Kickstarter: Investment without investors


There are a few different definitions of “investment”. One is time, energy, or their representation, money, spent in the hope of accruing some future benefit. This is a definition that easily fits the kind of exchange involved in one of the world’s largest crowd-funding platforms: Kickstarer. Kickstarter is a website that allows companies or individuals to pitch creative projects (such as video games) in the hope that a large, passionate group of people will invest (or “back”, in Kickstarter lingo) their money in a future product.

The problem with Kickstarter is that it’s a poor contract with little to no legal recognition. The second definition of “investment” comes from the finance world. Individuals invest money, only this time with something concrete attached – a share or stock with the real hope of some kind of capital interest or dividend. This is common sense in the business world – if you invest money you’re going to want something back, as well as some assurance.

The difference with Kickstarter projects is that a lot of the time they’re funded by regular folk, not businessmen, and this is something those looking for funding on the platform, consciously or unconsciously, often take for granted. When a company fails to fulfil lofty promises, a financial investor can sell their shares, take legal action, or as a stockholder be involved in reshaping the board of directors. No such luxuries exist for Kickstarter backers; when things go wrong, there is little they can do. Whilst Kickstarter can be great for crowd-funding small, original projects that might not exist otherwise, it’s also a risk-free cash injection for larger (but still small) businesses unwilling to take on internal financial risk by involving equal-exchange investment.

Why sell your company shares or risk losing profit and creative control when there are millions of “mugs” out there who will back you no questions asked and for little return. Even more perverse are the companies beginning projects on Kickstarter before graduating to “proper” financial investment. Several projects have taken to the crowd-funding site in order to entice external investment – astute businessmen who will match the funds delivered by backers, but with additional capital. The process is both lucrative and exploitative.

Telling people to be wary of Kickstarter and the lack of assurances involved isn’t enough. The crowd-funding platform has delivered a number of artistic successes, but for every failure the one-sided exchanges become more apparent. Most backers only want the completed product that was sold to them, but every failed promise is another reason for non-investor investors to start asking for proper guarantees. Businesses that take to the platform, gather thousands of £’s of risk-free investment, only to seek additional financial investment (where they offer things like shares) is grossly exploitative of regular folk’s passion. We shouldn’t just be wising up, they should start coughing up.

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