Following up on our previous post on how to run a successful crowdfunding campaign (which you can find here), here are our thoughts on how to evaluate campaigns from the perspective of a backer.
We've backed many campaigns both as a company and collectively as individuals. We've spent countless hours reading and assessing comments, campaign updates, and campaign pages.
We'll start off with a high-level look at why many campaigns fail, then we'll dig into how you can vet campaigns before taking the plunge and backing them. We'll wrap up with an assessment of a campaign that's currently live.
3 common reasons for crowdfunding failures
1. Poor cash flow projection/budgeting
How a creator looks at the money raised in their campaign is very important. Most creators don't spend enough time planning how they plan to use campaign funds, calculating and projecting their projects' burn rates, considering how salaries will be paid, and mapping out hiring plans.
Unfortunately, the most popular crowdfunding platforms (Kickstarter, Indiegogo) don't require creators to disclose this information in their campaigns. Information about how creators plan to use campaign finances is useful because it helps backers understand whether or not creators recognize that funds raised from crowdfunding are effectively debt on their books—they are a liability to be repaid in the future.
2. Overpromising based on current prototypes' capabilities
Because we all overestimate our abilities sometimes...
The larger the delta between what a prototype can do at a campaign's launch and what the creator says the product will be able to do when it is delivered, the more cautious you should be in backing a project.
A creator who launches a campaign with a non-functioning prototype and promises that their end-product will smash competing products' features is asking for a world of trouble.
This trouble manifests itself in the form of development time (and risk) once the campaign is complete. It's often hard to pinpoint exactly how much additional time will be required for product development (especially in young organizations). This time and risk further exacerbate potential cash flow challenges that may arise due to a poor understanding of the costs, difficulty, and time required to manufacture products. This leads us to our last high-level point….
3. Too much demand, coupled with an inability to scale manufacturing
Crowdfunding campaigns do this horrible thing where they give creators a synthetic huge spike in demand (campaign orders) when they are least likely to be able to fulfill them (when the creator is in prototype stage).
This inflated demand means that creators feel pressure to deliver on it all at once, and usually spend a huge amount of money setting up their manufacturing operations to a scale that is not necessary. This means upfront costs for molds, renting factories, buying mass numbers of parts based off of small sample orders.
The issue here is that when something goes wrong, it goes wrong on a scale 10x bigger than the creator has budgeted for, or is ready to handle.
So, what are the signs of these campaigns? We often share and discuss campaigns around the office, and speculate whether or not the teams behind them will be able to fulfill the promises they’re making. Here's an inside look at how we vet campaigns.
3 things to do before backing a Kickstarter campaign
These steps should help you evaluate a campaign's likelihood of being successful.
1. Find a third-party demo of the product/prototype working
There is no shortage of meetups, trade shows, MakerFaires, or general communities when it comes to technology. It’s really easy to buy into online marketing (we’ve all done it), but showing the community something real (and having people see a demo of the prototype) is the least people should ask for when thinking of spending more than $100 on a Kickstarter campaign.
A recent situation popped up in the community where a creator’s was accused of using other (industrial) technologies to create the samples they were showcasing on as creations from their own product. Backers requested in-person, live demos for proof, and when the creators were unable to accommodate these needs, it created more skepticism and resulted in the eventual suspension of their campaign.
I’ve met creators at an event where their prototype was not being used because there was nowhere to plug in their product's power supply. There was a nice looking prototype at the booth with samples; however, nothing was coming off the machine. Things like this should cast immediate doubt. If there is something of substance there would be excitement around showing it off. There will always be a fear of live demos failing, but if issues arise, people can often be forgiving. It's better to try the live demo and have it fail than not show anything at all.
2. Find out how much product development is still needed upon the campaign's launch
One of the great Kickstarter failures in our space, "The Buccaneer," is a great example of this. On their campaign (under their software section), they state,
“As some of you may know, we already have some funding (meaning our project does what it says it does) and with our own savings we have managed to create working prototypes.
However, the magnitude of our dream is too large for just us, and we need you (and your funds), to accelerate development and to help us bring our machines into manufacture and into your homes.”
Now, in hindsight, it's very easy to point this out and say this should be a red flag. When you’re evaluating campaigns in the future, keep your eyes out for any mention of significant development work that needs to be completed.
If there’s software that’s paired alongside a hardware product, it shouldn’t be impossible for the creator to share download links for early versions. This software won’t be able to be fully tested (without the accompanying hardware); however, with something like the Buccaneer slicer and customizer, (potential) backers could validate that the software exists, and that it can slice/customize objects (or, validate that it doesn’t exist, and recognize that this is a significant risk).
3. Ask the creators if they’ve taken (or plan to take) external investment
This one is pretty simple: creators who are relying solely on their campaign funds to pay salaries and do fulfillment are putting themselves behind the ball. As a backer, it definitely gives me more confidence when the the creator you’ve chosen to back has additional dollars behind them. It only serves to increase the likelihood that you will receive the reward for your pledge.
Now, it’s time to take a look at a live campaign and evaluate some of its pros and cons (i.e., positive signals and potential risks).
Please keep in mind, I have never spoken to these creators before, I have no prior relationship with them, and am making this analysis completely on the basis of publicly available information. I’ve kept it within the industry I have knowledge with (3D printing), as it is where I have most context for operating.
Assessment of Snapmaker: The All-Metal 3D Printer
One Sentence Overview: All-metal, modular, unassembled 3D printer with a color touchscreen, and potential add-ons for a CNC head and a laser cutter.
Below is my biased assessment of the viability of this campaign—what the creators and backers have going for them, and what may turn out to have a negative impact on the campaign as it moves toward fulfillment:
Not Fully Assembled - this saves the creator a significant amount of time (and therefore money) that can go to parts. This will cost them money with customer support and troubleshooting, but will save them a large amount of money with assembly and QC.
Low, but not insanely low, price - $300 is cheap; however, it’s not on the sub-$200 level like others in the industry like the Tiko and Peachy Printer. The super early birds are sub-$200; however, those are usually accepted as being sold at a loss (which is somewhat standard with many crowdfunding campaigns)
Videos of a working prototype - they show parts being laser cut, being printed, and being CNC’d. Was unable to find a third-party video, but this is a good start.
They’re taking on a lot - CNC, Laser + 3D Printing all requires new items on the BOM, different software, different testing, and logistics to fulfill. These will all also need to be certified (a step they hopefully take), which can get pricey and take a long time.
Parts Costs - things like a color touch screen, and “precision CNC Parts” will cost them a good deal of cash to put together, in addition to the rest of the printer. GIFs like the one below cause some concern over the costs, as machining is sexy, but also expensive.
“Along with a rock-solid aluminum alloys frame, all major components are CNC machined” - All of this CNCing costs $$, as of this writing around 7,000 frames will need to be machined.
One last aspect…
Volume - Volume is very similar to the concept of leverage on a rental property - if things go well, it’s an amazing thing to have. If they don’t, it will cause issues of a very high magnitude, and can seriously harm even well-designed products. Given this creator will not be assembling products on their own (sold with some assembly required), this one is hard to assign as a pro/con.
What can the creators do to help boost credibility?
This is a high-level, cursory assessment of the campaign. These creators present everything well. That said, we think it would be meaningful if they were able to attend an event or two during their campaign and have a few potential (third-party, arm's length) customers show off cell phone videos of their product running well.
An assembly walkthrough would also be a really good investment of time. We think the 2,300+ backers would be excited to see what they'll need to do to get set up once their unassembled machines arrive. Seeing a machine go through the assembly process, then switch on and print would be satisfying a satisfying bonus and likely push potential backers who are on the fence to make a pledge.
My goal here is not to present a critical opinion or suggestion on whether or not you should back any specific campaign, but rather to provide a perspective to help arm backers with the tools to assess which crowdfunding campaigns are likely to be successful, and which are not. The decision is ultimately yours to make.
I hope this exercise allows people to understand better how they can evaluate crowdfunding campaigns, and encourage them to be a bit more critical of how deep a campaign goes beyond the surface.
-Chris from Mosaic