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6 Kickstarter nightmares, and how to prevent them

Crowd funding has taken investing from the hands of the venture capitalists and given it to the masses. Here's how not to screw it up.

For tens of thousands of entrepreneurs frustrated by Washington's arcane legal rules for raising business capital, Kickstarter has been nothing short of a red-tape weed whacker. The crowd-funding website lets individual investors pledge money directly to inventors and artists, handily upending the complex and often impossible process of raising financing one person at a time.

If you succeed, that is.

Since its launch in 2009, Kickstarter has hosted more than 76,000 projects. About 32,000 of them, or 44 percent, have been successfully funded, with a total of $345 million raised.

The road to success on Kickstarter is far from assured, and third-party statistics show that Kickstarter projects have about a 41 percent failure rate. And that's only counting projects that Kickstarter accepts. Countless additional projects have never even made it off the launching pad.

How do you avoid having your project become a statistic while others succeed? Here are some of the most common pitfalls other Kickstarter users have encountered, and ways you can overcome them.

All of the information below comes courtesy of entrepreneurs who've experienced failure, success, or both, at the hands of the Kickstarter system. Kickstarter declined to participate in this story.

1. Problem: Kickstarter rejects your project

It's impossible to tell how many Kickstarter projects never even get a chance, because there aren't any statistics on how many are rejected outright by the company.

It is in Kickstarter's interest to accept only projects that are reasonably likely to succeed, because Kickstarter gets paid (5 percent of your total funding) only if you reach your stated funding goal. Miss the goal, and Kickstarter collects nothing--but it still has to do all the legwork of running your funding campaign and hosting your project.

The reasons for rejecting a proposal are numerous and often cryptic. Kickstarter's guidelines establish rules for what qualifies for Kickstarter funding, but these aren't always clear and can even be contradictory. The fundamental rule--that funding is for "projects only"--is at odds with entrepreneurs who want to use funds to build a physical product that they hope to sell on an ongoing basis, or to use as the basis for the beginnings of a startup. No one is getting into the Kickstarter game to create a limited run of iPad keyboards that, once produced, will never be sold again.

Kickstarter seems to understand this, and it judges projects individually, so if the language in your description is rejected for not describing a "project," try revising it and resubmitting. (Kickstarter does have an appeals process, but, as Brett Callow of ioSafe told us, "Their web form limits [appeals] submissions to 500 characters, making it impossible to make a detailed case." To raise financing for its latest NAS device, IoSafe eventually turned to Kickstarter competitor IndieGoGo--a common solution to Kickstarter rejection.

Other users report that they didn't receive a reason for their project's rejection by Kickstarter. Jennifer Chu's Silver Linings shoe liners idea was rejected by Kickstarter, she says, without explanation. Says Chu, "From what I have heard, Kickstarter gives reasons for declines if they are things you can change. For other issues, they just give the canned response." Rather than attempt to figure out what happened, Chu also jumped to IndieGoGo.

2. Problem: Your project didn't reach its goal

Once Kickstarter has accepted your project, you're hardly out of the woods. A vast number of projects never get off the ground because they don't meet their funding goal. Remember: If your campaign falls short of goal, you receive none of the funds you've raised.

This is a universal problem with no easy diagnosis. Your rewards may be out of line with expectations--a free baseball hat or DVD in exchange for a $50 donation may not engender much success --or your promotion of your own project may have fallen short. (Kickstarter prohibits spam but encourages "smart outreach.")

Successful campaigns have lots of supporting information--including things like photos of prototypes and regular updates--proving that the project's founders aren't going to flake out or run off with the cash--whether due to incompetence or outright scam. Having a video can boost your credibility and funding immeasurably. On IndieGoGo, campaigns with a pitch video raise 114 percent more cash than those without one.

If you try your hardest and still don't hit your goal, then what can you do? Try again, preferably with a smaller goal. In its initial form, Nectar and Elixir's quirky bicycle seat clamp-meets-bottle opener raised only $1291 of its original $15,000 goal, an ambitious sum for a simple product. The designers tried again a few weeks later with a $2,500 goal...and successfully raised $4403. Check out The Kickstarter Handbook for an interview with that team for more details.

3. Problem: The cash didn't come through

This is a hopefully rare but troubling problem. Stacy Davidson was seeking $56,000 for a video game project, and he hit his goal. But when Kickstarter ran the investors' credit cards, a few of the pledges turned out to be bogus, including one whopping $10,000 one. Kickstarter funds projects based on pledges, not actual cash collected, so that left Davidson with a significant shortfall to cover. But since completed Kickstarter campaigns can't be reopened or added to, Davidson ended up asking for private donations to help fill in the gap.

Lesson learned: Don't rest on your laurels just because you've hit your goal. Keep promoting your project until the time is up, no matter how far over goal you are.

4. Problem: You need more money

This problem is similar to the previous one: What if you met your goal and collected your money, but you burn through it too quickly or otherwise find out you need more funds to complete your project?

The most common solution here is the same as in Problem 3. Because you can't ask for more money from Kickstarter, you may turn to private funding sources to add to the coffers. Cheryl Furjanic and Will Sweeney did just that after raising $50,000 for a Greg Louganis documentary from Kickstarter. The initial investment was enough to get the film off the ground, but not enough to finish. The duo is using its Kickstarter page to point backers to additional fundraising opportunities, encouraging them to host fundraising parties and connect them with donors.

5. Problem: You're running late

If your project is behind schedule but it's going to be finished eventually, the best thing you can do is to simply let people know. This schedule slippage can happen for any number of reasons. If, for example, you're developing a mobile accessory, then the fact that Apple changed the iPhone's connector will throw you off schedule. Generally backers are understanding about delays...as long as you explain yourself in detail.

If you have a delay, update your Kickstarter page to explain why and, crucially, how lengthy you expect the delay to be. You simply cannot provide too much information to backers, who begin to get nervous the day after your Estimated Delivery Date has passed. That date, by the way, is now required on all projects. Updates on a near-daily basis aren't a bad idea if you want to keep your inbox from overflowing with hate mail and legal threats.

6. Problem: Your project didn't work out

You don't need to search for long to find tales of Kickstarter backers upset that they made funding donations and never received their rewards, or even any information about what went wrong.

This isn't entirely unexpected. Kickstarter may require an Estimated Delivery Date on all projects, but these are still estimates, and there's no enforcement of or consequences for missing that date. (Kickstarter says it is the "creator's responsibility to complete their project," but also, "Kickstarter does not guarantee projects or investigate a creator's ability to complete their project.") As a result, backers are becoming increasingly nervous about funding projects if they aren't dead-certain the projects are going to pan out eventually.

As an entrepreneur, it's your job to overcome these concerns, but what if, despite your best intentions, the proposal just isn't going to make it? What if the technology's not mature enough to do what you expected? Do you have a duty to release a Kickstarter-backed movie if it stinks? Technically, yes: Kickstarter's Terms of Use require you to release your product or refund backers' money.

If your project is one of the (many) that don't pan out, the best advice is to pull the plug as soon as you can. Refund whatever portion of the backers' money you haven't spent, perhaps with a make-good apology reward for their trouble. (Imagine a bumper sticker: "I invested in Bob's Widgets and all I got was this lousy sticker.") The last thing you want is to be sued by hundreds of people for $50 each. In reality, reports of refunds are rare. If you actually offer one, you'll be in a very tiny minority.

If you finished building it, but your project isn't viable or the product doesn't work, should you ship it? Ask your backers if they still want your expensive paperweight. As with most things, clear and copious communication with your backers goes an awfully long way to smoothing over bad feelings. Most Kickstarter backers know that nothing is guaranteed, but they absolutely despise radio silence.

Kevin Murray, a frequent Kickstarter backer, puts it this way: "For me, the lack of truthfulness and transparency is what leaves a bad taste. Share the struggle, ask for advice, and an investor may be understanding. Go dark, and people will believe the worst."

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