Crowdfunding for Startups: It’s $100K or Bust

Kickstarter and Indiegogo grads want market validation. We’ve discovered the tipping point.

Kickstarter has great ideas about how to raise funds. They tell you what you must do to be accepted by Kickstarter, and what you should do to succeed there. But they don’t tell you everything.

For example, when entrepreneurs are trying to build a business, they use crowdfunding to show investors that a market exists for their product. But how much demand is proof of a market? In Airbrite’s data, there’s a simple threshold that separates projects poised to succeed after the crowd-funding stage from those destined to remain a hobby.

It’s $100,000.

That’s the line most successful businesses cross in their fund-raising. It’s just rule of thumb, of course. There are notable exceptions. We work with some of them. But as a rule, when you’re seeking market validation, $100,000 says you got it.

We work with and analyze thousands of crowd-funding graduates of Kickstarter and Indiegogo. We see what sells and what doesn’t. Raising funds in the ballpark of $100,000 or more is the chief metric we use to calculate a project’s likely success.

If you raise that much or more and don’t screw up, chances are you’ll make a go of it. If you’re very far south of 100K, you need to rethink your fundraising tactics or your product or both.

OK, data time: Of the 50,881 successfully funded projects on Kickstarter, 917 have raised $100,000 or more. That’s about 2 percent with business-grade demand. The Kickstarter categories with the most 100K+ projects were games, technology and design, with film and video a distant fourth.

An Airbrite analysis of more than 550 of the most successful Kickstarter projects over the last two years shows that, on average, those projects have about 5,900 backers, while projects that fall short of the threshhold have on average about 2,900, or less than half. Backers in the 100K+ category tend to spend about $86 apiece. That’s right. More than 100K in baby steps. But notice that, if you can convince 5,900 people to commit $86 apiece, you just raised yourself more than $500,000. It’s harder if you’re charging $8.

Sure, not everybody wants to turn their Kickstarter project into a business. Maybe you’re making a movie, or just building a cool gadget for yourself and a few backers. That’s great. We still like you. But this post was not written with you in mind.

Instead, it’s for makers and nascent businesspeople who regard Kickstarter as their pre-seed round.

So what are you supposed to conclude? Most people raise money for what they need. If they want to make X number of widgets, they raise Y amount of money. Sometimes that’s $100,000, sometimes it’s less.

We’re saying if you want market validation, then at a minimum you should raise money for $100,000 worth of widgets. If you set your sights lower than that, you can’t be sure you have a market, even if your campaign is successful. Don’t sell yourself short.