Bye bye angels, hello Kickstarter?

There’s been a lot in the press recently about crowdfunding site Kickstarter. Electronic paper watch Pebble raised over $3.4m for its smartphone linked timepiece while the first Kickstarter scam – trying to get backing for a non-existent video game has just been uncovered.

Kickstarter (Photo credit: Scott Beale)

At a time when money is tight Kickstarter and other crowdfunding sites look like the perfect way for startups to raise cash. Essentially you pitch your idea to a receptive audience of people that want to be able to buy your product – and they fund your development in return for a small stake. Your product gets validated by the market, future sales are generated and you get backing – what could be simpler? It also provides another opportunity for public relations agencies to extend their reach by using press and social media campaigns to build a buzz and drive people to their client’s Kickstarter page. 

However while Kickstarter is great for certain types of products, it can’t replace more traditional types of funding. First off, the Kickstarter audience is comprised of early adopters – the type of people that are going to spend $150 on a watch that links to their smartphone and are happy to pledge money to get it built. It won’t work for mainstream products that need to appeal to a more conservative, mass market demographic.

Secondly, startups need a lot more than money to succeed – they need help, connections and business advice from people that know what they are talking about. This is something that angel investors and VCs both provide over and above cold hard cash. Otherwise the risk is that companies raise the cash on Kickstarter but then can’t make best use of it as they run into technical, marketing or sales issues that outside advice could have helped with.

So while Kickstarter is a good (and cheap) way of validating your idea for startups building physical products it can only be part of the story – if you want lasting success you still need to knock on doors, make the contacts and do the hard work.