If you back a Kickstarter project that sells for $2 billion, do you deserve to get rich?

[Mike39]

"The Oculus Rift virtual reality headset raised $2.4 million on Kickstarter, no strings attached. Those donors weren’t looking for a payout; they wanted to support something they believed in, and maybe get a pair of virtual reality goggles to play with. But when Facebook bought Oculus a year and a half later for $2 billion in cash and stock, backers wondered: what if I’d asked for equity instead of a poster? "I would have rather bought a few shares of Oculus rather than my now-worthless $300 obsolete VR headset," backer Carlos Schulte wrote.

If Schulte’s donation had been an investment, he could have earned around $43,500,estimates Greg Belote, the co-founder of equity crowdfunding platform Wefunder — a stunning 145x return.

Kickstarter doesn’t allow creators to offer equity, and the company has said it never will. But a bunch of other crowdfunding sites will soon be launching to fill that gap.

"I WOULD HAVE RATHER BOUGHT A FEW SHARES OF OCULUS RATHER THAN MY NOW-WORTHLESS $300 OBSOLETE VR HEADSET."

Previously, investing for equity was restricted to an elite, wealthy group of so-called "accredited investors." But under Title III of the Jumpstart Our Business Startups (JOBS) Act, companies will be allowed to issue stock to the public exchange for small investments, just like Kickstarter campaigns reward backers with T-shirts and other goodies. There are already scores of equity-based crowdfunding sites at the starting line — Wefunder, SeedInvest, and Crowdfunder are just a few — waiting for the Securities and Exchange Commission (SEC) to issue final rules later this year."

http://www.theverge.com/2014/3/28/5557120/what-if-oculus-rift-kickstarter-backers-had-gotten-equity

 

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[splok]

Do you deserve to get rich for buying an Xbox?

People that backed the project got the product that they were promised. End of story.

Sure, the opinion of one's existing fanbase/customers should inform a company's business decisions, but they shouldn't control them. Hell, the backers should be happy that Palmer now has crazy resources to make his dreams reality since that's what they were really investing in.

 

[The-J]

Of course not. Crowdfunding doesn't offer equity.

 

[Formless]

There comes that ugly F*cking word again.

 

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[InLikeFlint]

Definitely not. Crowdfunding is meant to help the company and the founders. The product you get is just a bonus or "thank you" for helping the company. I wouldn't even call it investing…it essentially is donating.

When you give to charity do you expect them to give you equity in return? NO.

 

[Mike39]

Personally, I don't feel the backers deserve anything outside of what they were promised.

My interest in the article was mainly found within this paragraph:

Previously, investing for equity was restricted to an elite, wealthy group of so-called "accredited investors." But under Title III of the Jumpstart Our Business Startups (JOBS) Act, companies will be allowed to issue stock to the public exchange for small investments, just like Kickstarter campaigns reward backers with T-shirts and other goodies. There are already scores of equity-based crowdfunding sites at the starting line — Wefunder, SeedInvest, and Crowdfunder are just a few — waiting for the Securities and Exchange Commission (SEC) to issue final rules later this year."

 

[Trivium iz rC]

Thanks for the post. The part that def caught my interest was crowd funding sites that are trying to offer equity. I'd be interested in that.

 

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[mayana]

I think the idea of being able to invest in start-ups, as in crowdfunding that offers equity is a really cool idea - though I think it is an SEC nightmare and I'm not sure how friendly current regulations will be to this. I guess we'll see how this plays out...

Anyhow, the thing that caught my eye is the word "deserve". Our culture is way too caught up in that word. I deserve, you deserve, we all deserve! Who is going to do all of the work!!??!!

 

[thaboybam]

If you gave away money with no strings attached, then that's on you. No way I would ever.

 

[alexanderkjones]

We'll here's the challenge right. As a hardware developer and entrepreneur I can't take payment from you until it's ready to ship so I'm taking all the risk. Kickstarter has kind of, in a grey area sort of way, framed it as a support network vs a pre-purchase network even though every campaign is pre selling something.

Why not share the risk and the reward, empower the middle class to make meaningful investments, and stop calling Kickstarter something it's not. Consumer's take huge amount of risk on Kickstarter, I would feel better shedding some equity for my first customers for a bigger ask than the value of my widget.

From an economics perspective, whenever you pre-buy something on kickstarter it's bound to fail unless they have financial backing (most don't) because the market will only bear the product price, not the overhead for the infrastructure to build the product. These guys get zero margin on most of these products, they're stuck having made 1,000 units of this really cool thing and then actually have to make it without any income or personal incentive to actually get it done.

Obviously, this is also due to the lack of experience most Kickstarters have. It's become more of a trend to go to Kickstarter for your first production run once you have angel backing and a prototype designed for manufacture. We lose the wacky one hit wonders but it's a good qualifying strategy for weeding out the duds.

What's really interesting is that there's a gap of support services for entrepreneurs with a proof of concept prototype trying to get to manufacture and sales. Equity Crowdfunding could be really cool, but that's probably not the first step. Some type of crowd funded accelerator could be a possible solution. I think you'll see more services fill in the needs as places like kickstarter get more and more closed about the quality of projects they'll allow in and I'm willing to bet equity crowd funding to bypass angel investment will be a a part of that solution portfolio for entrepreneurs.

Any other thoughts on this?

 

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[DennisD]

If they were offering equity,
they may not have RAISED 2.4 million.

Kickstarter backers share the mentality of shoppers;
they're usually paying to GET something.
Sometimes the thing they GET is a sense of accomplishment, and sometimes it's a VR headset.

 

[RogueInnovation]

Very interesting...

Its kind of grey imo because it is almost like "advertising" your stock which is against the law.
So, I'm not sure this will continue to be a trend, as it gets around safeguards important for regulating economic markets.