The misperception of crowd-sourced funding and the reality of Kickstarter.

We often hear stories of someone posting a creative project online. Then hundreds or thousands of people come rushing to them and it takes off. It seems so simple. Come up with a brilliant idea and the Internet will take over to make our dreams come true.

Somewhere deep down inside we know there is more to it than that. There must be some explanation as to why their idea took off. We’re just not sure what it is. We launch our own project, hoping the masses will show up, but they never do. We are left feeling disappointed and full of doubt. Why not me? Was my idea not good enough?

The truth is that there is a lot of work that goes into a project before it will take off. Simply posting an idea online is rarely enough to get meaningful traction.

In the fall of 2010 I posted my first Kickstarter project for a documentary film that I wanted to make with a friend of mine. Our project finished just two days before the launch of the TikTok Multi-Touch Watch. TikTok went on to raise $942,578 set a new record for amount raised via crowd funding. It was the first time people started to realize the true potential of Kickstarter.

TikTok held the record for over a year until the Elevation Dock and Double Fine Adventure broke the $1,000,000 funding mark. After that it seemed like every week I was hearing about projects raising hundreds of thousands of dollars. By the time the Pebble: E-Paper Watch had set a new record at $10,000,000, I had run three different projects of varying size and results. Throughout my three projects I had yet to experience anything like what I was reading about. In fact my campaigns had been much different.

My three experiences

During the campaign for Identifying Nelson/Buscando A Roberto we raised $15,212 from 170 people, the majority of which were family and friends. Not exactly a crowd but it was my first project. After that, I ran a campaign to create A Kickstarter’s Guide to Kickstarter. This ended up being 150% over funded and raised $1,303 from 104 backers. Definitely a great success but still this mythical “crowd” had not shown its face. Granted, the guide was a small project so that could be one reason why the masses didn’t flock to it. Then in February I ran a campaign for StreetXSW: Capturing The Moments You Missed. It was an attempt to create a project that would go beyond my family and friends and attract a larger crowd. Despite all my hard work the campaign flopped and I end up canceling the project a week in.

I started to wonder why none of my projects caught on like the ones I was reading about. Were my ideas not good enough? The projects in the news were pretty damn cool but I didn’t feel like my mine were unworthy of more attention. After all, my documentary film was about how I had been separated from my birth family during El Salvador’s civil war and then was reunited with them when I was 16.

The story involves revolutionaries, kidnappings, government cover ups, loss, regret, and redemption. It’s one of those larger than life true stories that you can’t make up. If anything had the legs to go big wasn’t this it? Now, I am in no way suggesting that I deserve or that our film deserves that kind of attention. I’m just trying to say, that even an incredible story like mine doesn’t necessarily catch on with the crowd.

I probably would have felt like a complete failure had something not happened, which started to shift my perception of crowd funding.

The first 10,000

On June 19th, 2011 Kickstarter posted 10,000 Successful Projects, which highlighted how far the service had come in two years. Along with the post was this video which featured a screen shot of all 10,000 successful projects.

I went looking for my project. It was a bit tough because the pictures went by so fast but I realized that the projects were being displayed by amount raised. Great! I thought, I’ll just click a head until get into the ball park and then I can slow it down. I clicked about half way through the video to where I thought my project should be but the projects at that point had only raised a couple thousand dollars. I thought it was a little weird but I kept clicking.

To my amazement I was 2/3 of the way though and still no where near the amount of money I had raised. It wasn’t until I got to 5 minutes and 9 seconds, out of the 5:33s video, that I started to get close. I finally found our project at the 5:11s and thats when it hit me. Identifying Nelson was one of the most funded projects on the site! Doing some quick back of the napkin calculations I estimated that we were in the top 10% of projects funded. I’m sure this is no longer true but at the time it was a big shock. That was when my perception of crowd funding started to change.

Over the past couple months, some new information about Kickstarter has come out that has furthered my belief that our perception of Kickstarter as we read about it is much different from the reality of what most people experience.

What I learned 

The “crowd” is actually a lot smaller than you might think

Recently, Kickstarter released a new statistics page that gives us some insights into what is happening behind the scenes. One of the most interesting statistics was that only 2,200 out of the 28,600 projects launched have raised more than $20,000. Of those only 251 have raised over $100,000. That means roughly 92% of all projects launched on Kickstarter have raised under $20,000!

Again I was surprised by how few projects ended up raising large amounts of money. I’ve done enough research to know that is easier to get funding for smaller goals but I didn’t expect the number of “high end” projects to be so low. If you’ve been following crowdsourced funding in the news you may get the perception that there are a lot of large projects bringing in well over $100,000. Turns out that’s not the case at all.

I think part of the misperception lies in the name. The words crowd-funding or crowd-sourced funding represent the idea of a project raising tens of thousands of dollars from thousands of backers. Partly because the definition of the word “crowd” means a large group of people. However, if our perceptions of the amount of money being raised is off, could we be wrong about the number of people backing a project as well?

On a side note: What is this mythical crowd anyway? Is it made up of people living in some corner of cyber space with credit cards at the ready, waiting for someone to launch a project? As great as that sounds I doubt thats the case.

One way of figuring how many people make up the crowd is by looking at the average pledge amount on Kickstarter. According to Kickstarter the average pledge amount is $70. This means that a project with the goal of $10,000 should be funded by roughly 142 people. Right away this is interesting, because the number of backers is a lot lower than we might expect. Using the $70 average pledge as a benchmark we can estimate that 92% of all projects on Kickstarter are funded by less than 300 people. Not exactly a crowd…

The number of friends you have matters

I have a theory that the average Kickstarter project is primarily funded by a small number of 1st degree connections, not a large group of anonymous strangers. This is something I experienced in Identifying Nelson. Less than $1000 of our $15,000 came from 2nd degree connections. People who had never personally met John or or myself before.  My theory has to do with something called Dunbar’s number. You might be familiar with it but if your aren’t here is a refresher.

Robin Dunbar is a British anthropologist that suggested humans have a limit to the number of social relationships they can maintain. While there was no exact number that was proposed by Dunbar, it said to be between 100 and 230 people, with the most common number being 150 people. Does that number look familiar? It’s roughly the same amount of people that it takes fund a project of $10,000. If humans are limited to roughly 150 social connections, I’m willing to bet those connections are somewhat meaning. I’m also willing to bet that the people who make up those meaningful connections would be willing to pitch in $70 to help a friend. It happens all the time with charity walks and bake sales, why should Kickstarter be any different?

I recently came across an article entitled, The Untold Story Behind Kickstarter Stats, that seams to support my theory. In this post Jamie from teamed up with Prof. Ethan Malik of The Wharton School of the University of Pennsylvania to dig deeper into Kickstarter statistics. Prof. Malik found that the number of Facebook friends you had mattered:

For that $10K project, holding everything else constant, if you had 10 Facebook friends, you would only have a 9% chance of succeeding. If you had 100 Facebook friends, your chance jumps to 20%. And if you have 1,000 Facebook friends? Your chance of succeeding is now 40%.

Facebook allows us to extend the reach of our campaign to people who care about us but might not be in our, day to days lives. Not all of those friends will chip into our campaign but some will share it and pass it along to friends who will back it. The larger the group of people you have to draw from the easier it is to find the group of people that care enough to help you out.

In A Kickstarter’s Guide to Kickstarter I argue that projects are funded by a specific audience or group of people. Most of us do not have “fans” but we do have family and friends. I think your family and friends acts as a kind of build-in audience. The mistake we make is thinking that our project has to the strength to go beyond our family and friends. In my experience creating something that resonates with a people beyond family and friends is a lot harder than you think.

Part of the challenge is that it just takes a long time to understand what gets people excited and how to communicate your ideas in a meaningful way. If you look at the most successful projects on Kickstarter they are done by established artists, entrepreneurs or skilled individuals with proven track records.

The reality of Kickstarter is much different than what we read and that’s OK!

I think what we are presented with here is the reality of Kickstarter and perhaps crowd funding in general. Kickstarter works well for projects under $20,000 and only a few top-tier projects, get more than that. Sounds like the 80 to 20 rule to me. But does this hurt the crowd-funding and sites like Kickstarter? I would argue not at all. If anything, it means project creators need to adjust their exceptions and understand what they are up against.

Don’t try to hit a home run right away. Launch small and launch often. Over time you will figure out what works and what doesn’t. Be realistic in your expectations. If you’re project takes off great, but it should be a reward for working hard, not your strategy. (Hey even Amanda Palmer did it that way.)

Sure I would love for one of my projects to take off, but I’m not expecting it anytime soon. I’m not sure thats the point either. Kickstarter provides a safe and reliable way to test ideas and learn what it takes to create something that resonates with people beyond family and friends. It also provides a platform for skilled project creators to reach a large number of people. It’s pretty clear that on Kickstarter there is room for both. The challenge is being honest with ourselves about where we fall on that scale.

Let me be clear, without Kickstarter there is NO way I could have raised $15,000 to start our film. Maybe I’m not giving myself enough credit, but I just don’t think asking friends to send money via paypal would have had the same impact. There is just something about a project on Kickstarter that people respond to.

It gave me an opportunity to launch an idea and learn with very little risk. What bothers me is when people present Kickstarter as an easy source of capital or a lottery where your project just might get picked. I think that completely glosses over all the work that goes into a project and sells people false hope. Projects that take off represent solid ideas, skilled creators and hard work. Anyone who says otherwise is lucky or lying. Now, stop reading and go make something happen!

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Separated from my family during El Salvador's civil war, by death and adoption, I was reunited with them at the age of 16. I do entrepreneurial art projects that are meaningful, relevant, and push me creatively.

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