Notwithstanding all the hype and legitimate positives of crowd sourcing, this is the very real negative side. Kickstarter gives unfettered access to funds, which more often than not is required by a given project, and they indemnify themselves and further remove themselves from the funding transactions (a legal requisite for anyone not wanting to be tied up in litigation for the rest of their known life). Perhaps there is some room to hold funds in escrow and release them after projects hit certain mile stones, but I think that would stifle projects more than ensure successful use of funds. This is a real problem facing an emerging industry that if someone figures out they could propel themselves to the forefront of this space.
Maybe even only release 50% of the funds initially and hold the rest in escrow until a given set of circumstances are met. That way the users are exposed to less risk knowing they could get half of their funding back.
On the downside, if this keeps happening, users aren't going to back as many projects, and fewer projects will be successfully funded (which may or may not actually be a bad thing).
If you go down this road, just let project creators decide their milestones and timing, and then release the funds. Different projects have different cash flow problems, so each creator should be able to decide.
Want all money upfront? Fine, but people will know and decide accordingly whether to back your project.
The problem here is what to do if you estimate the milestones wrong. People backed it under those terms and you supposedly can't change the terms after they give you money.
What if your initial expenses are higher than thought but you can't access your next milestone for 4 weeks meaning you miss important deadlines with suppliers/manufacturers and the company goes bust, just because you couldn't access the money people pledged in time.
Starting by only giving them the amount of money they said they needed would be nice. 196 000$ of a 12 000$ goal, that's ridiculous, and very tempting to just disappear away with.
The trouble is that, particularly with physical products, being overfunded often means the project does need more money up-front than originally estimated. For example, they may need to change their production process to one that has higher upfrunt costs but allows for higher volume.
Yes. But with economies of scale each individual unit should cost less than the one before it. That's why you have minimum runs for production. Any less and the manufacturer doesn't make enough money to be worthwhile. Fixed cost vs unit cost, etc.
With things like aircraft, the first one costs billions because of the R&D having gone into it. But by the time you roll out the hundredth F-22, you've learned a lot about the process and refined the techniques. Same thing with processors.
One of the biggest downsides of kickstarter projects is that the creators have some engineering/ design skills but seem to have practically no business skills. (I'm generalizing here for the sake of argument).
> But with economies of scale each individual unit should cost less than the one before it.
Not really. At pretty much every step of the mass-production pyramid (higher volume, lower per-unit cost), there are significant capital costs involved. The tooling for a injection mold can be in the $10-100k+. That means the first unit in subsequent process is going to be huge, because you've got nothing to amortise it over yet.
Even if the process change is free, there's almost certainly going to be some NRE work updating your designs, optimising DfM, etc.
There's an example mentioned in the excellent 'The Factory Floor'[1] where going from single-colour injection-molding plus hand-painting (with 50% defect rate) to a 'dual shot' injection-mold (with 0% defect rate) ended up costing $0.94/unit (vs $0.70 for the former; 35c each, and throwing away half)
Likewise, for small runs handing it off to Shapeways might
well be the most cost-effective, but after a certain size, it would be madness. Firstcut/Protomold[2] look like they're stepping up to be the medium-scale option, which is nice.
Oddly enough, it looks like bitcoin has an obscure feature (m-of-n transactions) which could be used for a group of arbiters (major backers?) to reach a consensus that a milestone has been reached and release funds for the next milestone. They could also use secret sharing to give the project the private key of a wallet with the funds.
