Does Crowd Funding Really Work, Or Is It Becoming Over-Saturated?

One of the hottest subjects right now is crowd funding. If you don’t know what this is, it’s simply going to the public (via the Internet) to ask for funding for your project. If you want to make a video game, build a new app, write a book, or invent something, you can try to get it funded through tens, hundreds, or thousands of people online donating to the project rather than going the traditional route.

Does crowd funding work? From the press accounts and big splash stories of people putting up projects and getting huge amounts of funding, it would seem so. In reality? Probably not so much.

The other kicker is that as crowd funding becomes more popular and more and more projects get put into the mix, the number of donations towards each project would likely fall. While there will still be big splashes of success here and there, they will be the exception as they are now. The dilution of projects will make it harder and harder for those with little promotion to get noticed.

“But crowd funding is democracy in action,” you might argue. In a way, it is, but think about how elections work: if you’re not popular, well-funded, or able to promote yourself heavily to get noticed, you are almost sure to lose. For those who objectively look at it, elections are just another form of marketing. You’re selling a candidate as a product and in order for that product to get purchased, you have to promote it ñ which costs money.

Crowd funding is the same. You may or may not get noticed, but as the crowds of hopeful projects get larger and larger, you’ll have a harder and harder time getting noticed. Eventually, it will get to the point where you’ll almost assuredly have to already have backing of some kind in order to get noticed enough that the crowd will fund you.

Look at Kickstarter, the largest of the crowd funding sites and the one just about everyone has heard of. Recently, Tim Schafer and a small group of people put up an idea for a point-and-click adventure game to be funded through the crowd at Kickstarter. It ultimately broke all records and raised over $3 million in funding. Yet what most don’t know is that 75% of Kickstarters in the games category actually fail to meet their funding goals. By Kickstarter’s own numbers, only about 45% of projects as a whole meet their goals ñ that includes everything from the $100 to the $1 million listings. http://kotaku.com/5906711/three+fourths-of-video-game-kickstarters-fail

In fact, statistics show that the smaller your funding goals, the more likely you’ll be to meet them through crowd sourcing. In a survey of 599 projects on Kickstarter, Udo found that projects hoping for a $1,000 or less in funding were about 77% likely to get funded while those asking for around $100,000 were 53% likely to fail. He also found that projects that are funded are often funded at about 50% more than their goal while those that fail are likely to be underfunded by the same amount.

He further finds that Kickstarter is mostly a “bubble movement.” This means that the projects most likely to get somewhere are those that have access to a large social media outreach to spread the word. In other words, the ones that succeed are almost always those that can do some marketing on their own behalf. http://creativepark.net/1381

From personal experience, it reminds me of the App Store. Thousands ran out and developed iPhone apps thinking they would make millions, but came to realize nobody was able to find their app amongst the hundreds of thousands of other apps. So without being on the front page of Kickstarter or getting coverage in a blog, it is hard to get noticed.

So while crowd funding might be a great thing for many projects, it is still not the Holy Grail of democratic funding we might be lead to believe it is. This doesn’t make it bad, but it does put it more into context.