Aug. 21 (Bloomberg) -- Kickstarter Inc. began in 2009 as a way for entrepreneurs to raise money to get projects off the ground. Though the company’s fundraising platform has been a success, many projects have not.
More than a million backers have given $274 million to more than 28,000 home-grown ideas through the New York-based website, which entreats visitors to “fund and follow creativity.” Some donors are growing disillusioned as entrepreneurs miss deadlines or fail to produce. Among technology and design-related projects, 75 percent didn’t finish on time, according to a study published last month by Ethan Mollick, a professor at the University of Pennsylvania’s Wharton School.
The stalled projects underscore the risks of crowd-funding and raise questions about Kickstarter’s promise as the next wave of venture capital, Bloomberg.com reported on its Tech Deals blog. The company, which is backed by Union Square Ventures and other firms, takes 5 percent of the money raised on its site.
“There would be a natural slowdown” in money going to Kickstarter projects if the entrepreneurs don’t deliver, said Philip Reicherz, an early employee of SecondMarket Inc. who left to create a service to help people after they’ve raised crowd-funded money. “It may cause many of the customers maybe to be a little bit more hesitant.”
Justin Kazmark, a spokesman for Kickstarter, declined to comment. The company says on its website that it doesn’t vet or track whether projects fulfill their promises, though it encourages people to be skeptical. If the creators can’t follow through, they are encouraged to not take funding, or if they already have, to offer refunds.
On Kickstarter, entrepreneurs set an amount of money to raise in exchange for giving each backer the finished item or another good, such as a T-shirt. The site sets guidelines for projects -- they must have the goal of making a product, for example. The company doesn’t investigate the projects or ensure they’ll be finished, leaving the community of funders to judge their merit. That lack of direct oversight means some successfully funded ideas may have trouble following through.
A pair of hackers who go by the pseudonyms Pytey and Bushing, known for cracking the code behind Apple Inc.’s iPhone and Nintendo Co.’s Wii, turned to Kickstarter to fund their next project, a dongle that can connect to a device, grab its data and help crack open the system.
In December 2010, 584 people gave a total of $81,026 for the pair’s plan called OpenVizsla. The hard part was actually building it.
The duo never set a release date for their plug-in gadget for developers, which is designed to cost less than others on the market. As the months flew by and the progress reports slowed, many of the backers began to lose their patience.
“Too bad this project seems to have gone off the rails,” Graeme Gill, one of the backers, wrote on the OpenVizsla Kickstarter page. “As my first experience with Kickstarter, I think I’ll stay away until some sort of accountability mechanism is introduced.” Gill, an electronics engineer in Melbourne, Australia who contributed $100, confirmed his comments through an e-mail.
Pytey, a Briton who spoke by phone from Budapest, said he and his partner underestimated the expense and difficulty of assembling the device. He declined to use his real name to avoid drawing unwanted attention from the companies that make the products he targets.
Technology and design-related projects, three-quarters of which don’t finish on time, make up 4.2 percent of successfully funded projects on the site, according to Kickstarter’s statistics. They drew in 21 percent of money raised.
The website has helped spawn several consumer-electronics makers and artistic endeavors that probably wouldn’t have existed otherwise. Success stories include the LunaTik iPod Nano watch, which is available at the Apple Store, and is expected to reach $10 million in sales by the end of the year, according to Kevin Brennan, a general manager for the company.
After being rejected by venture capitalists, Eric Migicovsky turned to Kickstarter in April to pitch his Pebble watch, which became the site’s highest-grossing campaign, with $10.3 million in funding. Even then, there was some skepticism about whether popular Kickstarter projects would come to fruition.
“When a cool project shoots up, it shoots high,” Migicovsky said in an interview earlier this year. “Unfortunately, most of the products on Kickstarter come a bit late. So we’re hoping to change that.”
Last month, Pebble joined the club. Migicovsky posted a note to backers saying Pebble Technology would miss its September target of delivering to them a watch that can display messages from a smartphone. In an e-mail, he declined to forecast a new date.
Enough Kickstarter campaigns have hit snags that some rivals are seizing on the opportunity. New crowd-funding contenders have emerged, including Indiegogo Inc. and RocketHub Inc.
Reicherz, formerly of private stock exchange SecondMarket, is working on a service called CrowdHut to help entrepreneurs figure out what to do after they raise money from crowd-funding sites. And several incubators have emerged, including Jeremy Conrad’s Lemnos Labs, to lead hardware startups down the right path.
“They go on Kickstarter, and wake up one day with $150,000 in the bank, and say, ‘I don’t know what I’m doing,’” Conrad said.
In January, Jason Giddings’s Kickstarter project for a touchscreen keyboard and mouse raised $143,584. He missed his July target for completing the product, and expects it to take at least another six weeks, he said.
“It didn’t really seem on the surface like it was going to be that challenging, but it has been extremely challenging,” he said. “A lot, lot slower than I expected. A lot, lot more money than I expected to spend.”
Kickstarter backers aren’t silent partners. Giddings’s page on the site is full of people demanding progress reports. Video-game studio Harebrained Schemes LLC, which raised $1.84 million in April, ended up hiring someone to handle its requests from backers.
“You really do have to plan on a huge amount of energy and time in being responsive to your backers,” said Jordan Weisman, Hairbrained Schemes’ chief executive officer. “That was something we underestimated when we launched the campaign.”
As for OpenVizsla, while Pytey said they’re close to delivering, he declined to predict when the product will be ready.
-- Editors: Marcus Chan, Reed Stevenson
To contact the reporter on this story: Mark Milian in San Francisco at firstname.lastname@example.org
To contact the editor responsible for this story: Tom Giles at email@example.com