Considering using crowdfunding for your next project or startup? You’d better make sure you choose your goal and budget carefully. Crowdfunded startups may be successful in meeting their stated fund-raising goal, but STILL not have enough money.
This happened to gaming company Double Fine Productions after it ran an initial crowdfunding campaign on Kickstarter. The company used Kickstarter to help fund a new adventure game called Broken Age, asking for $400,000 on the crowdfunding platform.
The campaign was successfully funded after just nine hours.
In fact, by purely looking at the amount raised — it was uber-successful. By the end of the pledge period, the campaign had raised $3.3 million. That’s more than eight times the amount they asked for!!!
So what was the problem?
Even though Double Fine’s campaign vastly exceeded the money initially asked for, the costs that the company budgeted turned out to be much higher.
One of the main reasons they were so far off was a particularly expensive pledge the game developer made to backers. The company had promised to make a documentary about its game creation process, among other perks. With so many more backers than expected, shipping of the documentary alone cost $250,000 because it had to be shipped internationally to 87,000 supporters. The film production costs for the documentary were another half million.
Added to this budgeting disaster were higher-than-estimated transaction fees and other costs. Soon the company had only about $2 million left to make the game, which wasn’t quite enough on its own, they say.
On a positive note, even though the development team did not receive the amount they ultimately needed to create the full game, crowdfunding did help them determine that a market definitely did exist for it.
Double Fine COO Justin Bailey explained during a crowdfunding panel hosted by The Bold Italic in San Francisco:
“In games what used to happen is you’d design a concept and spend millions of dollars and three or four years, sometimes five years. And then you’d put it out there and you’d find out if it’s successful or not.”
So instead of just giving up, the company decided to create and release half of the game, and then seek funding for the other half elsewhere.
What can startups learn from the experience of Double Fine Productions?
- Using crowdfunding sites like Kickstarter can be valuable, even for projects that aren’t funded successfully. It can be “proof of concept.”
- But if you want your project to actually get all of the funding it needs, you have to estimate and plan carefully. Be careful about the promises you make to backers — they can increase your expenses considerably. Be realistic about your budget. Don’t forget to include all of the seemingly small costs that go along with completing your project.
- And if you’re able to raise at least a portion of the money your company needs, there are other potential sources for funding you could turn to later.
Image: Double Fine Productions
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