I’ve mostly observed this phenomenon through the lens of forward-looking nonprofits in my professional space (Public Lab, Homicide Watch, Open Plans); the early wave of developing world microfinance efforts exemplified by Kiva; and the many game-related Kickstarter efforts that Penny Arcade writes about.

The words “finance”, “lending” and “investing” tend to get applied to these platforms, but that’s obviously wrong. For both legal and practical reasons, the returns are always modest: you’re either overpaying for a service, or for some digital or promotional knick-knacks, or the returns can only be reinvested in the service.

Thanks to the cynically-named JOBS Act, many of the relevant legal restrictions are going to disappear. But is there any reason to believe that practical considerations will? People are overpaying because they want to. It’s not just about making sure that a particular thing happens — look at the DoubleFine Kickstarter, which has now collected more than eight times the budget its creators say it requires (there are plenty of other examples, too). It reminds me of all the talk at the DNC about Republican defense spending proposals that vastly exceed the Pentagon’s own statements about their needs.

These expenditures are about spending money not just because we want what it will buy us, but because we wish to promote the values associated with this kind of use. It’s a subsidy to a particular class of thing and, perhaps just as importantly, an act of self-expression on the part of the funder. This latter aspect is deeply entangled with our human appetite for narrative: crowdfunders appear to value the consumption experience of (for example) picking out the village where a new well will be drilled over the knowledge of funding a venture that issues quarterly reports on the total number of wells it drilled. You can see this clearly in the emphasis on video storytelling on Kickstarter, or the upset that erupted when it became clear that Kiva aggregates funds since (gasp) money is fungible. If we cannot cast the act of funding into a meaningful narrative, it becomes much less satisfying.

For the types of projects that are most emblematic of this movement, it seems unlikely that the possibility of positive returns will attract many marginal investors. Rather, returns will attract a different kind of investor — and probably a different kind of project. After all, the kinds of projects that currently succeed at attracting funding will have no reason to put equity on the menu when a well-produced video presentation can suffice. Sure, the possibility of actual returns can presumably matter for investors for whom altruism isn’t the sole motivator. But there are existing vehicles for that kind of investing that come with a proper layer of regulation and diligence. I worry that we’ll soon see projects that promise to satisfy our values, but which offer promised returns as a substitute for an established track record (I expect many of these to come out of Silicon Valley).

There’s a huge disconnect between people who support the JOBS act because they are inspired by Kickstarter and those who are worried about hedge funds bilking seniors. I’ve got friends with strongly-held opinions on both sides of this; I have to admit that I don’t understand the dynamics well enough to know where I come down. I will say that slowly expanding the SEC compliance burden is the only realistic mechanism I see for leveling the transparency playing field between corporations and consumers — from that perspective, JOBS is tremendously disappointing.

But I suppose I’m generally heartened by Kickstarterism. It’s obviously not a rational way to allocate resources. To a large extent, it’s counting on investors to optimistically fill in the blanks about games and causes and projects, and many of the results will inevitably disappoint. You know how much less excited you feel flipping through movies in iTunes versus when you saw their trailers in the theater? It’s like that. There is money to be made by charging your entry fee on the early side of that declining enthusiasm function.

Still, overpaying talented people and trusting them to make something great is a model that has, at times, produced some pretty wonderful things. At some point we mostly gave that up: efficiencies were sought, and the patronage model was abandoned in favor of a coordinating layer of fund managers and NGO executives and the like. As with any occupation whose practitioners take their duties seriously, expertise and rationality-esteeming professional norms tended to accumulate at that layer, and consequently funds were aggregated and disbursed on a (supposedly) dispassionate basis.

But now, thanks to the internet, we can cut out those irritatingly Spock-like middle-men. In a world of scarce resources, it’s hard to wholeheartedly defend this return to romanticism. But those middle-men were only human themselves, after all (honestly, who were they kidding?). There are worse ideas than octupling DoubleFine’s budget and then waiting to see what happens — as long as we’re not conning seniors into spending their IRAs to do so.

About the author

Tom Lee


  • It’s not fair to describe Kickstarterism as wholly romantic. The way Kickstarter likes to describe itself is a fair one: by cutting out the middle men, ideas that would not otherwise have attained a critical mass of funding can obtain it. It’s not just about Double Fine getting wildly overfunded by rabid fans (and do bear in mind selection bias here – that’s at the edge of the bell curve, you just don’t hear much about the giant middle of project success).

    I’ve funded 28 projects on Kickstarter:

    Of those, only 3 are the sort of mega-successes you’re talking about. Several are small projects by personal friends that I’m supporting. Most of them are interesting small- or medium-dollar projects that I honestly believe would likely not have been funded in a Kickstarter-less world. (Though also: the mega-successes like OUYA and Double Fine I also think may not have hit their original goals in such a world.)

    Your point about equity being a very very different motivator than simple philanthropy is sound, and I don’t know what kind of projects will emerge from a successful Kickstarter-plus-stock platform. I think they’ll be very different. All of the wild over-fundings I can think of, with the exception of Diaspora, essentially functioned as pre-orders, and of course the value of your funding doesn’t depend on how many others participate.

    However, we should be interested in finding out what those are, while remaining vigilant about how the expanded rules can empower scams. I know that the Change Crowdfunding Law campaign (, which was involved in the crafting of the bill, wanted lower caps on how much non-accredited investors could invest. Since Scott Brown ended up being the principal Republican negotiator on the bill, it was probably unavoidable that the end result would end up skewing towards the deregulatory side.

    If it turned out to be too broad, we can work on it. Angry scammed seniors can actually cause Republicans to agree to tighter regulations. Hopefully that’s not necessary.

    To put words in your mouth: the image I get from this post is that “kickstarterism” is a sort of cognitive weakness that we learned from and created regulations to manage, and that we’re just forgetting history and allowing yuppies with loose impulses to drive policy changes whose damaging side effects we’re glossing over or ignoring – and that we were lucky to get it into a vacuous bill at a time when both parties found deregulation electorally appealing.

    That’s what comes across anyway, and I think that is a tempting but very narrow view of what Kickstarter is, why the JOBS Act passed, and what will emerge as a result.

  • I think you’re reading sarcasm into that last paragraph when really there’s just a bit of snark and an acknowledgement of universal human frailty. I really do think that kickstarterism is a new version of arts patronage, and I really do think that’s an admirable thing, though it is very much about people’s hearts rather than their heads (perhaps that’s how art ought to be funded!). And I really do like this new phenomenon — though, yes, I think people should probably be gently reminded that in many cases they’re overpaying for entertainments with comparable, cheaper substitutes.

    I am much, much less sanguine about what’s going to happen when we turn this into a way to properly invest, rather than a way to crowdsource grants with disposable income. “Don’t make fine-grained investment choices if you’re not an expert” is pretty much investing 101 — this is a recipe for a lot of people losing money. That’s fine if they can afford it — but the ones who can afford it already have investment vehicles. My sense is that the successes of crowdfunding are going to take on a much more tragic cast when the stakes are raised in the way that the JOBS Act proposes.

  • I’d be a lot more sympathetic to the bilking seniors point if we had a federal ban on casinos and lotteries. If I wanted to, I could take $10k out of my IRA and blow it on a day of poker in Atlantic City. But the SEC is helpfully protected me from the risk of chipping in $10k to help my brother get his startup off the ground.

  • That’s mostly fair, Tim, but we’ve got a lot of helpful norms and transparency requirements surrounding gambling. I don’t think you can say the same about this class of investing.

By Tom Lee