Why Entrepreneurs Fundraise on Kickstarter

Crowd Funding

Introduction

Nothing has changed the way entrepreneurs go about raising funds like crowd funding. One of the first and biggest examples of a crowd funding platform is Kickstarter.com. Kickstarter has facilitated the launch of numerous innovative products and ideas over the years. This paper discusses the advantages of crowdfunding for new entrepreneurs, how Kickstarter builds a community for them, and what a specific example of a successful Kickstarter campaign, the Forever Sponge, looks like.

What is Crowd Funding?

Crowdfunding is a method of raising funds for a project, cause, or business venture by collecting small amounts of money from a large number of people, typically through the internet. This approach allows entrepreneurs, artists, and organizations to access capital without relying on traditional funding sources such as banks, investors, or venture capitalists.

Crowdfunding usually takes place on online platforms, such as Kickstarter, Indiegogo, or GoFundMe, which provide a space for creators to showcase their projects and engage with potential backers (Enfroy, 2021). These platforms facilitate the collection and management of funds, enabling project creators to offer rewards or incentives based on the amount of money contributed by backers.

There are different types of crowd funding, such as rewards-based crowdfunding, which is popular for creative projects and product launches, where backers receive rewards or products in exchange for their financial contributions (this is the approach of most projects on Kickstarter.com, including Forever Sponge). Equity crowdfunding offers backers a stake in a company, usually in the form of shares, allowing them to potentially benefit from the company's future success. Donation-based crowdfunding focuses on supporting causes, projects, or individuals without providing tangible rewards or financial returns, making it suitable for charitable causes or personal fundraising efforts. Then there is debt crowdfunding, also known as peer-to-peer lending, involving backers lending money to project creators or businesses who then repay the loan with interest over time (Wangchuck, 2021).

Forever Sponge on Kickstarter.com

Forever Sponge is an interesting idea: a kitchen sponge designed to last a lifetime. It is made of high-quality, durable, and eco-friendly materials, but is also both cut-resistant and bacteria-resistant (promotional videos show it holding up under a samurai sword blade and a kitchen knife). Its uniquely woven structure allows it to dry quickly and prevent the growth of mold and mildew, but best of all people who use sponges to wash dishes won’t have to replace their old sponge every week as the Forever Sponge is made to last. With a successful campaign raising well over its initial goal of $5,000, Forever Sponge has garnered the support of 5,507 backers, accumulating $170,000 in pledges with 18 days still left in its campaign. The Super Early Bird pledge of $9 has 1441 backers. The next pledge up (2 sponges for $16) has 1009 backers. After that, the pledge of $20 for 3 sponges has 1312 backers, and the pledge of $29 for 5 sponges has 1196 backers. This shows that people feel they are getting a great discount upfront by pledging (even though targeted shipment is not until September 2023). Overall, these pledge amounts tell me that customers are motivated by the great promo, the great idea of not having to replace a kitchen sink sponge, and the appeal of the product.

The following table summarizes the pledge tiers and number of backers for the Forever Sponge Kickstarter campaign:

Pledge Tier

Amount

Number of Sponges

Number of Backers

Super Early Bird

Two Sponges (Double Pack)

Three Sponges (Triple Pack)

Five Sponges (Family Pack)

Benefits of Crowdfunding

Crowdfunding offers several advantages for new entrepreneurs. First and foremost, it provides access to capital through platforms like Kickstarter, allowing entrepreneurs to raise funds from a large number of people and reducing reliance on traditional funding sources like banks and venture capitalists (Brumfield & Brumfield, 2021). Secondly, launching a crowdfunding campaign can help entrepreneurs gauge the market's interest in their product or idea, providing valuable market validation. If the campaign is successful, it's a strong indication that there is demand for the product.

Another benefit of crowdfunding is the publicity and marketing potential. A successful campaign can generate significant buzz and media coverage, helping to raise awareness of the product and the brand. Crowdfunding also enables entrepreneurs to build a community of early adopters and enthusiasts who are invested in the project's success. These backers can provide valuable feedback and help spread the word about the product. Finally, crowdfunding allows entrepreneurs to test their ideas with lower risk, as they can avoid investing significant personal funds or taking on debt.

Kickstarter aims to build a community for entrepreneurs by providing a platform for them to share their projects with a wider audience. The platform encourages creators to engage with backers through regular updates, comments, and other interactive features, fostering a sense of collaboration and shared ownership in the project's success.

To secure funding on Kickstarter, an entrepreneur must provide a clear and compelling project description that outlines the purpose, goals, and timeline of the project. Additionally, they must create a well-produced video showcasing the product or idea, provide a detailed budget breakdown explaining how the funds will be used, offer a list of rewards or incentives for backers based on their pledge amounts, and develop a plan for promoting the campaign and engaging with backers.

Kickstarter handles the collection and transfer of pledges through a secure payment processing system. The platform charges a fee, typically around 5% of the total funds raised, plus payment processing fees. If a project reaches its funding goal, Kickstarter transfers the collected funds, minus fees, to the entrepreneur's account. However, if the project fails to reach its goal, no money is collected or transferred, and backers are not charged.