This weekend’s New York Times Magazine story about the failure of the ZPM espresso maker Kickstarter reminds me to say: Kickstarter is a tool for managing risk.
Kickstarter specializes in creative projects, but creative projects are inherently risky. They are risky in an artistic sense: creativity is an uncertain and unpredictable process. They are risky in a transactional sense: you never know how good a book is going to be until you’ve read it. And they are risky in a financial sense: they take investments that may never be recouped by anyone.
Sure things don’t need crowdfunding. If you run a sandwich shop and you need money to buy more bread and cold cuts, you can borrow it, because the bank can be confident that you can turn the ingredients into sandwiches and sell those sandwiches to customers. It’s the significant danger that an entire project will tank that makes this model unappealing for creative projects. If the game isn’t fun, or the watch doesn’t work, or the footage is unusable, either the creator or the bank will be out a lot of money.
The Kickstarter model shifts some of this creative risk onto backers. By fronting the money, they climb in the boat with the creator. Ideally, they make a rational calculation about how much they’re willing to lose if sinks. (Kickstarter’s required disclosures are supposed to help backers make this decision.) And ideally also, the unique personal appeal of the project gives them a good reason to take on that risk. (Kickstarter’s required video and other personalizing touches are supposed to help create this solidarity.)
But this means that failed Kickstarters are normal accidents. It’s built into the model. Even successes are late three-quarters of the time. This doesn’t mean that any given project that fails does so for good reasons. There are scammers on Kickstarter, and flakes, and bad-luck cases, and well-intentioned creators who get in way over their heads. Kickstarter’s rules try to reduce these unforced errors. But they can’t completely eliminate failures, not without eliminating the very elements of the unknown that make creative projects compelling. If Kickstarters never failed, it would mean that creators weren’t being ambitious enough.