The two are definitely connected if you’re familiar. Kickstarter and other crowdfunding mechanisms (IndieGoGo, RocketHub, Bandcamp/ArtistShare, etc.) serve as ways for people with ideas to meet people with money. In the biggest one, Kickstarter, people with creative ventures raise money in small to large amounts from contributors via Kickstarter’s site. In exchange for contributing seed money, the startup promises anything from an honorable mention, to keychains/T-shirts, to a finished electronic device, depending on contribution size. Basically, it’s a way to appeal to people directly and bypass traditional banks, fund managers, and venture-capital groups- the very people Occupy Wall Street seeks to take down a notch for leading the financial crash.
I’m here to state that crowdfunding works in some cases, and might possibly take banks down a notch- but no more. While I welcome new ideas, and new entrants into consolidated fields, there are significant limitations to the Kickstarter model. It’s a start, but Wall Street ain’t kicked out yet, nor any time soon.
Kickstarter and similar groups only work with capital-seeking ventures that have mass appeal- consumer products, art pieces and performances, gadgets, public web sites, and similar. Crowdfunding does not work with obscure subjects, like deep tech or ideas far-flung in schedule or geography. Public appeals should stick to public subjects, and the number of people who “get” (or “grok”) extreme ultraviolet lithography or mining of undersea vents is not large. The number who would, then, donate significantly is not that much larger than the investor community that already exists. Venture capital works because the venture backers have the day job of getting into XUV or geothermal leaching or whatever- they are not dabblers. There is future potential in crowdfunding, of course. If the brand of “Kickstarter” or other, similar group got big enough, they could start sub-sites, each for a more involved topic like chip fabs, or deep-sea resources. If you happen to be a geek for that discipline, you could then go one step deeper than the main Kickstarter field. This necessarily means fewer donors than the main Kickstarter field, of course.
Kickstarter and similar groups almost always work with low- to moderate-sized investments. Lots of people will trust ten to a hundred bucks to Kickstarter and its entrants. How about four thousand, the size of a moderate stock trade? How about twenty thousand, a good fraction of your entire portfolio? How about millions, a starting point for a venture-capital firm or bank? Yes, there are Kickstarter projects that broke a million, but these are the exception, not the rule. You’re kidding yourself if you think you can build yourself a major factory (and fill it) via petty cash. Supposedly, crowdfunding makes up for it with quantity- lots of average consumers compensate for each one donating a smaller sum. But, as stated above, this then requires that the project have mass appeal… a lot of mass appeal, and publicity, and good will among that mass. Good luck.
Again, there’s future potential. Kickstarter can do deeper vouching of its member ventures. It can stand by the credibility of experienced or well-thought-out projects, and actively weed out the riskier ones. After all, a majority of Kickstarter projects run into speed bumps. The crowd of donors would then feel better and donate higher antes. But to do this, Kickstarter would need more expert staff (not cheap), a higher overhead cost and cut of the donations, and a narrower, less-risky and thus, less-exciting spread of projects. A Kickstarter that looked too much like Fannie Mae would no longer be Kickstarter.
Kickstarter and many similar groups, then, exploit excitement- “sizzle” in marketing-speak. Lots of perfectly worthwhile ventures lack sizzle- home construction, water and sewer infrastructure, agriculture and other commodities, to name just a few. These fields will continue to be served by traditional finance- the big, old, boring banks and firms that have been present since forever, it seems. Sometimes a day job, dull as it may be, has to get done, so you can play with your gadgets and art on the weekend.
Which is not to say weekends are worthless. As I’ve mentioned, I have an MP3 player, and yet I still rack up CDs- CDs of music, CD-ROMs of computer backups, and software distributions from boring companies in boring offices. Doesn’t mean MP3 players aren’t valid and valuable. Similarly, I appreciate that Kickstarter exists, even if I haven’t donated, let alone made any profit.