How does KickStarter Make Money – KickStarter Business Model – How does KickStarter Work

How does KickStarter Make Money, KickStarter Business Model, How does KickStarter Work

KickStarter Business Model
KickStarter Business Model

About KickStarter, Founders, Funders and Facts

Kickstarter was the rage when it came out, people wanted to showcase their projects raise (free) money and be done with it after delivering the projects (and make some money in the bargain).

It helps artists, musicians, filmmakers, designers, and other creators find the resources and support they need to make their ideas a reality. To date, tens of thousands of creative projects — big and small — have come to life with the support of the Kickstarter community.

KickStarter Founders: Kickstarter launched on April 28, 2009, by Perry Chen, Yancey Strickler, and Charles Adler.  The company is based in Greenpoint, Brooklyn.

KickStarter Funding: Kickstarter raised $10 million funding from backers including NYC-based venture firm Union Square Ventures and angel investors such as Jack Dorsey, Zach Klein and Caterina Fake.

How does KickStarter Make Money

How does KickStarter Make Money
How does KickStarter Make Money

How does KickStarter Make Money is very Simple.  It is one of those really simple business models that have a superficial business.

KickStarter btw, is based on an AGE-OLD business model example of “Commissions“.

Yes..

You got that right.  But before we move on to how does KickStarter make money, let’s look at how does KickStarter work and how does crowdfunding work.

How does KickStarter Work

How does KickStarter Work
How does KickStarter Work

The FaceBooks and Ubers of the world are completely dependent on Internet for their business model to run smoothly, But of all of the many ways that the Internet has changed the world over time, the most important is the way it has opened up trade and new business avenues for people to express themselves.

If you had an amazing startup/product idea, let’s say 10 years back, but no business expertise or connections, then that idea would rot in your head.  Fast forward to today when platforms like KickStarter are providing everyone a way to bring that idea or product to life.

KickStarter is one of the many CrowdFunding platforms available today.  CrowdFunding means raising Funding from the Crwod (known or unknown) to you over an online platform.

How does KickStarter Work for Idea Owners

KickStarter has two types of users – One is the project owner or the artist (KickStarter is for basically creative products etc. from the creative community) and the other is the project backer (some one who funds the project to any capacity).

The project owner (if allowed in KickStarter’s guideline) can list the project with required images, details of the product and mention the required amount of funding required (called Goal), the duration for which the project would be live for accepting funds, Amount specifications (if any) and outcome for the project backers (for e.g. if the backer would get a product or discount on the price etc. or a simple thanks 🙂 ).

KickStarter would manage all the backend (tech) required to keep the operations for the project owner simple for a small fee (if the project reaches the funding milestone that is set by the owner).  If the project doesn’t raise the required amount of funds, then the backers are either refunded the money or their cards are not charged at all.

KickStarter is basically a community of passionate individuals that can back projects of their choice.

How does KickStarter Work for Project Backers

Well there is nothing for Project Backers apart from a simple thanks or the product.  If the project owner doesn’t deliver on their promise about the product there is nothing much that the project backer can do.

The project backer is basically investing in a company (minus the equity) at an early stage.  Anything can go wrong while funding such a small idea, like the idea can raise the entire amount required for reaching the goal and then not deliver on the promise and go bust.  It can be canceled in between by KickStarter for not complying with norms.

CrowdFunding Business Model

CrowdFunding Business Model
CrowdFunding Business Model

CrowdFunding Business Model can be multi faceted and not just the commissions part of it.

It can include the following lines of revenue:

  1. Commission on successfully raised funds
  2. Listing Fees
  3. Marketing and Advertising Fees (for getting better visibility to the campaign)
  4. Assisted Listing Fees (Assist the project owner in optimizing the campaign)
  5. Promoted Listings
  6. Shipping Services

How does KickStarter Make Money

KickStarter makes money on funds raised for the projects listed on its website.  If the project listed on KickStarter raises minimum 100% of the funds required then KickStarter will charge 5% of the total funds raised + Payment Gateway Charges (PayPal or Square) upto 5%.

Thus, If the project raised $1 Million, then the project backer would get about $900,000 into his associated bank account.

The backer may or may not be charged untill 100% of the funds are raised.  The backer’s card will be charged only when the milestone is met.

How does KickStarter Make Money from Holds

The funds raised for the project are held in interest generating bank accounts till the milestone is met or the project deadline to raise funds is over.  These generate small treasury income for the company.

KickStarter Business Model

KickStarter Business Model is more dependent on the quality of the projects it gets n its platform than the amount of money raised for the projects.

Thus it is very important for KickStarter to vet the project before/while/after raising funds.

Many projects in the past were found fraudulent which were canceled in time to save backers from taking some hit.  For e.g. iFind (Batteryless locater device).

KickStarter Business Model

KickStarter claims that $2+ Billion has been raised on its platform till date and their goal hit rate is about 90%.

Which means that 90% of their projects get funded for 100% or above of the ask amount.

Thus total revenue that KickStarter might have taken in since inception would be close to $100 million.

In FY 2015 KickStarter claimed to have reached a milestone of $400 million in backings, which meant a healthy $20 million in revenues.

Do let me know in comments of what you guys think of the CrowdFunding Business Model depicted above via How does KickStarter Make Money or KickStarter Business Model.

Unicorn Economy
Unicorn Economy is your answer to all startup related queries with respect to business strategy, business model analysis and consulting. One stop stop for business plan and financial model development.

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