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Funding Your Project Pt. 1: Kickstarter and Lockitron

Posted By Dominick Severance, Jan 22, 2013

Kickstarter is a website that allows companies to submit projects to the Kickstarter community for funding of a target amount. On Kickstarter, the submitting company only receives the funding if the community pledges the target amount. The company usually incentives the community through tiered rewards – for instance, the company could offer a free unit if the backer pledged $10 and a unit signed by the developers if the backer pledged $15.

Kickstarter currently is a win-win for both consumers and the submitting company. Consumers can fund projects they want to see come to market and companies receive capital and valuable market exposure. Moreover, because there is no cap on the amount of money that the community can pledge, a company can receive thousands of times the amount they initially targeted. In this way, the company can forgo venture capital funding entirely or use the amount pledged and number of backers to support an initial financing round.

On the subject of risk, Kickstarter is similar to investing in a private company - there is little disclosure and a high chance of failure. In a recent blog posting Kickstarter outlined two main changes that should help alleviate risk for backers. For starters, Kickstarter is requiring that creators include a section on the project page discussing risks and challenges the project faces and how the company plans to overcome them. Secondly, hardware and product design products can only be shown performing actions that they’re able to perform in their current state of development. Kickstarter justified these changes on the basis that companies should underpromise and overdeliver and not set expectations too high for backers.

Lockitron is a company that produced a replacement deadbolt system that allowed a user to lock and unlock the door right from a program on their mobile device. Initially, Lockitron sought to crowdfund version 2.0 of their deadbolt system on Kickstarter, but Kickstarter rejected the project. Not giving up, Lockitron updated their website to crowdfund their own project. Lockitron put up a product page for the Lockitron 2.0 with a $150,000 target goal, a 30 day deadline to reach that goal, and an Amazon payments link that allowed customers to reserve a unit for $149. The deadline passed on November 3 with 14,704 backers for a total funding amount of $2,278,891.

Regarding the future of crowdfunding, Lockitron’s co-founder Cameron Robertson plans to open source a skeletal version of a crowdfunding app to help other companies do what Lockitron did. Cameron thanks Kickstarter for validating the crowdfunding concept and acknowledges that Lockitron’s approach isn’t perfect. Cameron admits that Lockitron’s approach required it to have some initial resources to kick off production of the product whereas Kickstarter’s method allows companies to receive the funds earlier. In the end, Lockitron’s success seems demonstrates that consumers will support great products even outside of Kickstarter.

Source (Techcrunch): http://techcrunch.com/2012/10/07/the-story-of-lockitron-crowdfunding-without-kickstarter/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29

Source (Kickstarter Blog): http://www.kickstarter.com/blog/kickstarter-is-not-a-store