Image: Jason Hargrove

Kickstarter bills itself as the number one platform for creative funding. The reasons why Kickstarter have been successful is that with a model of traditional investment, the investor carries the risk. This is offset on how much of the company the creator is willing to give away in equity. As seen on the popular show Dragons Den, this often ends up with the company giving away huge swathes of equity for cash.

But Kickstarter puts the impetus back in the hands of the creator, as they look to secure the amount of money needed for their project by asking the audience upfront to buy their product before it has even hit production.

Kickstarter enables someone to pitch their business idea or product to the general public via a product page on the Kickstarter website. It enables start up companies to secure money for the manufacturing process without having to go through more traditional means such as a business angel. This allows them to avoid giving away part of their business as equity.

Why would people give money to a company?

Funding is offered on the incentive that you will get the finished product when the production run has been completed. Most companies have different incentives depending on how much money you invest. For instance, one of the most popular Kickstarter campaigns was for a Pebble watch, the watch quickly secured its $100,000 target and eventually raised over $10,000,000! For the lowest level investment you were able to get yourself a watch when they were released for less than normal retail price, whereas the highest level of investment bought you a ‘distribution pack’ that contains 100 watches to be able to sell on.

Taking the risk out of Business

Kickstarter does take some of the risk out of business by allowing you to survey the market demand.

Imagine the company behind the pebble watch secured funding from an investor and ordered a production run of 100,000. Chances are the watch would have done just as well, but there are plenty of other products launched to market that don’t perform. With Kickstarter, if your project does not generate enough interest you have only lost the cost of the development to worry about, not a warehouse full of stock that no-one wants.

Free publicity

Setting your target low on Kickstarter and consequently smashing it will provide you with a good news story for your business.

The users of Kickstarter are already a highly motivated bunch of tech savvy individuals and once they have signed up and backed you, you have an army of motivated individuals that will most likely promote and discuss your product on various social networks and blogs. No-one who invests in you is going to give you bad promotion (unless you don’t deliver).

Presentation is key

An amazing idea on Kickstarter can do very well, but you need to be a bit savvy in self promotion as well. The best profile pages offer all the media content of an established company, including polished videos that really show their ambitions. Some even offer video conference calls with an investment, so you get to engage with the company at a very important time in the product’s development. This level of unified communications can really help the audience feel involved and can lead to a high level of interaction and publicity online.

Used in the right way Kickstarter can be an invaluable tool, with much to gain and seemingly not a lot to lose. Have you invested in a product yet?

James Duval is an IT specialist who has a brain full of fantastic business ideas, but the motivation of a roast chicken. He writes and blogs about emerging technologies and businesses for Intercall Europe.