45 replies to this topic

[Frankthedm]

I don't want to call them a bunch of artistes being crabby because their little coffee shop/credit union is being used for practical merchandise, but It sure is looking that way to me.

http://www.kickstart...-is-not-a-store

We've also added the following guideline for Hardware and Product Design projects:

• Offering multiple quantities of a reward is prohibited. Hardware and Product Design projects can only offer rewards in single quantities or a sensible set (some items only make sense as a pair or as a kit of several items, for instance). The development of new products can be especially complex for creators and offering multiple quantities feels premature, and can imply that products are shrink-wrapped and ready to ship.

These guidelines are effective for all Hardware and Product Design projects that launch starting today.

We hope these updates reinforce that Kickstarter isn't a traditional retail experience and underline the uniqueness of Kickstarter. Thanks for reading, and thanks as always for using Kickstarter.

[recruittons]

Well, since it doesn't affect games or miniatures, that at least doesn't affect my kickstarter interests. Kind of a shame for those pledging for technology and product designers, though.

[Argentee]

The point they are trying to make is that with hardware, especially experimental electronic hardware, that the final device may not be like the pro types and mock-ups. That there possible obstacles and stumbling blocks to new technology.

Please note these restrictions do NOT apply to games, music, food etc. Producing a new album, miniature, or cookie does not involve the same kinds of complexities and risk as making a new motherboard or wind turbine.

[dispatchdave]

As to the original question, "What's wrong with Kickstarter being used as a store?", the answer is, simply, they don't want it to be a store. The idea for Kickstarter (and others like Indiegogo) is that they are investment platforms. The idea is to crowdsource one's product to get funding, as opposed to having to convince banks to loan one money. The new rules will ensure people continue to think of KS as an investment tool with the risks and rewards that go with that.

Too often on these boards I've seen people with the feeling that Reaper was basically pre-ordering new mini's. Something could go horribly wrong, and we all lose our money. That's unlikely; Reaper has an excellent reputation and a reliable business model. But it could, and while I would be sad, I would not be frothing mad like those who think they are preordering an item.

TLDR: KS is an investment tool, not a retail outlet.

-Dave

[Castimirr]

That said the "investment model" isn't holding up in court very well. Investors by definition get ownership in the business. If anything it is closer to a loan that in theory will get paid back in stuff not money.

[recruittons]

Yeah, I believe there is a class action against a product designer of the Hanfree iPad case. A court labeled the people in the class as creditors and that the creator had defaulted. So yeah, more like a loan than anything, at least from current legal precedence.

[Lastman]

It's a risky loan because there's no way to assess the credit worthiness of the companies that are borrowing, which in many cases are mom and pop type shops. No collateral either--just a promise to pay in goods. More like a donation with thank you gifts like you see public television stations offer.

I wonder how the pledge money appears on their financial statements.

Are the pledges treated as revenue immediately or when the product is delivered?

Any accountants care to enlighten?

[recruittons]

@ Lastman: That's also true, the part about the credit worthiness, I mean (no idea about the financial stuff).

Again, using the Hanfree kickstarter as a guide, the creator was already in debt to many other creditors before his project even launched, and has now filed for bankruptcy. Things aren't looking good for many of those poor backers.

[Castimirr]

My guess would be as a liability for pre-paid orders. [Not an accountant]

[AubreyE]

Accountant here (not often is that said in a positive tone). I do taxes rather than bookkeeping, but here's my best guess:

Assuming Reaper is using accrual method of accounting rather than cash method (as in it records a sale when the transaction happens, not when money is received) they'll mark all paint and sophie money as actual sales (it's shipping next month). They'll then have a short term liability (in that they owe us minis) for the remaining amount until next year. This will defer most of the income to 2013 (delaying when they pay tax and thus getting the best time value of their money).
This would have to be consistent with other sales though. Do they usually report a sale when the order is processed? when it's shipped? when money is received?

Hope that helps. I reserve the right to be completely wrong, there may be some rule or exception that I don't know off hand.

[WhatAboutBob]

I don't want to call them a bunch of artistes being crabby because their little coffee shop/credit union is being used for practical merchandise, but It sure is looking that way to me.

It is...though normally I would throw in the whole granola chomping, skinney jean wearing, hair flipping...

The issue is one which I have mentioned before in the past, and one which they are basically doing a CYA on. A lot of people are...even the ones which are running around with all the newest gadgets...are incapable of actually distinguishing between a rendered product and an actual physical one, especially if the artist who creates the rendering is half descent and takes their time with things like lighting and reflection. Although Hanfree is a higher profile example, there have been a dozen or so others like that where people thought they were ordering an existing product (based on the renderings) as opposed to funding the development of a possible product. Sometimes by an individual or a group of individuals who were incapable of actually designing it.

The "oversight" that they have in place is laughable - worse than the USPTO on that sort of thing. They wouldn't be able to identify a product which is achievable versus one which is destined to be vaporware, nor are they able to assess things like costing to see if the goals set in the campaign are even remotely achievable. However, because they place themselves in an oversight position - a skilled lawyer would be able to lay some level of culpability on KS without too much effort (after all...compared to the AI dropout who just ran off with a few grand of backer cash...KS has deep pockets). Dropping the renders from being allowed will help to prevent some of the snookering that goes on. Posting the article that says we are not a store will also help to avoid certain legal positions (to a lesser degree...but it helps).

In general, it puts them in a better position when the lawyers start sniffing around on something like OUYA (we actually have bets on how spectacular of a legal explosion that one will be) or Occulus, not to mention whatever comes down next in the list of high profile hardware. Right now, for giggles, you can take a look at the most funded under the hardware or design category and see how massively nearly every one of the projects has blown their deadlines. Should become almost as prevalent as pharmaceutical class action suits in a few years.

[smokingwreckage]

They're unlikely to say anything that amounts to an admission of liability, or even acknowledge a problem, but I'd say the ultimate problem here is that their model is not very high risk when we're talking about projects with heaps of human capital, that need some cash to get a project done, but extremely dicey for projects that would normally involve traditional R&D, long lead times, butt-loads of capital, and very little human capital.

Art projects almost always fall into the former, hardware projects into the latter category.

For example, let's say you're a talented recording artist who writes their own stuff and plays their own instruments. And you have a fan base. That's a huge amount of human capital and bankable goodwill. But you need to hire a studio, take months off regular work (be it plumbing or touring) and press vinyl. You need a couple of tens of thousands of cash, and nothing else, to put out product. No R&D, no machining, no market research, no prototypes, just cash and your own talented self.

That's pretty safe. If you're on record as a motivated artist who loves their fans and loves to work, it's a sure thing, especially if you're indie and your fans are going to love anything you do.

On the other hand, you've got a great idea for a tech gadget. I'll tell you which kind of person I want using my patented funding site, and it's got nothing to do with me being an artiste. When person two fails horribly - and usually, they will - I don't want to get sued.

[badocter]

As has been said, art projects have a much lower risk of not producing a product than the R&D tech projects. It is also not surprising that KS is adding controls to classes of projects that are higher risk and involve larger ammounts of capital compared to their normal projects...both to protect against lawsuits and to protect brand name. Would not surprise me if KS bans a few classes of projects in the future after a few big ones go down in flames.

Underestimating effort or cost is not unique to small new buisness, big established corporations fall into planning fallacy as well. It does not necessarily mean anyone set out to mislead anyone, rather those involved simply did not understand the true complexity and difficulty of what they propose.

http://en.wikipedia....lanning_fallacy

Fortunately for us, none of Reaper's KS is R&D or new tech. They already profitably mass produce figs made out of bones plastic, they just need money to accelorate making additional molds (which they already know the approximate cost of from prior experience.

[WhatAboutBob]

To be fair, art projects are a goodly way from being low risk... Many of those are even more flakey, however you are generally out small dollar amounts there. $10 for a CD or digital download or nothing at all for many of the "charity" cases that exist (yes...they have a reward, but it might as well be nothing). So, in that regard they are less risky. However, from what I have seen - art, music, dance, theater...fail to deliver as often as the rest of them (if not more so).

http://gawker.com/59...ability-problem

One of the more recent articles on the matter - handy as well, since it links back to lots of other cases between here and there.

What will be interesting though is that should the case with the Hanfree case, you might see regulators getting involved - whether KS likes it or not. The judge will make a determination on what sort of debt the KS campaign may or may not have created for the creator...and that debt will in turn define what KS is doing. If it is a loan...lots of regulations. If it is an investment...even more regulations. If they are donations...craptastic amounts of regulations. Right now - it seems as though KS is largely skirting all of them though (other than some form of tracking on non-profits...though I think that is more related to their own payout paperwork).

Not worried about Reaper or the other campaigns which I back...though I tend to be pickier in my choosing, and skeptical in claims.

[Ironhammer]

Another intersting factor is the difference between NEW technologies and new offerings of existing technologies. In the case of Reaper, plastic minis are themselves nothing new, nor is the technology Reaper is using to make them. True, the specific composition of the Bones plastic took some R&D, but that was done long before they got started with KS and is already proven in terms of popularity (as evinced by Reaper's sales since Bones launched). Reaper also already had a manufacturer and had already conducted heaps of market research. Now, if Reaper were launching KS BEFORE they had developed the plastic used in Bones, tested the market for the product, etc, the Reaper KS would have been a much much riskier proposition.