Is Kickstarter an Interest-Free Loan from Backers?

22 October 2018 | 65 Comments

Recently I stumbled upon an opinion of Kickstarter that, despite being completely new to me, seemed to be fairly widespread (at least among people who talk about things on the internet).

The sentiment, which I first read in the comments of this article and then saw again on Reddit a few days ago, is that Kickstarter backers provide an interest-free loan to creators with no consumer protection.

It’s truly fascinating to me that some people feel this way. Even though my opinion vastly differs, today I’m going to try to see through the eyes of that type of backer, and then I’ll share my own opinion.

Through Their Eyes

I recently backed a game called Project L on Kickstarter. I made a choice to give $40 to the creators, and I will receive no interest on those funds. At some point in the future, I hope to receive a copy of the game, but there is no guarantee that will happen.

Here’s how one person put it in the comments of the above article: “Kickstarter is a pre-order mechanism to transfer all of the risks of production to the consumer.”

In their mind, I think they’re comparing it to a non-Kickstarter pre-order, which typically falls into this category: A product a company is already in the process of making, and they’re just accepting orders for those incoming products. Money does not exchange hands until the product is shipped (or digitally transferred) to you. I can see how, with that direct comparison, someone may be a bit jaded about Kickstarter.

In My Opinion

I have lots to say here, so I’ll try to break it down a bit. My opinions are influenced by my time on Kickstarter as a creator, but I’ve only been a backer for the last 3 years, so experience has most of the impact on my perspective.

Interest: When I buy something, even if there is a gap in time between when I pay and when I receive it, I’m making a choice not to invest that money elsewhere (i.e., in a mutual fund). That’s my choice. I don’t look at the $20 bill in my wallet and think, “My wallet should be paying me interest.” Same with Kickstarter: I’ve never expected to receive interest on my pledge. It doesn’t make the interest statement untrue, but it also doesn’t mean it’s a valid statement to make. Similarly, I could shout to the world that I haven’t received even a single kitten in all of my years as a Kickstarter backer. Technically that is true, but is it relevant?

Loans: Transactions aren’t loans. When you order pizza for delivery, you’re not loaning Papa John’s $15. You’re paying for a pizza. Rather, a loan is a borrowed sum of money that is usually expected to be paid back with interest. That’s not a Kickstarter pledge–when you pledge to a reward, you are providing money, and in return you’re getting a reward (most likely at an appealing price). However, if you still feel like your Kickstarter pledge is a loan, and that makes you uncomfortable, don’t do it. Just like a loan, no one is forcing you to pledge those funds to the project.

In the comments, Kevin mentioned that a Kickstarter pledge much more accurately fits the definition of an investment, not a loan. An investment is an expenditure of “money with the expectation of achieving a profit or MATERIAL result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.” You invest money, and the return on investment is the reward (e.g., a game).

Risk: As a consumer, when I pay money for anything, there is some level of risk involved. I may not like the book. The special-edition Oreos may taste weird. The app may be too confusing for me to figure out. When I back a Kickstarter project, I know there’s risk. Sometimes I make the choice to make that risk; other times I don’t.

Accountability: Kickstarter is a transaction platform; it’s the creators, not Kickstarter, who are liable if they mess up. I’m perfectly fine with that–like, if someone buys something from our webstore and we send them the wrong game, it’s not Shopify’s fault–it’s mine. There seems to be the perception that creators aren’t liable, as if using Kickstarter makes creators immune to prosecution if they cheat, lie, or steal, despite there being a legal precedent to refute this.

False Equivalency: Kickstarter does not equal Kickstarter creators, nor are all creators the same. Basically, I don’t blame Kickstarter in the rare case when a creator fails to delivery–I blame the creator. When that happens, I don’t blame ALL creators–I only blame that specific creator. For me that usually means I don’t pledge to their future projects.

Act of Creation: Last, I think it’s worth pointing out that the vast majority of Kickstarter projects truly are acts of creation, which delineates them from pre-orders or other purchases. When I back a project, I’m enabling it to be made, I’m making it better via stretch goals, and I may even get to share my opinion about certain aspects of the project. When I buy a chocolate bar at the grocery store or even when I pre-order the new Red Rising book, I’m not participating in the creation of those things. They’re final and inevitable.

In conclusion, I don’t think it’s fair to directly compare Kickstarter to pre-orders, purchases, or loans–crowdfunding is its own thing that I choose to participate in.

***

My hope is that at least some of the people who spread their opinion that Kickstarter provides interest-free loans to creators are people who genuinely WANT to like Kickstarter–they’re just looking for some improvements before they give it a try (or revisit it after getting burned). If that’s the case, I totally appreciate their constructive criticism.

What do you think? Please state opinions as such. In the comments on my blog, it’s okay to disagree with me or others, as long as you do it respectfully.

Also read: An Open Letter to Kickstarter Backers from a Tiny Publishing Company

If you gain value from the 100 articles Jamey publishes on his blog each year, please consider championing this content!

65 Comments on “Is Kickstarter an Interest-Free Loan from Backers?

  1. I am having trouble coming up with what your conclusion is, taking into account all the different sections you comments on (unless your opinion can be summed up in your final statement in the Act of Creation sentence). So its not a pre-order, loan, or purchase? It should just be thought of as its own type of transaction? If yes, I think I agree.

    I have always thought of Kickstarter as a tool to see something I think is good or useful, and I can help it get made. Several years ago, I would have thought of it as a way for me to help out the creators, more of a gift from me to them, and often they give a gift back. Also, I had previously seen it argued that it is like a venture capital system, and the backers are investors. This I don’t think is a good analogy, because the backers do not get a return from the final product later. They may get the final product, but they don’t benefit from it doing well in retail. So I think this is a line of thinking that is like treating it as a loan, but somehow more extreme.

    It has turned more into a pre-order type system, and as a preorder system I do think some of the criticisms are valid. But I agree with your statement, if you think you aren’t getting enough, don’t back!

    I think your points in the act of creation are important, and are things of value backers get that are not interest or extra stuff. They get some input into the creation. If you want influence over a game you might like, then this can be of great value to you. This is what you get instead of interest. Also, many places give extra stuff in the box that will not be in the retail box. This is also sort of in the place of interest. You also ensure that it gets made. Without kickstarter, a company may do some market research and find out that its just not marketable enough or won’t give enough of a return, so it would not get made. You now get a game that may not otherwise get created. Is there a way for creators to emphasize what backers get, in addition to the game, without making it seem condescending or like they are trying to swindle you? Should a creator emphasize the amount of input the backers can have? Or do you feel that will just make some vocal backers complain more than they already would?

    An easy part of this is to just make sure you are grateful to the backers. A statement of thanks to anyone who backs, near the bottom of the kickstarter page I think can help people feel good about backing (assuming that its done in a way that seems genuine).

    And now I want my kitten. I won’t back another game until they agree to send me the game and a kitten.

    1. Jay: Yes, I see Kickstarter as its own special type of transaction, one that shares some similarities (but not all) to other transactions. I think the key differentiator between Kickstarter and pre-orders is that a Kickstarter project is an act of creation (in almost all cases–there are exceptions to that).

      I like your suggestion that creators really show their gratitude for their backers–I think that’s a good way to address your questions.

    2. I agree with Jay, here (I think) — I have never considered Kickstarter as some form of interest-free loan, and as Jay says, it’s not venture capitalism either, but I am getting increasingly frustrated to see it being used like a pre-order platform: I feel that some of the bigger companies are using it as a way of funding their latest projects (and arguably, trying to make it better without putting the money up front) – and whether you consider this a good or bad thing, I’d rather companies were just more upfront about it in the first place. The uncontrollable cynic inside me also believes it can be used as a form of warped means-testing: “If we made THIS game, how many people would be interested in it? How good can we make it?” and this is where I believe we stray into an uncomfortable compromise…

      When I back a game on Kickstarter, it’s because I am genuinely interested in that game, and the additional ‘profile/advertising’ offered by KS has brought it to my attention — increasingly, I am trying to make more realistic assessments of what and when to back things, and asking myself the question: “Would I buy this if it was on the shelf at my FLGS?”

      I agree that KS can help ‘make things happen’, and that often the KS product is slightly better or has more intrinsic ‘value’ than a retail version (with KS ‘exclusives’ and the like), but these extras are often made available at a later time somewhere along the line anyway, and bottom-line, when you back something on KS you are always taking a chance (or ‘making a choice’), and it’s important you go into this agreement knowing that it’s a gamble — often a ‘safe’ one but nonetheless still a gamble — one of the reasons I don’t want to be pledging $100+ on some grand design that may not ever get made…

      I reserve the bulk of my ire at those companies that sell ‘add-ons’ which are superfluous to the basic game, or worse, ‘add-ons’ that should have probably been included in the basic package but have been separated to try and grab that extra buck or make the basic product less attractive/cheaper. Ditto some of the ‘stretch goals’ that I see (“solo mode” or “extra player” — c’mon, it was either designed with a solo mode/extra player already, or you’re going to try and design and playtest this aspect before the final product ships… yeh, right)…

      “Buyer beware” seems like a throwaway phrase nowadays, but it’s worth having this at the forefront of your mind when you agree to back something on KS…

  2. Is Kickstarter an Interest-Free Loan from Backers? This isn’t a yes or no answer.

    In the very beginning Kickstarter was established to help small time creatives to test the market with their idea. If it funded it happened, if it didn’t the idea froze or died.The question is complicated by large companies that in theory could afford to forward fund their idea but use Kickstarter as an efficient advertising medium and, it could be argued, an interest free loan.

    For small independent games publishers, the facility to use Kickstarter enables a new product to be market tested and if it fails in achieving it’s target then doesn’t happen. In that respect, backers offer a thumbs up or down in the life or death of that product. For Indies, that is the function of Kickstarter which is way more important than the concept of an interest free loan.

  3. Yep – I agree with all you wrote here. Interest free loans are just different things. Kickstarter and loans do share some similarities, but there are more differences overall.

    It’s a mistake to consider KS to be “free money,” because Kickstarter allows a creator like myself to craft something that might not exist otherwise, which means it plays an integral role in the early decision to even move forward and produce the thing in the first place.

    You could consider Kickstarter as a replacement for an angel investor though – If investment needs to come from *somewhere, then it should be compared to it’s true alternatives. Angel investment, friends & family investment, taking out a real loan against collateral you own, etc.

  4. Thank you for the point about ‘blame the creator, not Kickstarter’.
    I backed a project: making ‘decompastable’/consumable cutlery. It failed to be given to its backers. I know many backers complained on its page. The creators, I believe, gave themselves a positive media impression but many backers were disgruntled.

    What happened in the end (for me, at least)? I’m not happy but I am cautious with backing projects.

  5. I guess my feelings on this are conditional. You are, to an extent, giving a zero interest loan with no consumer protection, but it’s not like “I” am handing out $400,000 or $1 Million. Maybe it is the word ‘loan’ itself that is weighted. It’s almost more of a donation with the hope that this thing I think is cool is produced. Like you said though, if that $40 that I am providing nets me a game, cool. That was discretionary income, I certainly MUST make that transaction with the understanding that I COULD lose that $40. That’s why you’ll most likely never see me back a $200 project again. I did it for the original Pebble watch, and they fulfilled fine-ish, but I realized that the risk is a bit higher than my tolerance.

    I think where I most veer from the path a bit is when folks say that Kickstarter is not a pre-order. For some, that’s true. However, you will (almost) never be able to convince me that CMON couldn’t make a game without the backer’s help. Or that Gamelyn couldn’t make Tiny Epic games without backers. It has also come to feel completely disingenuous when established companies with established IP’s try and set a stretch goal of making their game the same quality level as Every. Single. One. Of. Their. Other. Games. I don’t believe for a minute that Gamelyn is going to do Tiny Epic Surfers with uber thin cardboard and tissue paper cards. An expectation of quality has been established. Now if they wanted to say that the established standard is standard and the stretch goal is plastic cards becoming available? Sure. I’d understand that as a SG.

    I really slid off on a tangent there. My ultimate conclusion though is that I have less concern about what the backer/publisher relationship is called than how the relationship plays out. I can be a ‘backer’ or a ‘partner’ or a ‘customer’ or a ‘shareholder’, whatever. I don’t care about the title – maybe the law does, I don’t know – but I only care that hopefully the money I spent results in a product that hopefully meets or exceeds what I was promised in the general time frame that I was promised. Even if some of those expectations are compromised, if I was communicated to in a reasonable fashion and in a reasonable amount of time, then I’m very understanding.

    I think what it really boils down to is that the backer feels owed something. Kickstarter puts the Publishers or Creator in the role of ‘beggar’ and the backer in the role of ‘generous dream maker’. There is almost a power exchange at the very core of what Kickstarter is. “These things couldn’t happen with you, the backer.” I think conceding that it’s a pre-order method for some companies, would alleviate some of that thinking. I don’t think anyone is in the CMON comments going “You couldn’t have done this without me.”

    1. Thanks for sharing your thoughts, Dusty. I agree with your observation that using certain standards of quality as stretch goals are disingenuous.

      However, as a publisher with cash flow that ebbs and flows wildly throughout the year, I can say this: I would never assume that a publisher can afford to make a critical mass of a game at any given time. Even a big company like CMON. I think they can be *ready* to start production on a game, but they may genuinely not have the cash for a sizable print run, and they genuinely may not know how many to print in the first run. Nobody really knows that–we’re always guessing. :)

      1. Well here is a perfect example, Jamey, of someone speaking from a place of ignorance. I’m an outsider to this industry. It looks like every other industry from the outside, but until I went to Gen Con and got to see it first hand from a ‘behind the scenes’ sort of perspective, I didn’t realize how really sort of small this industry is. I made an assumption of CMON based on their prior successes on KS and on the general consensus of them not NEEDING KS to do the things they’re doing. I can understand how KS allows you to appropriately scale that first run, but it didn’t occur to me that they couldn’t do that print run without backer support.

        I have to be honest though, I think of CMON as a big faceless corporation. I would have said the same thing of Stonemaier Games a year and a half or two years ago. Heck, whenever I go to Stonemaier’s FB page our chat history pops up and I was just sending a ‘thank you and have a great day’ to ‘whoever was manning the FB chat that day.’ It blew my mind that it was you. Obviously, I’ve learned a lot since then. lol. But maybe not enough that my first instinct isn’t ‘big faceless corporation.’

  6. I get what you say about it not being a loan. It’s not a loan, but it is an investment. You tie up your money into something that is not liquid, in hopes of seeing a return on that investment in the future. And there is the risk that you will get nothing in return, or a lower return than what you expected. The difference with Kickstarter is that you have a pretty good idea of what your return will be in a best case scenario.

    That makes it easy for me to decide whether or not to back something. If the likely reward outweighs the risk, I’ll consider backing it. But if I’m getting the exact same product that someone can walk into a store and buy for the same price or less, no way. If I can choose between spending my money now with low to moderate risk, or spending it a year from now with zero risk, why would I choose the former, unless my investment is altruistic (meaning I’m more interested in helping the creator than in receiving a product)? No investor in their right mind would make an investment that would essentially give them their money back, and nothing more, in a best case scenario (again, unless they consider this to be a charitable investment).

    I realize that this has not been the way that Stonemaier has done things, because their campaigns have always offered a pretty good discount and/or bonuses, but other companies seem to see no problem in charging retail price for a retail product to their investors.

  7. I can see the interest free loan with no accountability argument in certain circumstances. The biggest one I can think of was Space Goat with Evil Dead 2 & Terminator. Between those 2, (and an Evil Dead 2 omnibus comic with collectors) Soaxe GoatGraised over a million dollars was raised and there is nothing to show for it. The company & it’s shady owner completely disappeared and that was AFTER they tried to crowdfund more money through WeFunder. Basically with that, they offered fake stock in their company and said they needed a minimum $250k to finish projects. When that failed, all of their website, social media, and company pages disappeared. Despite hundreds of backers filing fraud & theft complaints with the FCC, Washington State Attorney general, and local & federal authorities, nothing came of it. Shon Bury disappeared into the wind with nearly $1 million of backers money, punishment free.

    Granted that’s just 1 really big example, but those are the rare instances where people point and say “see, our money has no protection”. As few and far between as they may be, those few bad creators can really leave a permanent marker on people’s perceptions of KS

    1. Justin: I definitely agree that there have been some high-profile scams on Kickstarter. They’re far and few between, but they’ve left a lasting impression on people (reasonably so–it doesn’t feel good to be stolen from).

  8. I have come to the conclusion that paying into a KS project should be looked at as a donation (with no tax incentive) with an option to cancel before the KS ends or KS releases funds to the campaign owner. It is clearly not a loan in any legal sense and there is no guarantee of delivery of any promised product so it is not a purchase in that sense either.

  9. Interest free loan is a weird way to look at it. I wouldn’t say transaction is the right word either, as a transaction in the way I’m assuming you are using it means something is being bought (if I misunderstood I apologize). Nothing is being bought on Kickstarter, because there is no product yet. It’s an important distinction in my opinion.

    Rather Kickstarter in my opinion is a platform for investment, this type of investment already has a definition in the form of crowdfunding. Crowdfunding has been around a long time, much longer than Kickstarter, even internet crowdfunding is older than Kickstarter.

    In fact the very definition of invest matches Kickstarter perfectly, I’ve capitalized the important part.

    “expend money with the expectation of achieving a profit or MATERIAL result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.”

    A customer/investor on Kickstarter provides capital to a creator so that they can develop a commericial venture and in return receives material goods in the future. The only reason you aren’t getting equity in this case is because Kickstarter does not allow equity.

    However, there are plenty of examples of crowdfunding for equity as well. Fig for example allows people to invest money into digital game projects for either a material return or a return in the form of equity.

    Ultimately there is no need to reinvent the wheel, what Kickstarter does is not new the platform has merely popularized it. It has always been defined as crowdfunding and crowdfunding has long been looked at as an alternative to other types of investments for start up capital.

      1. Jamey I think the problem comes in when you have so many people from so many walks of life investing in projects. Many people I think simply don’t understand the inherent risk or aren’t ready for the type of risk that comes with Kickstarter so they don’t do their homework, get burned, and become a bit bitter, which is perfectly understandable, but ultimately their own fault. Blogs like this I think are important to help people have a better understanding of how Kickstarter works and what it actually is.

        If we compared it to VC investments though it’s fairly risk free, out of 10 VC investments 5 will be a loss 3 will give a small return, 1 a medium return and 1 large return. Those are horrible odds. As an investor not looking for equity I’ll take my chances with KS.

        I’ve gotten my return so far (cross my fingers) on all projects I’ve backed and have only been underwhelmed maybe twice. And I think a little of that has to do with the fact that I do some research before I toss my hard earned dollars at a creator.

  10. Given the number of established companies doing business on Kickstarter, I think it’s fair to criticize it being used as a pre-order platform, or for marketing purposes. But it’s really a stretch to call it a loan.

    Loans are repaid in dollars, not products. No “Failed” kickstarter that I know of has “borrowed” the money for a few years, collected interest on that money and then refunded everyone their initial investment (though that would be preferable to how some have failed). I think in many cases it would be fair to call it an “Advance”, as the return is in goods not dollars, and sometimes what the advance was paid for doesn’t happen. Likewise an advance is paid for something that probably will not happen without the advance being paid.

    1. Jamie and I had an interaction about a year ago or so along this same line and we left it at an agree to disagree. I think this is an important distinction to be made here between small companies and creators on KS and relatively much larger companies like Bezier, Steve Jackson, CMON, etc.

      There are lots of small companies and first-time creators on there for which acquiring the capital necessary to bring a new game to life requires something like Kickstarter, and I don’t think that the “interest-free loan” attitude is particularly useful in that case. I don’t expect anything extra from them other beyond, hopefully, eventual delivery the product as promised. The people who get angry over delays or whatever else tips their cap on a given day are alien to me. You’re making a bet on a company and sometimes (usually, in board games) and sometimes it doesn’t.

      But when a company like CMON asks me for money up front to produce their next round of Arcadia Quest, or Zombicide, or whatever, I would like some kind of return on that investment. They are perfectly well capable of funding those production runs on their own. Hell, look at Arcadia Quest: Riders. They had the boxes already in hand and in warehouses. So if you want full MSRP up front, I’d like a little bonus gift for doing so. It doesn’t have to be entire boxes of bonus miniatures, but something. Maybe that makes me a terrible person, I dunno. I have a hard time feeling warm and squishy for them.

      1. What about, “A launchpad for creative ideas fueled by individuals seeking creation of a desired product or service.” ?

  11. My feelings are that yes, I’m giving money to (hopefully!) a creator, and I will get something back at the end of the timeline. A lot of times, what I get back is worth more than I paid, since the same product may appear in retail channels for MSRP (or a slight discount, but almost always more than I paid as a backer.) That difference in cost is the interest I recouped for backing something a year before it came out.

    I’m personally ok with this arrangement, especially if the creator is up front about what the MSRP will be!

  12. I am surprised this is a “new to you” opinion Jamey. I suspect you viewed it as a business tool to assist with cash flow when you did use KS, which allowed you to finance projects without taking on more debt and avoid paying interest :).

    As a backer, and as you highlighted it is a consumer CHOICE that one has to make whether to back a project. If I back a $100 project, then I don’t immediately think – wow, I’m going to lose $1.65 in interest this year while I wait a year for Project X to arrive. As an accountant I do think, – OK, now this game company/creator has some funds to move forward and reduce their expense allowing them to produce this game quicker than normal. Whenever I back, I ask myself – is it ok if I never see this money again?

    For me, I mainly back things on KS to help a project get enough funds to push it along to production. I look for the unusual or smaller companies and their projects. Occasionally I back a bigger company’s project where it is a glorified pre-order so that I get the “deluxe” version or the KS exclusives.

    An example of my thinking. I struggled quite a bit earlier this year as to whether to back Kolassal Games The Omen Saga – a reworking with new art of John Clowdus’ brilliant game, Omen Reign of War. The internal mental struggle kind of surprised me.

    When John Clowdus would put a game out on Kickstarter under his Small Box Game company, it was an autoback for me. For $10-$30 I knew i was having an impact. I had met John at Origins and knew it was just him publishing a few hundred copies of each game. He also delivered his projects VERY quickly after the project closed. So when Kolassal brought John under their umbrella and decided to re-work his best design and give it a broader audience I struggled. Did Kolassal need my support? Would I be able to get this at retail later? Did I still want to support the designer? Did I need another copy of basically the same game?

    Eventually I decided to back this one to help it get the wider audience it deserves and so I had the latest and greatest version of it.

  13. I love reading your words Jamey, they’re always well thought out and coherent.

    I look at KS as two very separate things, because I am both a consumer and a retailer. As a consumer I back projects that I think look cool, and that I want to put on my table (or listen to, or see on my TV, I tend to personally back more music and movie projects that game projects).

    As a retailer I look at KS as a part of the supplier chain, but with really weird rules. When I order a game from distribution I pay for it when it arrives, or a few days after. When I order a game from KS I pay for things further in advance, or make a deposit and then pay the rest right before shipment. One major publisher took my money two years ago and is just now barely trickling fulfillment, and not all of what I paid for, to my store. They received an interest free loan of $1,000 from me, two years ago. Average turn rate in my store is 13.5 or so, meaning I could have turned that thousand dollars in product into $2,000 in sales approximately 27 times. Those are real numbers in a small business.

    That publisher has cost other KS creators business, because there’s a set amount of money I can keep tied up that isn’t working for me at any given time, and they took a big chunk of that for two years. It’s also why we tend to back a lot of projects that are “Small Deposit now on this retail-sized order, and you’ll pay us the rest right before we ship.” Games like Railroad Rivals handled this perfectly, and I was thrilled to have it on my shelf before other retailers could get it through distribution.

    As a consumer I never look at KS as a loan. As a retailer I can’t help but look at that way, because purchasing product is an investment in the future of my store, and when KS projects don’t get fulfilled, or they bill too early and fulfill too late, they not only cost me real money, but they cost me the opportunity to have spent that money repeatedly on other things. That lost opportunity cost is the important thing for my small business.

    1. John: That’s a really interesting perspective, and I appreciate you sharing it. For stores who back Kickstarter projects, they’re investing in something in the hopes that they can sell it for more than they paid for it (opposed to a consumer’s intent, which is to have a cool game to play or show off). For that reason, I like the method of having retailers put down a small down payment as a commitment for a later purchase, and then when the games are ready to ship, they can pay the amount they committed to.

  14. While the ideal of Kickstarter involves creator and backer collaboration, and bringing something into existence that wasn’t going to otherwise happen, Kickstarter has now become, in the majority of board game projects, simply a pre-order system. And if one is pre-ordering a product close to a year before the product is delivered, it’s reasonable to claim that the game company is essentially getting an interest free loan over that period.

  15. Its not a loan because neither you or the creator even intend to give you your money back.

    Its really a layaway program where most of the design/production risks are transferred to the consumer IN EXCHANGE FOR THE POSSIBLE BENEFIT of getting is soon, with extra content, and/or cheaper than retail.

    1. To me, the difference between ‘loan’ and ‘layaway program’ is just semantics. No, the loan isn’t paid back, exactly; it’s more like ‘loan until purchase’. It’s a deal where the loan/early payment is given in return for the kind of benefits you talk about (better product, getting it earlier, etc.). As a side note, I would argue that Kickstarters that don’t give solid benefits for the loan, or don’t communicate them clearly, tend to do poorly, since backers instinctively understand the transaction they are making and want to make a good deal.

  16. So you’re saying that it’s different from a pre-order, because you’re participating in the creation. How about if you were ordering a custom product? For example, a bunch of t-shirts with your team’s emblem on them. You’re participating in creating the product, but you’re also paying for its production before it is produced. A common example is architects. The client participates a great deal in the creation of any building, and pre-pays a huge percentage of the money. Another example is an art commission – a client is extremely involved and it is not unusual for at least part of the cost to be paid up front, so as to pay for project materials. Renovations are similar. Really, I can name endless examples of pre-orders that involve the buyer’s input.

    Now, here’s the difference as far as I’m concerned: KS backers are typically pre-funding a run of the product, including a retail edition, rather than just their individual copy being made.

    In the traditional space, it’s not unusual for a retailer to give a company a purchase order prior to the run of a product being produced. Now normally, the company would then borrow money from a third party, using the purchase order to assure investors that they will be paid back, with interest.

    In this case, you have a very generous situation – the retailer (KS backer) has not only given the company a purchase order, but they have also agreed to pre-pay so as to also act as the investor, interest-free. This sort of generosity would typically be accompanied with some sort of stipulation, for example a timed exclusivity agreement or exclusives being included in just that retailer’s copies of the product. KS backers, likewise, are typically rewarded with exclusives and by getting the games early. This is why so many KS backers are reluctant to back a product if they do not seem to be getting any tangible benefit besides a retail copy of the game.

    You may ask – don’t I see involvement in the process as a reward in itself? Not fiscally, unless the input is only about kickstarter exclusives. Otherwise, that’s being an ‘active investor’, which would normally cost a company additional equity as this investor is actually helping the company make a better product to sell to others.

    All this is separate from the question of whether or not someone should back Kickstarters or not. That’s a personal question – there’s no reason you can’t choose to back a product just because you fear it won’t get made otherwise, even if it provides you no other benefit to do so, or just back altruistically, because you like the designer’s work and it’s more about supporting them than any benefit you are gaining. Maybe you just really like being actively involved in games being made because you like playing games, so you seek out opportunities to volunteer your input. If such backers didn’t exist, Kickstarters that don’t promise early delivery or exclusives would never get any backers at all, but they do. Just like people donate money and time to charities. And often, the creator has a good reason for catering to these backers and avoiding the potential retailer buyer backlash from exclusives or the value-minded demands of the less altruistic backers.

  17. The only sad part about Kickstarters is the ones that looks completely perfect on the outside, but then end up never delivering their project. I haven’t heard anyone getting their money back for those projects.

    1. I have received 4-5 refunds from about a dozen failed projects, I’ve backed, but I think 2 of those were me asking very early for a refund when I realized I couldn’t use or didn’t want the item(s), one of which i think failed…

      One the lady was over her head, had a panic attack, other severe health issues and sadly had to use the KS $ to pay those expenses and am totally ok losing that $20! as many others were too. Reward isn’t worth the persons health, but we did get a pdf rough draft!

      Another one actually has gone into bankruptcy filing in Germany…but my guess is we will only get a small % back of our pledges.

      And the last 6 or so, only one apparently was a direct scam. Wasn’t clear at the start, but in the end…it was. Creator claimed a great noble cause for a hand crafted product, got something from the store with a peeled of label that was not made by them. And their cause was out-right a lie. We contacted the local attorney general and police, but I don’t think anything every came from it…

  18. I’ve backed way too many things on KS that have had great success and some with terrible failure. In both cases Kickstarter had no involvement other than providing the exchange between creator and backer and the platform to communicate between the two. So i really like and agree with your explanation of it as a transaction platform first and foremost.

    To the person above that mentioned it IS a interest-free loan for companies that could fund their own production. I kind of disagree, but that’s because the creator doesn’t see 100% of the money pledged. Previously it was 5% for KS and 5% for the payment portal. Though KS now has developed their own payment portal, and the cut is a bit less.

    So even though there is no interest the creator has to pay on the money they receive, there is a cut taken. Maybe this is all calculated into the pledge price, but if that is what backers(consumers) are willing to spend, then there is some money lost. Though I bet this is more confusing with wholesale prices to your local\online retailer vs the amount the creator gets from KS….All in all I bet it makes creators better understand market demand and confident in starting the production process and print run.

    fig.co is worth checking out. Both DoubleFine and Obsidian have had great success on kickstarter, but I think they both saw KS could be improved and came up with fig for video game creators. There are traditional backer tiers and stretch goals, but there is a straight up way to invest in the game(without a backer tier). More info here, https://www.fig.co/invest

  19. I very much agree with you, but I think there is a growing sense of backers feeling exploited and there is always a certain sense, that creators may not fully invest the money into the creation and instead abuse it in some way. I personally think this is a sign of a wider sense of mistrust and cynicism, which basically assumes that there are always people taking advantage of you. This is then countered by a radical position of entitlement, where I as a consumer then feel I am giving MY money to someone to enable him to do HIS (or HER) thing…hence a loan and yes, I get a product, but I am much more at risk than if I ordered it from Amazon.

    People have been burned and with more projects, that happens more frequently, so they do get a sense of this being risky and I again think there is some truth to that.

    Now as stated I do not agree with this position, but I also tend to these days back KS that are “authentic” and actually need the money and seem to genuinely want to make a game as opposed to simple pre-sales by larger companies that have made this a business model. So I am also feeling uneasy about giving my money in certain cases for different reasons.

    I think the relationship between creators and community is based on mutual trust – I trust the creator to actually come through with what they promised and as a creator, I trust my backers to genuinely want the game and want me to do it, so would also be understanding of changes if communicated in good faith. Trust is a delicate thing and requires a leap of faith on both sides, something that has become harder for various reasons (like those above) and that needs to grow – hence the easier success of a second or third KS from the same creators.

    What I am trying to say is that the position is not so much based on actual facts or a change on the transactions from the KS of 3 years ago, but an expression of the hierarchy and relationship between creator and backers changing due to various factors. Of course no one HAS to give money, but it changes the power relations between both sides to see it as a loan and that is something that is rather immune to factual arguments.

  20. I understand your point of view, and given that you’re a creator who bends over backwards for his backers, it makes sense that you see it this way.

    The thing with Kickstarter is that not every creator is like you. Some deliver a product that really falls below the expectations of what was promised. Some deliver a half-finished product 3 years late. Some just take off with the money, for all intents and purposes.

    Crowdfunding is a platform unlike any other. In a lot of ways though, the backers on Kickstarter are like a publisher. It’s not a perfect analogy, but hear me out. They provide the designer with the money needed to finish their project, they provide the capital for the printing, and they secure the initial order of games (themselves in this case, but that’s irrelevant). Through the comment forums and polls, they sometimes shape the direction of the design, much like a game developer would do.

    As a publisher yourself, would you be comfortable giving a game designer a large monetary advance with little to no finished product in your hands? If they said “hey man, here’s my idea, here some art and the general gameplay concept. Hook me up with a couple hundred grand and I’ll bring you something awesome in 9-12 months. Also, i’ll give you what you paid for, but nothing more. I keep all residual profits after you’ve gotten your advance back. ”, would you be comfortable with that? Would you find it acceptable that there would be absolutely no recourse if the designer took your money and used it to finish a different design for a different publisher, and then went to Fantasy Flight with his next game, and used their money to finish your game?

    It’s a weird market place. I think there’s a lot of great people, but there’s also a lot of bad ones, and Kickstarter have created a system where when a project funds they make their cut no matter what, as does the creator, and if a project is never completed, the consumer is out of luck. Would you use a vending machine if you knew that one time out of ten, it would just keep your dollar?

    1. I was looking at this from the perspective of a backer, but I see your points.

      As for the example you gave, I wouldn’t back a project if the creator didn’t demonstrate they weren’t far along into the design process. I back games that are 98% complete, including art, design, sculpting, third-party reviews, etc.

      As for the magical vending machine, if 2 or 3 of those dollars results in me getting a jumbo candy bar instead of a standard candy bar, absolutely, I’d use it all the time. Though I think a more apt comparison would be a vending machine where you get nothing back 1 out of 100 attempts (assuming you, the backer, puts in even the smallest amount of due diligence), and 20 of the candy bars takes longer than you expected, and you end up not really enjoying another 20 of them. I’d still use it. :)

      1. But backing only 98% finished games with reviews means you will never actually support creators that do not have the means to sink a massive amount of money into the game. It is also something that would not work on many other KS (like Music or Video Games).

        This further means, you are mitigating your KS risk by simply backing only finished stuff, essentially making it a pre-order. Because if there would be any interaction between the backer and the creator with a game 98% finished it would be meaningless with regards to the creative side and feedback to the actual game. So that contradicts your own point on how KS is a special transaction. If you put backer glasses on, KS suddenly becomes a vending machine that needs some patience but delivers above-par candy instead of a platform to support the creative process of things that would otherwise not exist. :)

  21. I also wasn’t familiar with the idea of KS being an interest free loan and I totally think your points are valid as to the differences between KS and a pre order.

  22. This is simply crowd investment, a small investment with a return on that. Like all investments there an element of risk, the flip side without kickstarter then boardgames would have a segmented sector. Kickstarter has enabled game designers to reach their audience, which otherwise they would not have managed. I have backed campaign that have failed to deliever, I also backed ones that take time to get to us, developing a game and dealing with international manufacturing, shipment, taxes and custims is complex. We always try to do our homework when we invest in a game, both on what it is and who the team behind it are like.

  23. I like your comparison to buying a pizza. That’s exactly right and a great analogy. Yes, Kickstarters generally take a wee bit longer than a pizza delivery but eventually the awesome box arrives to squeals of delight! It’s a great platform for creators and backers! And like pizza, you can never get enough!

  24. I do think some retailers use KS as a preorder, you can tell from the low funding target, lack of stretch goals and quick fulfilment. Queen is the one that comes to mind. I’ll happily back them if I want the product and t he price is fair to me, but I definitely classify them as a preorder.

    In many cases, due to increases in production costs and shipping, creators may be losing more money than the theoretical interest gain by the time they fulfil.

  25. I think its a matter of perspective. I would totally agree with Vikingrkevin, that from perspective of a backer, a pledge in an investment with material and not monetary return. The Mindset of a Backer “should” be, that this particular project is of high interest to him that he would love to see it made. He Supports this project (or its creator) with his money, fully aware that there are risk involved. True to all type of investments.

    From a creators perspective who has skin in the Game, meaning he put money upfront to have the project 90% complete and now seeks money to finance the first print run. Then Kickstarter is a form of Financing. As in any other industry who need capital upfront to source materials in order to produce something. The Interest cost is the deal you are offering for people to support the project.

    I would even argue from the creators perspective like CMON its risk mitigation not a pre-order system. If you pre-order a Game at say Amazon, you pay after its shipped and you can cancel anytime upon release. In this case its a guaranteed sale since he gets the money upfront (for months), he gets the exact number how much quantity is needed. Depending on the final outcome of the campaign its easier to plan the exact print run. For the Backer he gets a sweet deal in form of a price discount, if the deal is appealing he will pledge. For the Creator in terms of risk, its fine to make little to no profit because he reduces his risk significantly, especially for first time creators. If this Game is accepted by the market he can make money with future print runs.

    If we look at board game projects at Kickstarter now, there are no projects based on a concept or an unfinished idea anymore. Its mostly done, backers have a clear idea what they can expect. So we can argue (at least for the Board Game industry), backers are not supporting the “creation” process because the product has been created already. Backers help to bring the product to the Market. They are part financier and part marketing (they help spread the message) and Kickstarter is the platform which brings them together.

    1. I agree – in fact I tell most new creators they should see it as a marketing platform that pays for itself AND gives guaranteed conversions. It is not what it was built for initially, but it is what it has become in many areas.
      But that also means that this effectively kills actual newcomers as they cannot compete with the level of professionalism and polish that a marketing campaign requires and this may mean it slowly loses its soul for want of a better term.

    2. This is spot on imo Garvin. In fact most backers I would assume look for some of the same things a room full of angel investors would be looking for in a presentation. Proof of concept, prototypes, go to market plan, etc. Most creators provide these things as well in the form of beta rulebooks, gameplay videos, review videos, etc.

      I also like your points on companies like CMON, there is no exact formula for print runs in any industry and using Kickstarter allows a more accurate estimation of how many you need to print for that first run.

      I would add that Kickstarter is also basically an MVP for creators, it allows creators to take feedback from early adopters (backers) and use that feedback to mold a better game, especially if there are print and plays or a beta rulebook. There by reducing the risk even further. This can most easily be seen in failed projects that have been relaunched to great success with the data learned from the previous campaign.

  26. The perception comes directly from the video game sphere where companies like GameStop… okay, GameStop, often used the preorder money to invest and gain a little bit more percentage of cash taken from Preorders. GameStop, in this scenario, has risked nothing in the cost of production and will often spend months with that money doing “other things” for the company as a whole. It’s not so much a conspiracy but a well known fact as they regularly state this to stock holders.

    Video Gamers like to relate this to Kickstarter because they have an entitlement complex and somehow believe a lot of the Kickstarters that get money could both afford the cost of producing that many games AND find the market that has come to them on Kickstarter. The perception is flawed.

  27. Look into the Super Dungeon Explore: Legends campaign. Estimated delivery was December 2016, it funded in November 2015, and the last official communication from Ninja Division/Soda Pop Miniatures was in March 2018, to say that they’re sorry, they messed up, and there won’t be any real production updates for the foreseeable future. They come on every now and again to say how important the project is for their company, etc., but they’ve made it clear that they have shelved the project until they finish fulfilling other projects that funded since Legends (Rail Raiders, Starfinder minis, etc.). And they’re having ridiculous problems fulfilling those, too (“running out of bubble wrap,” etc.).

    They had a refund policy, but there are people who asked for a refund months ago and never heard anything back, and they abruptly cancelled the refunds, without notice, several months ago. Despite the backers asking for “proof of life” for the project, they’ve provided nothing to show any kind of advancement toward fulfillment, other than a single photograph of them playtesting another Super Dungeon product that wasn’t part of this campaign.

    It’s clear that Things Got Away From Them in the process, but they simply aren’t communicating, they’re often blaming the backers’ “negativity” for why they aren’t engaging more, etc. Meanwhile, Kickstarter rules say that the creator has an obligation to communicate on a regular basis or show good-faith efforts toward fulfilling the project. ND/SPM has done none of this since March, when they came on to say that they weren’t planning to say anything else for a while.

    The backers see this as an “interest free loan”, because clearly they aren’t using our money to fulfill the SDE:Legends product. While this is obviously not a loan by a technical definition, it’s being described that way by frustrated backers who are slowly coming to the realization that we will never see a single thing in return for our investment, despite the company blowing sunshine and saying they’re really sorry, but they do care about this game.

    I don’t consider it an interest free loan myself, strictly because when you give a loan, you expect to be repaid. At this point, I want justice more than I want the game.

  28. I think it’s also worth remembering that Kickstarter is way bigger than just boardgames, and other types of projects may be influencing the “Interest Free Loan” perception.

    As an example, look at Mighty No 9. It was funded October 2013 with $3.8M. It was supposed to be delivered in April 2015, but didn’t actually release until June 2016.

    Shenmue III was kicked off during Sony’s Press Conference at E3 2015 and raised $6.3M, and pre-orders have since brought that total to $7M. It is still expected to cost significantly more than that to develop (Deep Silver was added as a global publisher in 2017, presumably also picking up some of the development costs). It was supposed to be delivered in December 2017, but has an updated release of some time in 2019 now. Also, the pre-order prices are identical to what was offered during the Kickstarter campaign (not all of the options are available, but most still are).

    It seems that for most board games the game is “developed and playtested” before the Kickstarter campaign, which is primarily raising funds for manufacturing/shipping so that a large enough order can be placed, for enough copies to meet initial market demand. It will still likely go through some tweaking, but the essence of the game has already taken shape.
    However other types of projects are significantly less ready when the Kickstarter campaign is kicked off and the funds collected. In these cases (especially with higher $$$ values and longer project delivery times) the label may not be as far off the mark.

  29. You are right Derian, it depends on the product. My arguments were based solely on boardgames. Videogames is a perfect example. Its very expensive to make and takes a long time. A campaign presentation can only be based on concepts to showcase the vision. Once created, distribution is fast and cost effective (PSN, xbox live, steam), since its not a physical product. So in this case kickstarter and backers takes on the role of supporting the creation process.

    I don’t think a pledge is an interest free loan in this case also. To the creator, the transaction costs are costs same as interest are costs by its very nature. Mighty no 9 creators stated once, that the cost were much higher then expected and that caused some issue with the budget. My argument that Kickstarter is a risk mitigation tool, still applies. Look at mighty no 9 again, because of the Kickstarter funds the project started development. Later a publisher (deep silver) joined, and i assume the decision was made easier because the game was partially done. The publisher doesn’t need to put as much money into the project to finish it. The backers carried a part of the risk in advance. In shenmue 3 suspect they wanted to figure out how much real interest is there for the game and are people willing to vote with their wallets. Marketing!

  30. I think from a creative point of view you are correct. But from a purely financial point of view, I can understand where the interest free loan idea comes from. Before Kickstarter, anyone who had a project like this (a boardgame) and couldn’t fund it, would technically need to get a loan, either from a bank or from relatives and friends. The odd thing about KS is that you don’t get your money back but a promise of a future transaction.

  31. I agree with you, Jamey. When you loan someone money, you do some with the intention of getting money back. The bank does not loan me money to buy the house with the intention of owning some share of my house. Companies don’t give out student loans with the intent of owning some share of a student’s knowledge. They do it to earn back their money and then some. When you invest in something, you do so with the intention of getting a share of the business or output. If someone wants to think of their Kickstarter pledge as a *loan,* then they should find it odd they get a game at the end of the process.

    As you say in the post, backing something on Kickstarter more akin to making an investment.

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