THE BLOG
14/05/2012 09:24 BST | Updated 11/07/2012 06:12 BST

Kivastarter: crowdsourcing needs to learn from microfinance

Kickstarter's very public successes have increased developer attraction to the platform. And with the increased developer activity, the number of failures and cancellations has increased also.

Kickstarter is at something of a crossroads. Gamers (and developers) have seen the dizzying heights that are possible when crowdsourced funding is invited for projects which capture the marketplace's imagination. Tim Schafer's Double Fine project exceeded fundraising goals overnight (raising more than $3.3m in total) . Wasteland 2, aiming for $900,000, comfortably raised over $3m before the fundraising deadline. For the right projects, it is clear that Kickstarter is a viable alternative to more traditional, publisher-reliant methods of financing game development.

However, Kickstarter's very public successes have increased developer attraction to the platform. And with the increased developer activity, the number of failures and cancellations has increased also. The failure of some projects once their funding objectives are met is a sign that the crowd assumes certain levels of risk when they fund projects through Kickstarter - levels of risk that are not necessarily well understood.

Crowdsourcing default:

What happens when a project achieves its funding aims, but deploys the capital raised inefficiently, then fails? Star Command was such a project.

The witty, professional video on the project's Kickstarter homepage gave the crowd the impression that development for an exciting new space-exploration RPG would be possible for $20k (a small ask, by almost any games' standards).

However, even having exceeded their funding requirement by c.$16k, the developer ran into financial problems, which they have documented in detail on their project page. The team have admitted that they hadn't fully understood the costs involved in satisfying the rewards promised to their micro-investors, and were equally unaware of how high their basic operating costs would be. Aware of their inexperience, the team has made their expenses very visible to the crowd responsible for their funding, and problems with their operating cost model are apparent to any reader.

Although satisfaction of Kickstarter rewards were more expensive than anticipated, after all Kickstarter-related costs are considered the company was left with $22k ($2k more than the investment requested). However, the spending that followed, when itemised, does not suggest a mature project with clearly scoped milestones for development. With $4k being used for basic business start-up costs, registration and accounting, it would be safe to say that these developers, despite having solid concept for a game, were not well-prepared to receive funding.

While Kickstarters have not criticised Star Command's development team for "wasting" crowdsourced funds, most of their Kickstarters will probably be surprised by the candid account of inexperience and loss. This project is an example of how apparently well-considered projects can be marred by inexperience, and how excellent ideas will attract funds, but not necessarily deploy them well.

The fact that more speculative applications with weaker business cases are appearing on Kickstarter has not gone unnoticed by the crowd. One redditor rightly mentions the natural risk-adjustment process that funders apply to projects, saying "Kickstarters without a prototype or trailer of the prototype and ones without devs with a history of getting things done won't get invested in". However, Star Command is a good example of projects that can seem to have prototypes (based on the video screens), and that achieve fundraising objectives by requesting low amounts from the crowd. How can funders be expected to see past convincing Kickstarter profiles, and really examine the credibility of projects?

Kivastarter?

Kiva, the online microfinance portal, takes a slightly different approach to Kickstarter, crowdsourcing small loans for small, charitable projects. It has field partners, which have a more intimate knowledge of potential microfinance beneficiaries in different regions, and can give a more accurate representation of the level of risk taken by Kiva's small loan providers (the crowd). Loan repayments and defaults are tracked for all active projects, and new projects undergo some form of due diligence, where possible. Kiva make their funders much more aware of the levels of risk taken when funding projects than Kickstarter, through a risk metric which is clearly explained.

Currently, the only information currently available to the crowd of funders is information provided by the projects themselves, leaving the Kickstarter system open to a level of abuse. Kickstarter does not look to provide a level of due diligence from its projects, and no clear breakdown of costs is required (it is only assumed that more detailed project descriptions will increase fundraising chances of success).

Kickstarter scams are beginning to emerge, posing a real threat to funders, and consequently Kickstarter is under pressure to improve project vigilance and mitigate the impact of scammer-accounts.

But I would go further, and argue that if Kickstarter is to succeed, and hold the interest of crowds of funders, it requires a risk-clarification metric to provide basic project due diligence. Without an attempt to make risk visible to funders, public failures of speculative business cases (such as Star Command) will damage the credibility of the platform and the good faith of funders.

The bottom line:

Until Kickstarter is able to provide a higher level of project due diligence, worthy projects may struggle to raise funds from risk-conscious funders, as people avoid "getting burnt". The default of funded but speculative projects will only exaggerate this trend.