Do crowdfunding campaigns cause addiction?
Venture Beat columnist Christina Farr addresses this question in her recent article about “serial backers” – Kickstarter backers who pledge toward dozens, even hundreds, of Kickstarter projects at a time. The article raises the possibility that backing Kickstarter projects has the same addictive quality as gambling; backers get a thrill out of picking the projects that they think will succeed. They click the refresh button over and over to stay updated, and heart rates rise as backers watch the close calls that barely make, or miss, their funding targets.
Serial backers cite a few motivations for pledging to so many projects. Some explain that they want to own the next new game or product. Even more of them, though, discuss how good it feels to support communities they care about: their local community, or the gaming community, or the startup community as a whole. That relatedness represents a major driver for Kickstarter’s most prolific users.
Joshua Rogers, a serial backer interviewed in the article, exemplifies a Kickstarter user who backs projects out of solidarity with a community. He focuses his funding on projects in his Chicago neighborhood and in game projects that interest him.
Will we see “serial investors” emerge in equity crowdfunding?
Several similarities between Kickstarter and equity crowdfunding platforms suggest that we will. First, equity crowdfunding features individuals and teams with ambitious projects that need funding. Though donation or reward-based crowdfunding fits a different set of ambitious projects than equity-based crowdfunding does, all types of crowdfunding share the high-risk, high-reward entrepreneurial environment. Investors enjoy trying to mitigate their risk by picking the right investments so they can walk away with the high rewards.
More importantly, though, crowdfunding investors and Kickstarter backers share a motivation to be a part of something larger than themselves; they relate to the gaming community, or the bicycling community, or their neighborhood, and they want to support the businesses that grow in that community.
Equity-based crowdfunding discourages impulsive serial investing, though.
First, equity-based crowdfunding campaigns support companies, not individual projects. So they don’t feature a physical thing that someone might buy on impulse if they happen to see it in the grocery store. A company might fund its business development goals through equity-based crowdfunding and cover the initial production costs of individual products through Kickstarter. For example, Nevermore Games, an independent game publishing company based in Richmond, VA, funded their game project called Mars Needs Mechanics on Kickstarter two days ago. The company itself, though, produces other games as well, like Utopia Engine and (upcoming) Chicken Caesar.
Second, investors buy a relationship with a company – potentially a long-term relationship. That relationship yields monetary returns after a year, or several years – but not a few months like some Kickstarter projects. As a result, people will approach investment with the intention to analyze their choices.
And if investors are smart, then serial investing will be more common than serial backing on Kickstarter.
The buys won’t be impulsive, Instead, investors will mitigate their risks by diversifying – by investing in a bunch of different things at once. And that’s a smart investment decision.
It’s funny that serial backing gets framed as a dangerous, addictive behavior, when the same behavior among investors is considered normal and desirable.
That’s not really fair to serial backers. Some of them might back things impulsively, but others might look at serial backing as a type of diversification.
Suppose a serial backer of board games is willing to pay $120 for a brilliant board game. He puts $40 into each of three different board games on Kickstarter. If just one of those board games gets produced and he gets one as a reward, even if he doesn’t demand a refund from the failed board games (which Kickstarter backers sometimes do), then the backer gets what he needs to be happy with the amount of money he spent. This backer strikes a balance between the likelihood that he gets a board game and the opportunity to lend a hand to new, fresh games and game designers. Maybe serial backing mitigates backers’ material
risks while allowing them to enjoy the reward of knowing that they helped someone create something new and special.
Maybe that’s just the calculus of philanthropic values, and it looks absolutely nothing like gambling or addiction at all.