This the funding of a project or venture. This

This paper uses the successfully funded venture
‘Pebble: E-Paper
Watch for iPhone and Android’ as a case study from Kickstarter and critically analyses why it has been successful by drawing on
academic literature. It also demonstrates an understanding of the increasingly
important source of funding in the internet era and the challenges faced. More recently, venture capital markets have grown
worldwide ‘both in terms of capital under management and the number of firms
providing finance.’ (Ley & Weaven, 2011). ‘Crowdfunding
is a rapidly growing phenomenon wherein entrepreneurs seek funding for their
entrepreneurial activities from a potentially large audience of interested
individuals. Crowdfunding has exploded in popularity over the last decade and
now accounts for tens of billions of dollars annually.’ (Short et al., 2017). Crowdfunding is of interest
because of its increased importance as a source of funding entrepreneurial
ventures in the internet era. Despite its importance, there
remains a paucity of research on crowdfunding. This is likely to be the case as
it is a newer concept. Nonetheless, there is a growing body of literature that
recognises the importance of crowdfunding as a source of finance for
entrepreneurs. Schwienbacher
& Larralde’s (2010) study considered
‘crowdfunding as an alternative way of financing projects’ as well as the ‘factors
affecting entrepreneurial preferences for crowdfunding as source of finance’. (Schwienbacher & Larralde, 2010). Ley
and Weaven’s (2011) research tried to find how crowdfunding ‘may be
appropriately adopted within the start-up equity-financing context.’ This paper begins with a brief description of crowdfunding and
the problems associated. It will then go into detail on the successfully funded Kickstarter venture ‘Pebble: E-Paper Watch for iPhone and
Android’ and the reward model of crowdfunding. It concludes by summarising why
the venture was successful.

Crowdfunding is a source of finance which allows individuals (not
financial institutions, such as banks) to contribute to the funding of a
project or venture. This is commonly done over the internet. ‘Several platforms have emerged that help intermediate between
crowdfunders (those who invest in projects) and individuals with a project’. (Schwienbacher & Larralde’s, 2010). The most successful is Kickstarter where since its inception, over
14 million backers have funded 137,538 projects to date. (Kickstarter, 2018). The
platform uses a reward model of crowdfunding.
This is where backers of a project receive a reward based on their contribution
to the project. An independent study by Professor Mollick from the University
of Pennsylvania found that ‘9% of Kickstarter projects fail to deliver rewards’
which the platform considers to be ‘reasonable’. (Kickstarter, 2015).

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The ‘Pebble: E-Paper Watch for iPhone and Android’ is a customisable
watch. It allows customers to ‘download new watchfaces, use sports and fitness
apps, get notifications’ from their phone. (Kickstarter, 2018). After launching
in 2012, it became the ‘the first commercially successful smartwatch’ (Pesce,
2017).

 

To be successful companies should be innovative and creative in addition
to offering customers a value proposition to attract them. Creativity
is ‘the use of imagination or original ideas to create something’. (Oxford Dictionaries, 2018).  Value
proposition ‘is an innovation,
service, or feature intended to make a company or product attractive to
customers.’ (Oxford Dictionaries, 2018). One example of
a value proposition presented to customers is newness. (this is when a product
fulfils needs that customers didn’t previously perceive). Pebble launched the
product in 2012, and it was a new product that satisfied the needs of customers
that other products didn’t; through the new features that customers may not
have identified as a necessity beforehand. This is one of the key reasons it became the ‘the first commercially
successful smartwatch’ (Pesce, 2017). Another
value proposition is customisation (when customers are able to individualise
products to their own liking by changing the colour, size etc.). Pebble has
shown the use of this value propositions to attract customers by allowing them
to individualise their products; making the item more personal for their individual.
They do this by allowing the customer to choose different coloured watches in
addition to letting them to choose their ‘favourite watchfaces using
Pebble’s iPhone or Android app.’ (Kickstarter, 2012).

 

Boden (2004) looks at three types of creativity. The first, ‘combinational’ creativity is shown when there are new
combinations of familiar ideas. An example of this is the cronut and ice-cream
taco. The second, ‘explorative’ creativity is
shown when new ideas are generated by the exploration of structured concepts.
An example of this is the telephone. Using the telephone as an example, we see
that over time; looking at whether it’s possible to take our phones everywhere
has led to the creation of new products such as smartphones. Boden (2004) also
discusses ‘transformational’ creativity which can lead to new structures being
generated. (Boden, 2004). Out of the three
types of creativity, I think that Pebble has shown the use of
explorative creativity. Their
smartwatches are made by evaluating structured concepts; in a similar way to
smartphones. Their watches allow users to measure the distance they run and
even control their music. (Kickstarter,
2012).

 

Kickstarter uses a reward model of crowdfunding. This is where backers
of a project receive a reward based on their contribution to the project. Before
setting up the venture, entrepreneurs will need to know how much money they
will need to raise. If they are not able to reach their goal, they don’t
receive the money. Backed
by 68,929 people who pledged $10,266,845, Pebble achieved
their goal of raising
$100,000 very easily. Pebble also needed to look at how they could reward the
people who contributed to the project. Backers were able to pledge from $1 to
$10,000. Everyone who backed the venture received a particular reward in return
which equaled their contribution. Those who donated $1 received exclusive
updates on the venture. Most (or 40,799 backers to be exact) pledged $115 which
got them one jet black Pebble watch. They were told that the watch would retail
for more than $150. Those who donated $10,000 received a ‘mega distributor
pack’ of 100 Pebble watches in their choice of colour. (Kickstarter, 2012).
Those who pledged $99 were also able to receive a jet black Pebble watch which
they were told would retail for more than $150. This gave them an incentive to
become early adopters and was probably one of the biggest reasons Pebble were
successful. 40,799 backers benefitted by pledging $115 to receive one of the
watches at lower price than they’d go on to retail for, becoming early adopters.
This meant that were getting the product earlier than others, but also at a
lower price. This reward model is used incentivize crowdfunding and through
Pebble we can see that it works. If backers do not receive a reward which they
feel is adequate, they will probably not look to back the venture.

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