I'm a fan of all forms of crowdsourcing - be it for ideas or financing. I've been known to contribute to surveys and the like. I've also even contributed funds to bootstrap projects I believe in.
This week, a major story broke that called crowdfunding into question: the acquisition of startup Oculus by Facebook.
The Draw of Crowdfunding
Different people have different reasons for donating money to bootstrap a startup. Some do so because they want to help an awesome project get off the ground. Others pitch in cash because of the specific incentives offered for early financing.
Others contribute specifically so entrepreneurs can be free of the demands of traditional (i.e. equity) investment.
The biggest benefit of crowdfunding for entrepreneurs: you can raise money to bootstrap and build your idea without giving up ownership in the project. Traditional funding rounds would require you give up equity to investors, this giving up partial control to those who finance you.
For backers, this involves a lot of trust. You have to take an entrepreneur/founder at their word that they'll come through with the project. I've backed projects that took so long to reach fruition that I forgot I'd even given anyone money by the time my "perk" came in the mail.
But there's often no guarantee that the entrepreneur will live up to their claim. I've seen a few crowdfund projects drop into obscurity when the would-be founder ran off with their cash and left vaporware in its place. These projects leave backers a bit jaded, but we regroup to focus our monies on making other big ideas succeed.
I first saw the Rift on YouTube - one of the gamers I follow used it to walk through a few immersive games.[ref]This is to say I wasn't a Kickstarter backer for the project, but I would have ben if I'd seen it at the time.[/ref] It's a remarkable piece of technology, and I look forward to seeing where it goes from here.
Like many other awesome projects, Oculus was crowdfunded through Kickstarter - to the tune of $2.4 million.
This money was used to fund research and development, as well as the creation of several prototypes and developer kits used by members of the community. It was nearly ten times what the project team asked for, and has been put to good use building out a stellar product.
So stellar in fact, that Oculus was just acquired by Facebook for $2 billion.
Transparency and Community Goodwill
There is nothing wrong with this deal, strictly speaking. Oculus was a privately-owned company whose owners have the full right to do with whatever they want. In this instance, they chose to sell to a larger company.
What they also chose to do, however, is alienate the community who made the product a reality in the first place.
Backers come to sites like Kickstarter to contribute money to startups that would otherwise fail. They want to make a dream a reality:
It’s supporting their dream to create something that they want to see exist in the world. People rally around their friends’ projects, fans support people they admire, and others simply come to Kickstarter to be inspired by new ideas.[ref]What is Kickstarter[/ref]
When a project becomes so successful that the owners can turn around and sell the business for a huge amount of money, it calls into question whether they needed the original crowdfunded backing in the first place. Backers gave money, some getting nothing more than a t-shirt in return, to start a project now being cashed in for billions.
Not to mince words, but this was a dick move by Oculus' team, and the community-at-large is calling them on it.
I did not chip in ten grand to seed a first investment round to build value for a Facebook acquisition.[ref]Comment by Notch, a $10k backer of the Oculus project.[/ref]
Kickstarter backers - specifically grass-roots tech enthusiasts - were flocking to Oculus because they wanted it to become a reality. Now the project is owned by Facebook, and in the words of one of Oculus' largest backers, "Facebook is not a company of grass-roots tech enthusiasts."
If you pitch a project to a community and ask their support, remember the goodwill that community's invested when anyone with deeper pockets comes around talking about acquisition. All of that goodwill can disappear in a second.