> Why is it a shock that Kickstarter projects fail? No one is shocked when VC backed companies fail, and these projects are just as likely (if not more likely) to fail.
VCs back huge numbers of companies and expect most of them to fail, hoping that the few which succeed make back enough money to compensate for all the failures. Kickstarter backers pay money in exchange for a specific product of value roughly equivalent to the amount they paid. We can't expect people who back Kickstarter projects to accept VC-level failure rates because Kickstarters simply don't - and can't - give enough back when they succeed to make up for the failures.
>We can't expect people who back Kickstarter projects to accept VC-level failure rates
The only differences between VC-invested projects and Kickstarter projects is that no one does due diligence on Kickstarter projects. Kickstarter backers should expect VC-level failure rates as a lower bound.
> Kickstarter backers should expect VC-level failure rates as a lower bound.
True, but it's even worse than that. VC funded companies sometimes have an upside. E.g. Oculus Rift got over $2 billion from Facebook. The Kickstarter "backers" received exactly zero percent of that upside.
(To be pedantic) I don't. I allow that VC information and experience supply no information about the outcome, and that the failure rates of VC-backed projects and Kickstarter projects could be identical. I didn't allow for information and experience negatively effecting VC success rates, though.
edit: I accept that that's entirely possible, I just think it's a better subject for a academic study than for a rule of thumb.
> The only differences between VC-invested projects and Kickstarter projects is that no one does due diligence on Kickstarter projects.
Another difference is a lot of Kickstarter projects are well below the scale that VCs would notice, and are offered by businesses that are going concerns as a way of mitigating risk -- there not all startup firms using Kickstarter as an alternative (or supplement) to VC funding.
> Kickstarter backers pay money in exchange for a specific product of value roughly equivalent to the amount they paid.
Then they're doing it wrong. Supporting a project on Kickstarter is a donation. A vote of confidence. That people are using it as a store and a ridiculously high-risk low-return investment vehicle is completely absurd. The blame should probably be put on Kickstarter themselves for what seems to be a major failure to establish the right expectations.
Look at r/shutupandtakemymoney. Of the 25 posts on the first page right now, 11 are either kickstarter or indiegogo. Is it Kickstarter and Indiegogo's fault that individuals are using that form of venue to market and sell a product that doesn't exist yet? Is it reddit's? Or, is it the creator's fault for submitting the link?
I pose that it is inevitable that these sort of sites are used this way. People want to market their crowd funding opportunity to enable their company to get off the ground. It is easier to market a future product compared to a donation, so creators and marketers are going that route.
I really have no problem with people marketing future products. My problem is with the view that there is a simple transaction of "I give you money and you give me product eventually" going on, which Kickstarter (et. al.?) seem to me to either encourage or endorse through silence. I think they should instead make it explicit and obvious that there is no expectation of any prize delivery at all. They don't want to do that though, because then the absolute amount of money going in (which is what they make their money on) will be smaller. Basically these sites are profiting off of these really huge campaigns without taking on either the financial risk of the backer or the delivery risk of the project, without making it very clear (at least to the backers, and arguably to the projects) that those risks exist.
VCs back huge numbers of companies and expect most of them to fail, hoping that the few which succeed make back enough money to compensate for all the failures. Kickstarter backers pay money in exchange for a specific product of value roughly equivalent to the amount they paid. We can't expect people who back Kickstarter projects to accept VC-level failure rates because Kickstarters simply don't - and can't - give enough back when they succeed to make up for the failures.