Ever since I can remember, I always wanted to invent something. Being that I’m a lawyer, not an engineer or artist, I have always known this was more of wish than a real possibility.
However, my itch to invent was scratched when I found “Shark Tank,” the reality-based television show in which inventors and entrepreneurs present business opportunities to investors aka “the sharks.” In other words, for approximately 43 minutes each week, I live vicariously through a bright-eyed inventor.
It was through my Shark Tank consumption that I came to learn of the websites Kickstarter and Indiegogo. “We started selling on Kickstarter,” or “I got my initial funding through an Indiegogo campaign,” were phrases uttered repeatedly by enthusiastic entrepreneurs pitching to the Sharks.
However, none of the entrepreneurs or the Sharks explained the under-pinnings of Kickstarter or Indiegogo. Therefore, I set out on my own to understand the relationship between these commonly touted websites and innovative gadgetry. In doing so, I discovered two websites unlike any others I had viewed before.
Both Kickstarter and Indiegogo are websites that allow individuals or groups to pledge money to a project or invention, a practice commonly referred to as “crowdfunding.” The individual or group that is seeking money for their project or invention is called a “creator” or “entrepreneur” and the person who pledges money to a project is called a “backer.”
Projects include the making of movies, publishing of books and musical theater productions, while inventions include electronic devices, board games and video games. Creators and entrepreneurs who have successfully used these crowdfunding sites to launch their projects include Phoebe Waller-Bridge, creator of the Emmy-winning show “Fleabag,” and Palmer Luckey, the inventor of Oculus Rift, a virtual reality headset, which was eventually purchased by Facebook for $2 billion in cash and stock.
Those who pledge to a project may receive a reward or perk for their contribution. Rewards and perks come in all different forms depending on the project or creation. For instance, if a person pledges money to the making of a movie, they may receive a T-shirt with the title of the movie printed on the front or tickets to the premiere. Or if someone pledges to the publication of a book, he or she may receive a first edition of the book in exchange for their contribution. Typically, the more you pledge to a project the more you receive.
It is important to understand, however, that neither website is a retail store. Pledges made on Kickstarter are only charged to a backer’s credit card once the project is fully funded, therefore, a backer will not receive a reward if the project does not meet the stated financial goal. Indiegogo allows entrepreneurs to choose a flexible goal which allows the entrepreneur to receive funds even if the set financial goal is not met. If the entrepreneur chooses a flexible goal, the backer’s contribution will be charged immediately, and, in turn, the backer should receive their perk regardless of whether the entrepreneur’s financial goal is met.
As with any investment, there is financial risk associated with this form of crowdfunding. While both Indiegogo and Kickstarter do their best to ferret out in advance scammers or creators who will be unable to fulfill the rewards they promise, neither website has a crystal ball. According to Entrepreneur Magazine, about 9% of Kickstarter creators fail to deliver rewards to backers.
Neither Kickstarter or Indiegogo will refund a backer’s money if a creator fails to provide a backer with a promised reward, therefore, a backer is not guaranteed a return on their investment. As a result, a backer should thoroughly research a campaign before pledging.
To date, I have not made a pledge. However, I regularly peruse both sites for inventive devices and original projects. While I won’t be inventing anything soon, it is inspiring to observe the many creators who have and are bursting to introduce their idea to the world.
This article originally appeared as a column for the Cleveland Jewish News.