 60% of the funding came from people I know, or as a direct result of efforts I made. Now I am blessed to have a list of 2,000 clients, and when I emailed all of them (twice) about this campaign, about 40% of my goal came in. The other break I received, thanks to Gene Quinn, was a mention on this blog, IPWatchdog.com, one of the most widely distributed blogs aimed directly at my target audience for the project. At the same time I received a mention in on a Facebook business page that has over 100,000 fans, and between the two I received another $2,000 or so (it’s impossible to know the distribution between the two, unfortunately, because these both hit at about the same time).
Case and point, with The Oona project more than 70% of the backing came from the partners’ efforts to get listed on external high-traffic blogs, such as the FastCompany design blog and the Unofficial Apple Weblog. “We did not just sit back and wait to see what happened,” said Sam, saying that all three partners had hit-up every publication they could think of for a mention about their Kickstarter project.
5) Follow-through on your promised rewards
Finally, and this really should go without saying, it’s important to actually follow-through with your rewards. Obviously things can happen to alter your production plans, but it would be quite embarrassing if you have to explain to your backers that the tooling cost was “more than you expected.” Come on now… isn’t that almost always going to be the case? With my project it turned out the book printer I was originally going to use—what a surprise—couldn’t do “gutter bleeds” (whatever those are). So I would have had to reformat 200 pages of my manuscript to create 0.75” of white space on the inside margins of every page. Luckily I found a printer that could do what I wanted, and was about the same price. But that was lucky, and illustrated a hole in my planning. Do your homework when determining your goal and your rewards. Don’t just rely on the back-of-the-napkin calculation and end-up launching your mission with insufficient fuel to get there.
I like crowd-funding, and I’m planning to launch another campaign for a non-disposable coffee cup sleeve idea (Patent 7,922,031, just issued in April… yes, Starbucks has already turned it down twice). I’ve received initial tooling quotes at about $2,500, which will include a run of 1,000 units. So a $5,000 campaign this time should do the trick after adding reward delivery and video production. Worst case, it fails and I only have to pay for the video and my effort at setting-up the campaign. What’s more likely is that it will just barely fund, and the tooling will be paid for. Best case, it raises $100,000 and everyone loves it (and Starbucks calls me this time!).