Not very long ago, Lloyd told us about a Kickstarter project that he backed for a wireless keyboard that took far longer to deliver than expected, and when it did, it was not what was promised. He talked about how the site, while an amazing way to fund projects you're interested in and democratize innovation, carried with it some risk. A new study took a look at exactly how often these failures to deliver happen and which projects are riskier than others.
Ethan Mollick, a professor at the University of Pennsylvania's Wharton School, surveyed 456,751 backers of 65,326 projects and found that the overall rate of failure -- defined as either a funded project that did not deliver anything or a funded project that delivered something different than promised (Lloyd's experience) -- was 9 percent, though depending on the types of projects ranged from 5 to 14 percent.
The projects that were most likely to fail were ones on the smallest end of the spectrum with pledges received at or below $1,000. Those had a failure rate of 14 percent. Mid-size projects with amounts pledged between $10,000 and $250,000 were safest, while projects with larger pledge values had a slightly greater rate of failing.The risk of failure was pretty consistent among the project categories. Crafts, film, technology, and food projects had slightly higher failure rates than other categories, most likely because those projects often involve a more complicated reward like a brand new gadget or full-length film. Music, journalism and dance projects on the other hand, had a slightly lower failure rate.
One thing the study did not find was a difference in failure rates depending on the attributes of the creators. Education level, size of team and other factors made no difference.
The good news is that a 9 percent failure rate is pretty low. Even if you round it up to one out of ten funded projects, failure is still rare -- 9 out of ten projects deliver exactly what they promise. The study author says that points to the crowd's ability to weed out projects that seem unrealistic and unable to deliver and also that it shows Kickstarter's standards for project approval, which they have upgraded recently, do a good job of preventing failures.
Mollick said that the creators should make sure that they have a way to compensate or at least give an explanation to backers if projects do fail.
"Since failure can happen to anyone, creators need to consider, and plan for, the ways in which they will work with backers in the event a project fails, keeping lines of communication open and explaining how the money was spent," Mollick said.
As someone who covers interesting tech Kickstarter projects on a regular basis, this study makes me feel optimistic about the future of crowdfunding. If you're hesitating about backing a project, it looks like you'll most likely get what you pay for.