Is Kickstarter and Indiegogo Anti-Capitalist?

[dallasjustice]

I had to go back and reread the opening paragraph to this thread to focus in on the issue raised. I guess the bottom line is that I don't care if Kickstarter is deemed as "anti-capitalist." So what? Who cares? I see it as a viable tool for business people who don't want to sell their souls to venture capitalists. If people didn't see value in kickstarter ventures, none would be funded.

Okay. I understand that.

What if, however, the folks raising money have plenty of their own cash to invest? What if the business has already been successful in discovering there IS a market for their products and has plenty of their own cash to invest, yet continues to start new borrow-from-future-customer kickstarter/indiegogo campaigns? Doesn't this then become their business model? And if so, what does it say about the participants that keeps giving money to these campaigns? Is this something like a consumer Stockholm Syndrome?

 

[jkeny]

I had to go back and reread the opening paragraph to this thread to focus in on the issue raised. I guess the bottom line is that I don't care if Kickstarter is deemed as "anti-capitalist." So what? Who cares? I see it as a viable tool for business people who don't want to sell their souls to venture capitalists. If people didn't see value in kickstarter ventures, none would be funded.

Exactly! It reminds me of the change in the music business where music distribution changed - the consumer & artist had a much more direct channel rather than the previous model where music companies (i.e. moneyed capitalists) determined which act to record/support/market. The ultimate benefactors in this new scenario were the artists & the consumer & the big losers, the "music industry"!! Is this a bad thing?

 

[jkeny]

Okay. I understand that.

What if, however, the folks raising money have plenty of their own cash to invest? What if the business has already been successful in discovering there IS a market for their products and has plenty of their own cash to invest, yet continues to start new borrow-from-future-customer kickstarter/indiegogo campaigns? Doesn't this then become their business model? And if so, what does it say about the participants that keeps giving money to these campaigns? Is this something like a consumer Stockholm Syndrome?

What is the problem with the scenario that you outlined? The established business who follows this model & already has money to ramp up production & a known market volume for the product, is simply selling the product cheaper than it would normally.

I'm not sure that your scenario is not just purely fictional, however?
You sound like you might be involved in the banking business, are you?

 

[mep]

Okay. I understand that.

What if, however, the folks raising money have plenty of their own cash to invest? What if the business has already been successful in discovering there IS a market for their products and has plenty of their own cash to invest, yet continues to start new borrow-from-future-customer kickstarter/indiegogo campaigns? Doesn't this then become their business model? And if so, what does it say about the participants that keeps giving money to these campaigns? Is this something like a consumer Stockholm Syndrome?

Again, so what? Why would you risk spending your own money if you didn't have to? So you can "stiffen your spine" as you said earlier? I thought big business is run by people who always use Other People's Money (OPM) whenever possible. I think there are plenty of problems with the way the stock markets work that need to be looked at. I don't see anything wrong with Kickstarter. These are all consenting adults who are entering into a business relationship. If this model of funding doesn't prove viable over the long run, it will become a footnote in the history of business funding.

 

[Johnny Vinyl]

Again, so what? Why would you risk spending your own money if you didn't have to? So you can "stiffen your spine" as you said earlier? I thought big business is run by people who always use Other People's Money (OPM) whenever possible. I think there are plenty of problems with the way the stock markets work that need to be looked at. I don't see anything wrong with Kickstarter. These are all consenting adults who are entering into a business relationship. If this model of funding doesn't prove viable over the long run, it will become a footnote in the history of business funding.

Bingo!

However.......whatever the product and the people/company behind it they have to become more transparent. You can't let people (investors) live in a bubble and expect them to sit aside, while you exclaim that wonderful things are happening, and push more and more perks on them.

 

[dallasjustice]

I agree that foolish people should be free to spend their money however they wish. I think the criticism I've presented here hasn't been previously offered. I only offer my thoughts to those considering spending more money on these campaigns. I think they should adjust their expectations according to their actual control over the business.

There is a difference between a loan from a bank and a kickstarter/indiegogo campaign. The difference is that the bank takes a lien on all assets. If the business doesn't meet the bank's expectations, the bank takes over.

With regard to kickstarter/indiegogo, the participant can either spend more money on upgrades and new products or stop spending money. That's the only real form of business feedback in this scenario.

Again, so what? Why would you risk spending your own money if you didn't have to? So you can "stiffen your spine" as you said earlier? I thought big business is run by people who always use Other People's Money (OPM) whenever possible. I think there are plenty of problems with the way the stock markets work that need to be looked at. I don't see anything wrong with Kickstarter. These are all consenting adults who are entering into a business relationship. If this model of funding doesn't prove viable over the long run, it will become a footnote in the history of business funding.

 

[marty]

I respectfully disagree with you Michael. As a biotech company founder who just closed a funding round of 28M, I think I have a fairly good concept of capitalism. Capitalism is a system of largely private ownership that is open to new ideas, new firms, new owners, and new funding instruments to generate new capital. Adam Smith advocated the capitalist free enterprise system over 300 years ago based on the belief that men are motivated by rational self-interest. He believed that individuals acting in their own self-interest would naturally seek out economic activities that provided the greatest financial rewards. There is nothing about "crowd funding" that violates any of these core principles. Rather it seems to be the novel funding mechanism of seeking economic reward that appears to upset you. However this too is part of the very essence of capitalism. Capitalism is not a static definition or process. It is a process characterized by dynamism, that is, innovations and, more subtly, its selectiveness in the innovations it tries out. "Crowd funding" is nothing more than a modern variant in the way capital is raised and value is created for its shareholders. In its most simplistic variant, Adam Smith asserted that when individuals make a trade they value what they are purchasing more than they value what they are giving in exchange for a commodity. If this were not the case, then they would not make the trade but retain ownership of the more valuable commodity. Here again, "crowd funding" fulfills this core principle. I would be remiss if I didn’t mention that the players who are innovating this space are genuine entrepreneurs, a role that economists such as Friedrich Hayek believed essential to the success of capitalism. He thought entrepreneurs are self-selected, aided by their particular experience and driven by their distinctive visions.

In summary, you may object to any or all of the attributes of "crowd-funding". But you are in a very small minority if you did not consider it capitalism.
Marty

 

[dallasjustice]

Marty,
Hayek was the most notable critic for the modern form of capitalism we have in the US today. He explained the mechanism for the so called business cycle. Hayek explained that 3rd party intervention into private contract without the appropriate signals being received results in market distortion. Those market signals are called feedback in the business community. This is the fundamental flaw to raising money from folks that have no control or say over what happens with that money. The feedback loop breaks down.

If you do have experience with venture capitalists, you know they don't just give away money without taking some level of control over their investment. That's normal business practice.

I respectfully disagree with you Michael. As a biotech company founder who just closed a funding round of 28M, I think I have a fairly good concept of capitalism. Capitalism is a system of largely private ownership that is open to new ideas, new firms, new owners, and new funding instruments to generate new capital. Adam Smith advocated the capitalist free enterprise system over 300 years ago based on the belief that men are motivated by rational self-interest. He believed that individuals acting in their own self-interest would naturally seek out economic activities that provided the greatest financial rewards. There is nothing about "crowd funding" that violates any of these core principles. Rather it seems to be the novel funding mechanism of seeking economic reward that appears to upset you. However this too is part of the very essence of capitalism. Capitalism is not a static definition or process. It is a process characterized by dynamism, that is, innovations and, more subtly, its selectiveness in the innovations it tries out. "Crowd funding" is nothing more than a modern variant in the way capital is raised and value is created for its shareholders. In its most simplistic variant, Adam Smith asserted that when individuals make a trade they value what they are purchasing more than they value what they are giving in exchange for a commodity. If this were not the case, then they would not make the trade but retain ownership of the more valuable commodity. Here again, "crowd funding" fulfills this core principle. I would be remiss if I didn’t mention that the players who are innovating this space are genuine entrepreneurs, a role that economists such as Friedrich Hayek believed essential to the success of capitalism. He thought entrepreneurs are self-selected, aided by their particular experience and driven by their distinctive visions.

In summary, you may object to any or all of the attributes of "crowd-funding". But you are in a very small minority if you did not consider it capitalism.
Marty

 

[mep]

I'm not going to shed any tears for venture capitalists or banks who may have lost money by crowd funding. As a business owner, crowd funding is a brilliant concept. The business doesn't take on any debt and it doesn't have to give up any control to a board of sharks. It's like you resent people being able to go around the typical business model for raising capital. And i thought your comment about "foolish people" was rather arrogant and uncalled for.

 

[marty]

Michael,
I appreciate your comments on Hayek, but I still don't understand why you think crowd-funding is not capitalism.
Marty

 

[dallasjustice]

Michael,
I appreciate your comments on Hayek, but I still don't understand why you think crowd-funding is not capitalism.
Marty

Within the context of Kickstarter/Indiegogo, they are not a setting up a real Capitalist business transaction. That is, only the "crowd" has rights. The only right being that the "crowd" gets their money back if the minimum amount isn't achieved. What can an individual buyer do if they aren't satisfied? Can they get all of their money back? No, not through Kickstarter or Indiegogo. For example here is the policy posted on the Kickstarter website:

Can Kickstarter refund the money if a project is unable to fulfill?

No. Kickstarter doesn't issue refunds, as transactions are between backers and the creator. In fact, Kickstarter never has the funds at all. When a project is successfully funded, money is transferred directly from backers' credit cards to the project creator's Amazon Payments account. It's up to the creator to issue a refund, which they can do through their Amazon Payments account. (Like PayPal, Amazon Payments allows refunds for 60 days from the date of charge. After 60 days, creators cannot reverse the same charge to backers' credit cards, so to issue refunds they'll need to initiate a new transaction to send money via Amazon Payments or PayPal, send backers a check, or use another method. Our support team has guided creators in how to issue refunds like these before.)

Now, Marty, I'll grant you that in the larger context of the legal system in the U.S., the "backer" can probably sue the seller that won't fulfill their obligations for whatever reason. So, there is some kind of feedback loop and potential for financial loss to the seller that doesn't fulfill. There have been many unfulfilled campaigns but I am not aware of of any successful lawsuit to get full refunds for the backers' money.

 

[TheMadMilkman]

The only thing that strikes me as possibly "anti-capitalist" is when a bunch of rich, aging hippies, who have more than enough money to start...............uh, I dunno............a high-res alternative to an iPod, want poor folks like me to fund their venture.

If they are so confident in it, why isn't their money at risk? Maybe they aren't so confident about it to begin with.

What is that old saying...................."Nothing ventured, nothing gained"? They should either put up or shut up. Instead of begging.

I'll stop there, since some of the folks involved might be reading this, and they have my phone number..................

But, the odds are they already know what I think.

The Pono kickstarter campaign had nothing to do with funding, and everything to do with marketing. And it generated a substantial amount of (largely positive) free press for the company.

 

[ar-t]

I don't see them sending any of it back. Spin it any way that makes you feel better, but they have a lot more money than when they started.

(BTW, it is always about money. Remember, it is "capitalism".)

 

[ar-t]

Now, Marty, I'll grant you that in the larger context of the legal system in the U.S., the "backer" can probably sue the seller that won't fulfill their obligations for whatever reason.

Good luck with that one..............like getting blood from a stone.

News flash: "We spent all of your money!"

 

[Soundproof]

The traditional stock market as a source of start up or reinvestment capital for companies is deeply flawed, because of the trade in these instruments. Companies have taken their eyes off the "ball" of actual, long-term value creation, and are instead focusing on short-term advantages, real or imagined, that will move the share price in a desired direction.

As such, crowd funding delivers a very cogent criticism of the system, and makes funds available for new companies, in a manner that imitates the issuing of stocks in previous times, without a lot of intermediaries between buyer and seller, and with the buyers often being guaranteed a stake in the actual products, at a reduced price. The financial industry may not like crowd funding, but then the financial industry, as a whole, isn't making much sense within a true capitalist definition of the economy. (John Cassidy of the New Yorker wrote a cogent and accessible analysis worth reading, but there are many and much more academic studies available. Piketty's book, making the rounds now, is an amazing tour de force in respect of criticising the effects of the rentier-economy on actual value creation.
http://www.newyorker.com/reporting/2009/10/05/091005fa_fact_cassidy?currentPage=all)

As such, we should welcome crowd funding with open arms, if we are interested in releasing the true power of capitalist enterprise.

 

[JackD201]

Jack,
I never mentioned LH anywhere so I'm not sure why you feel the need to defend them with me. This thread is about kickstarter and indiegogo in general.

I think people that pay money for any campaign are not engaged in a real Capitalist business transaction. I think it's really the people that pay for the hope to receive what they paid for that are making the biggest mistake of all the campaigns I have seen, not the manufacturer that setup the campaign.

You and MEP insist on looking at only the purported benefit to the so called buyer. As I've shown above in my original post, the feedback loop is essential to real Capitalism. I know it's not popular these days for an entrepreneur to actually lose huge amounts of money in pursuit of their dreams. I blame the so called buyers more than anyone since they foolishly have expectations for performance which they shouldn't have if they carefully examined the situation.

You are right. John did.

I don't see kickstarter and indigogo as any different from a real estate brokerage house doing pre-selling. If the sale happens they get their commission. If the project tanks, go after the developer. The brokers provide a service and that is creating the linkage between client and developer/seller. They get paid for that. Looks like capitalism to me.

I chose pre-selling because that is what the crowd funders are doing. Even the flow of payment is similar. To my mind kickstarted and indigo go are brokers.

 

[jap]

Guess it worked for Pono:

http://www.audiostream.com/content/pono-kickstarter-campaign-results-62m

 

[dallasjustice]

Guess it worked for Pono:

http://www.audiostream.com/content/pono-kickstarter-campaign-results-62m

Smartphones are the future of portable hi-resolution. Kickstarter campaigns look impressive if you only consider the amounts of money raised. When you put things into proper business/marketplace context, Pono will be a total failure. There's not a lack of money available for high-res audio, only a lack of good ideas. That's why companies like Pono are forced to go to Kickstarter campaigns to raise cash. The limitation is only in the ideas. It looks like that is changing now. Unless Pono figures out a way to redesign their product into an android smartphone, they won't ever be competitive in the marketplace of ideas.

Michael.

 

[JackD201]

Smartphones are the future of portable hi-resolution. Kickstarter campaigns look impressive if you only consider the amounts of money raised. When you put things into proper business/marketplace context, Pono will be a total failure. There's not a lack of money available for high-res audio, only a lack of good ideas. That's why companies like Pono are forced to go to Kickstarter campaigns to raise cash. The limitation is only in the ideas. It looks like that is changing now. Unless Pono figures out a way to redesign their product into an android smartphone, they won't ever be competitive in the marketplace of ideas.

Michael.

I agree. The only way for HRZ to move out of niche status is to be folded into the dominant mass market devices. I for one am for anything that will spur battery development. It appears battery life is the bottleneck.

 

[Duke LeJeune]

Personally, I'm more interested in whether or not Kickstarter and Indiegogo are good ideas than in whether or not they meet or fail to meet the definition of "capitalism". And to the extent that they increase the freedom of inventors and entrepreneurs to create, and increase the freedom of early adopters to support by early adopting, imo they are ideas worth trying. If they thrive, great; and if not, some smart person will figure out what course-correction needs to be applied and try again.

People who want a secure safety net don't have to participate. Actually that would probably include me, but I have no problem with consenting adults who want to give it a shot.