Crowdfunding becomes a rising star in recent years and had created many star products, but we may not know that in fact the failure rate is as high as 60% !
“Use your money, round my dream”. The idea of collecting money or fund-raising from the public on internet and the rise of crowdfunding platforms are just crazy phenomenons in recent years. According to various crowdfunding platforms, the growth rate doubled from the previous year. But do we really know that dream is not at all simple ?
“Crowdfunding” is indeed a charismatic financing method. In addition to address to the capital threshold, it will also allow to test the market temperature and the marketing effect. Best example to illustrate this is the Pebble’s smart watch. Through its launch website, Pebble raised millions of dollars. Now they ship more than one million products per year and is a world’s leading brand.
When fully successful in crowdfunding sites, it can also quickly put the brand at the center of media and investment communities. The leading social networking site Facebook hit $2 billion acquisition of virtual reality device developers Oculus VR. This founder was only a 21-year old with no product available at that time. Because the website fund-raising compagne was super successful and raised $2.43 million. It became so successful and Facebook was willing to put the money on the table and « buy just the air ».
Crowdfunding ecology is not what we think that easy. Indeed latest statistics from Kickstarter shows that crowdfunding is actually a very brutal knockout contest.
According to the information provided, more cases put forward on the shelves more it would diversify funding target. As a result, the success rate broke below 40% for the first time since the platform’s launch. It proves money does not fall from the sky by itself.
Phenomenon 1 : Media darlings are risky and Technology category has highest failure rates. Putting forward a project on crowdfunding is not just try and test water. In addition to the hard work, it is needed to make every single effort. Higher spotlight project proposals bound more risks behind. Data from Kickstarter showed the success rate for Tech category projects, however, reached only 23%.
And even the fund-raising target is reached, it’s hard to guarantee a successful product production and on-time delivery. According to statistics, the probability of final products delivered on time in hands of the bidders is less than 2% ! Worst of all, data showed also that big risk of final product received is not as cool as imagined.
This situation in the US has led to some consumer disputes – the participants receive bad products. Not to mention the goods warranty or nowhere to claim for the service.
In the US, this has led to more court cases. In Washington state, negotiations began on making legislations to prevent the group fund-raising site from becoming “funds robbery” hotbed.
When the public start to raise awareness on purchasing or participating crowdfunding « carts » than traditional e-commerce websites. Users became conservative.
Visibly, consumers have tendencies to support more on practical and fun products; instead of those looks « handsome but must share the failure risk » type of conceptual products.
Phenomenon 2 : Audio and video categories have clear demands and low-threshold sponsorship
So, what categories do people like? The answer is, surprisingly, music and movie. The overall success case number is 35%, out of it total amount raised accounted only for 19%. It’s the « popular king » of the crowdfunding websites.
Music and film category have demands with strong affiliation. It is easy to attract sponsors across ethnic groups. Also, the required funds in this category of products is not high and with low consumer sponsorship threshold. However, it is relatively difficult to obtain huge fund injection.
Amongst the 19,000 Kickstarter success cases of music-related projects in Europe, only one which had raised more than $1 million.
Because of small and scattered characteristics, the media exposure on music and movies financing cases is far less than funds raised record-high Technology products.
Gaming, to the contrary, had attracted more fundings and often exceed millions of US dollars. Out of the 92 successful fund-raising cases, which exceed the million dollar threshold, gaming types accounted for 39. The success rate is 33%, which is higher than the technology-based 23%.
Phenomenon 3: News category is highlight of the year, average capital injection is 4% higher than the Music category.
For example, « Exploding Kittens » created by XBOX former chief designer, had broke the record of highest numbers of sponsors created in just 10 days since its creation. This year, the game software « Kingdom Come : Deliverance » from Czech Republic had gained a reputation in the European players and had raised immediately of £1.1million.
Kickstarter had 2 black-horses last year – news and crafts. Amongst the 158 news-related report coverage projects which had successfully launched, the amount reached are surprisingly high. In average, each consumer sponsored €10 000.
“Crowdfunding results reflect the social landscape.”
However, when the success stories tend to a particular category, it also means other categories of proposals may be sacrificed. It means also more people know how to use this channel to voice out, to challenge the overall planning capability of the founders.
“Nothing can be omitted in crowdfunding website”. Without careful planning, the project might just like a stone being throw into water, engulfed at once.
In 2014, the 5 categories which reached the highest success projects numbers.*
- Music: 4009
- Movie: 3846
- Publication: 2064
- Game: 1980
- Art: 1798
*Source by Quickstarter
