Founded in 2009 by Perry Chen, Yancey Strickler, and Charles Adler with a mission to help bring creative projects to life, Kickstarter uses an all-or-nothing model funding model (if a project does not meet its financialgoal, no money changes hands between the creator and the backers funding the project). The company primarily makes money via transaction fees.
Origin Story
Kickstarter is a Brooklyn-based public benefit corporation and is best known for its crowdsourcing platform.
It was founded in 2009 by Perry Chen, Yancey Strickler, and Charles Adler with a mission to help bring creative projects to life. This means the platform is frequented by a diverse range of creatives, including musicians, filmmakers, comedians, journalists, and gamers.
From 2012 to 2017, Kickstarter embarked on an expansion strategy that saw it establish a presence in the UK, New Zealand, Australia, Singapore, Hong Kong, Mexico, Japan, and most of western Europe.
Kickstarter has become one of the largest crowdfunding platforms, and the place where many business ideas have been validated and launched. To gain a bit of context it’s worth looking at some of its key statistics.
Source: kickstarter.com/help/stats
Kickstarter revenue generation
Kickstarter uses an all-or-nothing model funding model. This means that if a project does not meet its financialgoal, no money changes hands between the creator and the backers funding the project.
We established the all-or-nothing model when we launched in 2009 as a measure to protect creators, and to minimize risk for everyone. By not releasing funds unless a project meets its goal, this ensures that creators have enough money to do what they promised and they’re not expected to complete a project without the funds necessary to do so. This also assures backers that they’re only funding creative ideas that are set to succeed.
Thus, the company argues that this model increases revenue generation for both Kickstarter and the creator. Financial goals encourage creators and backers to rally together and create a sense of urgency. A sense of community is then created when both parties cross the finish line together and successfully fund a project.
For projects that are ultimately unsuccessful, Kickstarter does not collect a fee and the money is returned to the backers.
Transaction fees
For a project that does meet its financialgoal, Kickstarter takes 5% of the total amount of funds raised.
A third-party payment processor also takes a fee of 3% plus 20 cents per pledge. However, small pledges under $10 have a discounted fee of 5% plus 5 cents per pledge.
For users in the United States, this third-party processor is usually Stripe.
In the case of $10,000 raised by 100 pledges, the creators will receive $9000. Kickstarter then takes a $500 commission and the payment processor another $500. Given its relatively low operating costs, the commission Kickstarter receives is relatively profitable.
Kickstarter maintains that its fee structure has set the industry standard for crowdfunded creator projects. In other words, the company believes in paying the creator as much as possible by eliminating the numerous intermediaries in a traditional funding process.
These include agents, distributors, dealers, record labels, publishers, and fiscal sponsors.
Benefit Corporation certification
In 2015, Kickstarter was reincorporated as a Benefit Corporation in the United States. This means the company gauges success according to how well it delivers on its mission. While profits are important, they are no more important than socially responsible decision-making and goals.
Key takeaways
Kickstarter is an American crowdfunding platform that was reincorporated as a Benefit Corporation in 2015. Its mission is to help bring creative projects to life for a diverse range of creators.
For successfully funded projects, Kickstarter charges a commission of 5% of the total amount raised. A third-party payment processor – usually Stripe – also takes a cut for facilitating the transaction.
Kickstarter encourages projects to become fully funded by creating a sense of camaraderie between backers and creators. Ultimately, this financially benefits both the creators and the company itself.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a businessmodel. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
In a franchained businessmodel (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
