Reprinted from Economist
TWENTY-FOUR hours into a crowdfunding campaign, your correspondent became nervous. He had launched an effort on Kickstarter, the largest player in rewards-based collaborative project funding sites, to fund the production of hardcover and electronic books that collected non-fiction work from a bijou electronic magazine he owns and edits.
The first day had gone stupendously. The 29-day campaign had a goal of $48,000, which was budgeted to cover the cost of paying reprint fees, designers, printers, shippers, T-shirt makers and the like, and printing some books in excess of those needed for project backers to sell after the fundraising was done. It also included the off-the-top overhead of Kickstarter’s fee (5%); the credit-card processing fees charged by its payment processor, Amazon Payments (3-5%); the gross business tax in Babbage’s home, Washington State (0.5-2%, depending on category of item); and uncollected amounts, which are typically below 1%.
At almost exactly 24 hours from launch, over 500 people had pledged about precisely $16,500. And then the rush of pledges to his inbox and notifications via the Kickstarter app on his iPhone went from a steady gush to a trickle and nearly stopped—worrisome because the first 24 to 48 hours of a campaign set the tone for the remainder. Condolences began to come in immediately as well-wishers noticed the total wasn’t budging much. But Babbage was sanguine, and despite some worn fingernails by the final week, was right to keep a level head.
In July 2012, Babbage attempted more modest funding to cover the cost of writing and producing a book on crowdfunding. The tautology and ontology aside, the project failed, and while in recovery, he nursed his wounds and listened to other old soldiers explain their wins and losses. The next year was one of study and researching, including launching a podcast, now 13 months old, in which he interviewed publishers, songwriters, product designers and others who often employ crowdfunding as the seed capital behind an album, book, gizmo or career.
Among other lessons learned was that the most lauded pattern of crowdfunding success, in which money gushes in and a project overfunds by dozens of times or even a hundredfold, is the far exception, and mostly reserved for consumer electronics and similar products. Rather, in most crowdfunding campaigns in which a threshold must be reached for any funds to be collected, as is the only model at Kickstarter and an option at Indiegogo, failed and successful projects have distinctly different revenue curves.
Kickstarter publishes an array of statistics updated at least daily. On the coarsest level, it’s easy to see that $942m has been pledged in its four-and-a-half-year history, yet only $111m went towards projects that didn’t meet goals, and thus funds weren’t collected from backers. This is typical: projects that fail, fail in a big way. Remarkably, 10% of projects launched receive no pledges whatsoever: apparently, the campaign’s managers have no parents, friends or other loved ones they can cajole into participation.
But more remarkable is that partial funding is a high predictor of full funding. The statistics show that 93% of projects that fall short of their goal don’t surpass 40% of funding. Only 2% of projects that cross the 80% threshold fail to reach full funding. An analysis from mid-2012 showed further that 97% of projects that hit the halfway mark then hit their goal. (This varies somewhat by size of the goal, with the largest project more likely to fail.) That same research revealed that just half of all projects raise funds 10% above their goal; a quarter raise no more than 3% more than the target.
Thus the blockbusters that seem to define Kickstarter—in which, say, aiming for $50,000 brings in $5,000,000—are exceedingly unlikely. Further, most successful campaigns aren’t a flat inclined line from start to finish; rather, most bring in more than half the total during the first two and last two days with a maddeningly slow climb of donations in the middle, which was the case with your correspondent’s book.
Babbage gnawed on his limbs a bit until the 50% threshold was reached, and then sent up flares that he was writing checks and proceeding on schedule, which worried some backers and friends. He didn’t tut-tut anyone, but between the statistical likelihood and the self-fulfilling nature of projecting success leading to actual success, he felt it was a winning strategy.
The campaign was to end on a Thursday in mid-December. On the Monday of the final week, your correspondent’s friends and colleagues, and many loyal readers of his publication, began to freak out, not to put too fine a point on it. They tweeted, Facebooked, blogged, cajoled via email and perhaps made some phone calls to rally support. It was lovely and it did the trick.
The project hit its goal by Tuesday, pushed over the top by a few high-dollar backers pledging for podcast sponsorships. By the close of the campaign, the total was $56,484, or 117% of the target. (All but $26 was collected, remarkably, plus some hundreds paid directly after the campaign for add-ons for which people hadn’t included the dollars by accident, or through misunderstanding the pledge system.)
Babbage had a private estimate in his spreadsheets before launching the campaign, tweaked over months, that about 1,500 people would be needed to reach the funding goal. Instead, the campaign brought in 1,467, which is close enough for spitting distance. Now: to make some books.