Kickstarter is Debt
blog.bolt.io
Kickstarter is Debt
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Re: Kickstarter is Debt
#2This should be required reading for anybody doing a hardware startup, not just those using kickstarter.
Re: Kickstarter is Debt
#3This relates to why Kickstarter campaigns can be very lucrative to run - you raise funds without relinquishing any of your equity, which can later be sold for massive amounts of money (see: Oculus getting sold to Facebook)
Re: Kickstarter is Debt
#4Just to be clear though debt is actually a preferred type of financing because it is one of the cheapest forms.
A venture investor is expecting a 10x return on their investment. That means they are expected a much greater realized interest rate than debt - money that effective comes out of the pockets of the business owners.
If you can get debt, if is often preferred if you can figure out how to manage the default risk.
You do not give up equity (which could be worth a massive amount), rather you only have to pay back the debt at some future time with some much minor interest.
Also interest is often tax deductable, thus debt has further tax advantages.
One Nobel winning economic theory leads to an optimal capital structure of 100% debt: https://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theo...
Example: Apple is buying back shares (the opposite of equity funding), while issuing massive amounts of debt.
Re: Kickstarter is Debt
#5Compared to three years ago, there are fewer game Kickstarters that offer physical rewards, and that's a good thing.
A lot of early campaigns wound up with a bunch of orders for physical goods (deluxe editions, t-shirts, figurines) that have a high marginal cost. Later (smarter) campaigns are offering digital art books and soundtracks instead, which have almost no marginal cost.
In short, don't get into the T-shirt / CD business TOO, in addition to your main product, if you can avoid it.
Re: Kickstarter is Debt
#6In summary:
1) Kickstarter is debt financed by consumers directly (B2C) motivated by early access to product.
2) Factory financing is debt financed by production motivated by early fulfillment.
3) Purchase order financing is debt financed by consumers indirectly through retailers (typically) (B2B2C) motivated by early access to consumers.
4) Venture debt is debt financed by investors motivated by continued confidence in company.
Re: Kickstarter is Debt
#7This article, and it seems the whole blog, is an amazing resource for anyone considering a hardware startup. Very clear and very helpful.
The funny thing is that kickstarter's official policy is that they are not a pre-sale platform. But if they were serious about this, they wouldn't let campaigns offer the product being developed as a "reward" in exchange for money. It's like amazon saying that they aren't a book seller, but they will give you a $30 book as a "reward" for donating $30.
I'm not sure if I fully understand the title of this post, though. The author points out that Kickstarter funds are to be used only for production related costs and therefore should be considered debt (they must be repaid, unlike equity). But, in reality I don't think that there are any legal or even ethical stipulations placed on money raised from Kickstarter. The money is being donated, and unlike business debt can be used in whatever manner without having to be repaid. Wasting Kickstarter money may or may not affect someone's reputation for awhile, but it doesn't show up on a credit score.
For this reason, it's always seemed to me that crowdfunding is the best way to raise money for anything. If you can do a crowdfunding campaign, do it. Most certainly for hardware. Then get a line of credit if you can, and raise money from VCs as a last resort [1].
[1] Other than Bolt of course, because their blog is so awesome that I'm thinking about pitching them right now.
Re: Kickstarter is Debt
#8This article, and it seems the whole blog, is an amazing resource for anyone considering a hardware startup. Very clear and very helpful. The funny thing is that kickstarter's official policy is that they are not a pre-sale platform. But if they were serious about this, they wouldn't let campaigns offer the product being developed as a "reward" in exchange for money. It's like amazon saying that they aren't a book se…
Yeah, Kickstarter seems like debt that has no interest, and can be forgiven (in the right circumstances), and it gives you free publicity and a form of market validation. By far the best source of debt I can imagine.
Re: Kickstarter is Debt
#9This article, and it seems the whole blog, is an amazing resource for anyone considering a hardware startup. Very clear and very helpful. The funny thing is that kickstarter's official policy is that they are not a pre-sale platform. But if they were serious about this, they wouldn't let campaigns offer the product being developed as a "reward" in exchange for money. It's like amazon saying that they aren't a book se…
Scamming (a.k.a. "crowdfunding") is always the cheapest option.
Re: Kickstarter is Debt
#10This article, and it seems the whole blog, is an amazing resource for anyone considering a hardware startup. Very clear and very helpful. The funny thing is that kickstarter's official policy is that they are not a pre-sale platform. But if they were serious about this, they wouldn't let campaigns offer the product being developed as a "reward" in exchange for money. It's like amazon saying that they aren't a book se…
Yeah, Kickstarter seems like debt that has no interest, and can be forgiven (in the right circumstances), and it gives you free publicity and a form of market validation. By far the best source of debt I can imagine.
Of course it's the best source of debt for a company because it's completely one-sided. See also: scamming, ponzi schemes and ransomware, all great sources of free money.