So maybe by now you’ve heard that I’ve been acting like an immature child again. You might remember back in April of 2013 I tried to use Kickstarter to get a Delivery Lamborghini for which Kickstarter rightfully said no, although they did it for all the wrong reasons. Instead of citing their rules, which my project was not any more or less in violation of than many other projects, Kickstarter should have simply said “this is our website and we will reject you simply for attempting to make a mockery of it.”
Since then, Kickstarter has loosened their guidelines as to which projects are allowed. In the same amount of time we’ve seen Zack Danger Brown (who I just assume is a brilliant satirist) raise over $50k to make potato salad. (Note: this was previously well over $61k, so somewhere along the lines some money fell out). We’ve also witnessed some lady raise over $24k to basically send her kid to camp, a Seattle man raise $431 for the world’s biggest dick drawing, and a man raise over $700k on a piece of frickin’ plastic that fills water balloons. Notably, we’ve also seen the launch of Stone’s campaign to raise some funds for their European expansion, which is at $465k of their $1 million goal.
A number of folks have surmised that this is all poking fun at Stone (by the way, it is definitely worth noting that Stone co-founder and CEO Greg Koch has pledged $100 to the Lambo campaign – thanks Greg!), which is not the case. I have a number of friends who work at Stone and I have a tremendous amount of respect for them and their brewery. I met and got engaged to my wife at their brewery (5 years later… it would be weird if it happened on the same day). So, this has really nothing to do with Stone (is has much more to do with potato salad and a video game, more on that later).
With 22 days to go in our campaign, we are sitting at slightly under 1% funded. I don’t think we are going to make it. But as you might imagine, this campaign isn’t really about Lambos (but make no mistake… I’d take one in a heartbeat). It’s about the evolution of project financing. Crowd funding is an amazing tools that brings many ideas to life that may not otherwise have the opportunity. It’s especially useful for project in the non-profit, arts and high-tech space. I have no beef with the idea of crowd funding and giving these ideas a place to become reality. My beef is with a system that allows us to fund ideas in exchange for swag instead of equity.
Take a look at Oculus Rift, a Kickstarter-funded game that was recently purchased by Facebook for $2 billion. 9,522 Kickstarter users funded Oculus to the tune of $2,437,429. Let’s assume that the net proceeds of the Kickstarter campaign (the amount they raised less fees and the cost of fulfilling rewards to backers) was 10% of the total start-up equity capital needed for Oculus to reach the phase in its evolution where it could make this sale to Facebook (I have no clue what the real total equity capital was). If this $2,437,429 were raised in exchange for equity, then 9,522 Kickstarter backers would be entitled to $200 million from the Facebook deal, less their pro-rata share of fulfilling any outstanding debt obligations. For the 7 people who contributed $5,000, that would be a payoff of $410,268. Even for someone who only contributed $75, they’d be getting a $6,154.02 payoff!
There is a reason that wealthy venture capitalists are wealthy… it’s because they back projects for a return on their investment, not for t-shirts, bumper stickers and high-fives. Crowdfunding sites like Kickstarter and IndieGoGo have brought the ability to participate in projects at the ground level without bringing the reward of doing so to its backers. Granted, people are VOLUNTARILY contributing to their projects, and they are pleased with the reward they get, fine. My point is that consumers/backers at this level SHOULD be demanding the same access to returns that wealthy VC’s have. In a larger discussion about income inequality there is a deeper seeded discussion about opportunity inequality, and it is especially stands out in cases like these.
I am aware of at least two sites that are working to bring equity-level backing to crowd-funding deals. This is a good thing, but there is an appropriate level of regulatory oversight that needs to be in place. We don’t want people to be conned into investing their funds into snake-oil schemes – in those cases, a t-shirt and a high-five would be better! However, it is my belief that those people who provide funding for for-profit ventures should be entitled to a return on that funding. We need a way for main-street America to safely make these kinds of investments. And for-profit entrepreneurs should be willing to compensate people taking financial risk!
This was extremely long-winded, but I wanted to provide some background on why I do things like this. This isn’t an issue I should even be involving myself in. A lot of people laugh, but it turns off a lot of people too… and that’s not good for business (which feeds my family and the families of my employees). But it is something I feel strongly about.