Tapping a Growth Market The Kickstarter Way · DEBORAH WEINSWIG Executive Director – Head of Global Retail & Technology Fung Business Intelligence Centre [email protected]

D E B O R A H W E I N S W I G E x e c u t i v e D i r e c t o r – H e a d o f G l o b a l R e t a i l & T e c h n o l o g y F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m N e w Y o r k : 6 4 6 . 8 3 9 . 7 0 1 7

June 2, 2015

Tapping a Growth Market The Kickstarter Way

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Fung Business Intelligence Centre (FBIC) publication: 3D Printing Kickstarter Copyright © 2015 The Fung Group, All rights reserved.

June 2, 2015

Tapping A Growth Market The Kickstarter Way Tens of thousands of firms, individuals and groups have turned to crowdsourcing website Kickstarter to fund creative projects in fields such as design, fashion, film, games and technology.

Here, we speak to one small California-‐based company that’s using Kickstarter to fund a project within the high-‐growth area of 3-‐D printing, to hear about the experience of an existing company using the site to push into an adjacent sector.

Capturing Early Market Growth Through Kickstarter

Kickstarter offers project creators the opportunity to “crowdfund” specific projects. To garner funds, creators need to specify a target and a deadline for meeting the target, and upload material that is convincing enough to get potential backers to part with their money. But this isn’t an investment: project creators cannot offer financial returns or equity in exchange for funding—though they can offer rewards such as products and services.

Backers are only charged if the funding goal, specified by the project creator, is met. If it isn’t met, there’s no funding at all: it’s all or nothing.

Founded in 2009, the company has racked up some impressive numbers. At May 28, 2015:

• $1.74 billion has been pledged in total, with $1.48 billion for successful projects that met their funding goal.

• A total of 85,693 projects have been funded—suggesting average funding of $17,000 per successful project.

• Some 7,274 projects are currently open for funding on the site.

• 8.7 million users have backed projects, with 2.6 million of these being repeat backers.

• 22.8 million funding pledges have been made, including those for projects that didn’t meet their target funding.

The success of the site isn’t just measured in numbers, though. Six Kickstarter-‐funded films have been nominated for Academy Awards, the company says, while projects to create hoverboards and deliver pizza to space were among those to receive funding in 2014.

Using Kickstarter to Tap a Soon-‐To-‐Be-‐Booming Market

California-‐based HoneyPoint3D is among those using Kickstarter as a springboard to launch new services. The company focuses on training and education for 3-‐D printing—a market set for major growth, as we outlined in our recent Quick Take, 3-‐D Printing: On The Brink of a Consumer Boom?

The company’s co-‐founder, Liza Wallach, views greater education essential to unleashing the potential for 3-‐D printing. To tap this opportunity, the company is launching a 20-‐hour video training course that takes participants through using the free 3-‐D design software, Meshmixer. They are one of thousands who are right now using Kickstarter as the means to fund their idea.

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The Kickstarter Experience: Our Case Study How Was Kickstarter Used By An Existing Business?

“We used Kickstarter to launch a new direction for our business,” says Liza Wallach, co-‐founder of HoneyPoint3D. The company has been operating since 2013 as a 3-‐D printing retail store in Northern California, providing printing and educational services to consumers and business. This year, the company decided to focus on education and training for 3-‐D printing, and crowdfunding through Kickstarter will help HoneyPoint3D push into online delivery of education materials.

So Kickstarter isn’t purely for startups; it can also help existing businesses tap opportunities and trial new ideas through smaller-‐scale projects.

How Did Our Case Study Find The Experience?

As a first-‐time user of Kickstarter, Wallach says the experience is a trial for her company, but one that she’s happy with. “We reached 61% of funding within 14 days,” she tells us, and at the time of speaking to us is confident of reaching the target.

This isn’t an “easy” way to raise funds, however. “We spent 60 hours putting together our project campaign,” Wallach tells us; this included shooting and editing a promotional video to outline the project to potential backers.

What Are the Benefits of using Kickstarter?

The opportunity to win funding without giving away equity in return is likely to prove tempting to many startups and small firms. But this isn’t the only gain from launching a project on Kickstarter.

The ability for users to engage with project creators through messages means the site offers “market research and funding in one,” Wallach tells us. “It has been an awesome experience getting real time feedback from our over 160 backers. We really enjoy seeing the backers’ enthusiasm for our campaign and communicating with them takes time but we enjoy it and see the value!”

And the connections offered by the site also open up opportunities for future partnerships: the site’s project format allows individuals and companies to spot opportunities for future collaboration.

How to Win Backers?

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With Kickstarter prohibiting backers from receiving equity in return for funding, project creators need to come up with compelling incentives that will encourage users to fund their ideas.

Kickstarter itself says some backers are simply “supporting people they've long admired” or “just inspired by a new idea”. Others are “inspired by a project's rewards—a copy of what's being made, a limited edition, or a custom experience related to the project”.

In our case study, the product being crowdfunded was also the core incentive: backers could get access to the full 20-‐hour training course for $20 instead of the planned regular price of $149. And a sliding scale of incentives meant more generous backers could be rewarded with webinars, personal 3-‐D printing tuition and other added extras.

Are There Any Pitfalls?

First off, there’s a big chance of failing to meet the project funding goals. “Around 60% of projects don’t reach their funding goal so just 40% get funded,” Wallach says.

To minimise the risk of failure, our case study leveraged a network of partner firms to promote the campaign. Autodesk, the company behind Meshmixer software, is one such partner helping to push the Kickstarter out to potential backers. “For smaller-‐networked campaigns, funding goals might be harder to reach,” cautions Wallach.

And failure to reach a goal can tarnish reputations on the site, she tells us, jeopardizing the prospects of successfully raising funding in future. So, aside from the commercial pressures to reach a funding goal, there are also possible reputational effects from failure.

Could Big Corporations Use Kickstarter?

Kickstarter is the home of small firms and startups seeking to tap into a community who want to offer support. Could bigger companies use the site for smaller-‐scale projects?

“There’s a sense of altruism in the backers in that they want to help fund projects that might not have been funded if it weren’t for Kickstarter,” says Wallach. “It’s a dedicated and loyal community that wants to fund small startups.”

For 85,693 projects and counting, it’s a model that’s worked well.

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Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: +852 6119 1779 [email protected] Cam Bolden [email protected] Marie Driscoll, CFA [email protected] John Harmon, CFA [email protected] Aragorn Ho [email protected] John Mercer [email protected] Charlie Poon [email protected] Kiril Popov [email protected] Stephanie Reilly [email protected] Lan Rosengard [email protected] Jing Wang [email protected]

Documents

Tapping a Growth Market The Kickstarter Way · DEBORAH WEINSWIG Executive Director – Head of Global Retail & Technology Fung Business Intelligence Centre [email protected]