All Or Nothing vs Keep What You Raise

We’ve been investing in the crowdfunding market for a long time. My initial exposure to it was via the non-profit DonorsChoose where I am on the board and where my partner Brad and I made an early contribution to the fundraise which allowed them to go nationwide. That was almost ten years ago now.

There are two prevalent funding models in the crowdfunding market, all or nothing and keep what you raise. I prefer the all or nothing model and I think most funders do. DonorsChoose uses the all or nothing model and that’s where I saw it first. Kickstarter also uses the all or nothing model.

In the all or nothing model, the project creator picks the size of the raise they want to do and then they have to hit that number to get the funds. In the keep what you raise model, the project creator picks a size of raise as well, but they don’t have to hit the number, they keep whatever they raise.

Many project creators think the keep what you raise model is preferable. They don’t like the idea that they will fail and not get anything. But they fail to realize a number of important points about crowdfunding:

1) Funders prefer all or nothing because they want to be sure the project creator will have the funds to complete the project

2) The need to hit the goal pushes everyone, including the project creator, to work hard to make the goal. It drives the whole raise.

3) Creators who choose all or nothing are more committed to the project, the raise, and the process. Keep what you raise often attracts dabblers.

4) All or nothing raises more money. The amount of money that is raised every year in crowdfunding via the all or nothing model dwarfs the amount of money that is raised in the keep what you raise model, except in the charitable giving category.

Crowdfunding on the global Internet may be new, but raising money is not. In the venture capital business, the keep what you raise model is almost non-existent. A founder can’t go out to raise $5mm and then say to the investors “well we only got $2mm of capital committed, but we are going to close on that next week.” That just doesn’t fly.

Keep what you raise is for people who are afraid to fail. It’s not funder friendly. And it is less effective too.

So if you are considering a crowdfunding project for anything other than charity and are being wooed by a platform that pitches its keep what you raise offering, you should see that for what it is. Lame.


Comments (Archived):

  1. jason wright

    the contrarian may have a hard time raising all from the crowd

  2. AlexHammer

    Fred, people don’t make buying decisions based upon abstract concepts such as purity (although it might be good if they did), they make them on market forces.Don’t fight the market. It’s too strong.

  3. pointsnfigures

    If there is one thing I have learned angel investing, it’s lesson #1

  4. flash Gordon

    Is it really “lame” for the recipient company or cause to keep what it raises? I disagree. The company/cause gets a chance to have an impact and can raise more later . Furthermore when raising later they can now give the subsequent funders more clarity on the effectiveness and results of deploying capital.

  5. William Mougayar

    I’m not sure I would totally agree with #3. An important factor I’m seeing is also the actual “campaign target”. You can set it to be low, and blow past it looking like you’re doing really well, or you can set it to something realistic based on your real needs.The transparency about the real needs of a campaign is important, but it’s often overlooked, and certainly difficult to check. How does the average funder know exactly if the amount raised is actually the right amount that would ensure minimum acceptable success?You need to be honest with yourself.The message that entrepreneurs should take away from a crowdfunding campaign is that it’s a proxy for actual market needs. But I’m not sure all entrepreneurs take that message seriously. There’s always a plan B in the works after the campaign.

    1. John Revay

      Always need a plan B

    2. JimHirshfield

      My read of the post is that the target amount was assumed to be genuine, not gamed. It can be risky to understate the goal and hope that drives hyper over subscription. What if it doesn’t? You hit the goal, but don’t have enough for the project. So I think most goals are set with genuine intention.

      1. William Mougayar

        I agree that the post probably assumed the target amount as being the right one, but that’s not what I’m always seeing a lot of. Targets aren’t always real targets, and that muddies the water. That said, some entrepreneurs are honest with themselves, and I’m seeing that too. I have specific examples from about 6 recent different situations I have been closely involved with, but I’m not going to publicly name who was realistic or not with their targets.

        1. JimHirshfield

          Are you referring to startup fundraises? Or Kickstarter style projects? I’m thinking of the latter. The context of the post fits better with Kickstarter style projects, IMHO, than traditional startup fundraising, even tho Fred mentions both.

        2. awaldstein

          KIckstarter is more an emotional support mechanism than truly and investment platform.We support cause we want to.Not so on the accredited platforms.

          1. William Mougayar

            I agree about that nuance you’ve mentioned, although there has been some pretty incredible projects that have come out of Kickstarter.

          2. jason wright

            Kickstarter is investing for “dabblers”.where’s the added value in that for a startup?

          3. awaldstein

            Kickstarter rocks.i don’t understand what you are saying.

          4. jason wright

            founders should not be dabblers, and investors should not be dabblers.kickstarter is very fashionable. fashions change.

          5. awaldstein

            Kickstarter has nothing to do with investors.It has everything to do with the market for whatever you are making.Not an investment decision in any form of the word.Supporting what you love from a book (done 3 campaigns now from $12-35K) all funded and a couple of monster multi million dollar video games.People want what they want. They understand a stretch goal to get an ebook as well as a hardcopy, to get additonal level of the game.I seriously love KS. It works. It platformed a mass behavioral need.

          6. jason wright

            i disagree.

          7. awaldstein

            All good.Life is what each of us experiences.I will say that I have invested in many, supported overtly and personally a bunch and been part of the process of raising close on $5M of funds and my assumptions are holding.

          8. jason wright

            it’s anecdotal, but it does chime with other reports and reading i’ve come across about these platforms; Charlie O’Donnell interview, from 26:15

          9. LE

            Agree. Almost works on the same basic principle of human nature as girl scout cookie sales.Actually it’s like girl scout cookie sales meets QVC with a bit of “correct slot and shelf height at the supermarket” effect as well.

          10. awaldstein

            It’s great.The concept is great as well.An extended family member who is 13 is raising $2500 for her share of a very cool school project where 20 kids get SCUBA certified, adopt an abandoned reef in the Fl keys and graft coral and track it over four years of high school.Too great. Couldn’t be done without crowdfunding. Not Kickstarter but the same behavior drive to just help things we think are important with nothing in return.

          11. LE

            What’s interesting about that is the hook that appears to make it something that people want to fund.It’s not the”20 kids get SCUBA certified” that has little draw at all (except to their relatives obviously).It’s the “adopt an abandoned reef in the FL keys and graft coral and track it over four years of high school”.Actually to me the key is “adopt an abandoned reef” that’s the thing that is the “dead bodies on ebay” that makes it stand out and get noticed. Particularly “adopt” and “abandoned”.

          12. awaldstein

            It’s just good stuff.For kids. For education. For the reef.Some of the kids went door to door selling cookies. This is working really well as extending friends with kids just feel great about adding $50 and it doesn’t take much.

          13. LE

            So the link to the project?Obvious search did not work for me in finding it.

          14. awaldstein

            Don’t share family things with the broader community–sorry. The idea yes, the details of my family and where they are and life–not my way.

        3. ShanaC

          Most people on kickstarter and Kickstarter like platforms are not entrepreneurs. They are people like my boyfriend,where because of consolidation of content production across the board means less places to start out a career (or second career) you are required to self publish/moviemaker/write/whathaveyou before moving up the food chain. If you can’t make the cut, the now second tier houses don’t take a look.Source:dating a guy who writes comics, TV scripts, former roommates with actors. I hear a lot about what happens (and may become involved in fundraising a web series)

          1. William Mougayar

            Keep this in mind when planning that campaign, and planning is a big part of it. Roughly:- 1/3 comes from your own network & their friends- 1/3 comes from your publicizing it to the media – 1/3 shld come from the network power of the funding platform itself.The first 1/3 is very important and it is the spark that sets the rest of it in motion.

          2. ShanaC

            I know – it is not clear I am the planning person. I might get involved.But if you think about it – this also means that most projects and most platforms are not designed for what is going on in them. The media? Kickstarter does not have tools for helping you preplan out reaching out to media if this is your first time.As I said – raising money for your comic book/your first web series is not innate. You may not have connections to the media/what have you. Should the platforms help? What are these tools for.

          3. William Mougayar

            you’ll need to do your own media outreach. the platform’s role is not there. the platform’s role is to help get you promoted to their existing network of users.

    3. leigh

      Yah, I totally agree with you on that WM. My friend Jeff who has a Kickstarter right now, he’ll likely raise 20K but not close to his full amount so it’s almost tragic seeing someone who cares so much, has invested so much and now they get nothing.One thing i would say (not being close to an expert on crowd funding) is that put the goals low in Kickstarter and have the bigger goals be stretch goals. That way, you may get the best of both worlds.

    4. Richard

      A kickstarter’s raise that claims it will cover the line item costs of a project (particularly hardware) is about as accurate as a startup ‘s revenue forecasts for years 1-5.

      1. fredwilson

        yeah, but at least they give it a shot

        1. Mr. Europe

          A team I was part of launched a crowdfunding campaign at a prestigious European conference. We failed to raise all the money and are now in the process of returning the capital.It was the right thing to do as 1) our idea was bad 2) high costs. Returning the money was a bitter pill to swallow but it is the right/classy thing to do.Every angel, vc, entrepreneur told us to remain in touch after this. Yet these crowdfunding platforms do not make it easy to return all the funds and the process is a mess/un-necessary painful if things just don’t go according to plan.

      2. William Mougayar

        Yep. You’ll be surprised about how little accountability happens after a crowdfunding campaign is finished. You really need to trust the entrepreneurs will do the right thing.

        1. Richard

          My point is that for the most part it is not a trust issue. It’s a competency issue.A little budgeting incompetence means the product ships late, a lot of budgeting incompetence means the product doesn’t ship at all.

    5. LE

      is that it’s a proxy for actual market needs.I would like to think that’s the case but I don’t think it’s the case. Anymore than things sold on QVC are a proxy for actual need. It’s an invented need (which sure is still a need) but the additional dynamic in crowdfunding goes above that with people committing money to things they really have no need or interest in simply because they were exposed to it and it would make them feel better in some way to do so. I think I’ve given money to just about everything Fred has mentioned on this blog and yet all of those things were not anything I would ever have given money to if Fred hadn’t mentioned them on this blog. Like “why do people buy girl scout cookies” is a similar concept.

      1. ShanaC

        But cookies!

      2. William Mougayar

        I was referring to those with a product and intent to go to market. But good point re: the power of influencing friends to support causes you believe in. That’s a popular crowdfunding use case of course.

  6. bsoist

    #1 wins the argument on its own

  7. Robert Heiblim

    While I agree with you on the all or nothing side of things, my bigger concern with these sites is in improving the finish rate of projects. It seems far too many are way out of scope, meaning the raise and the need are quite divergent. At times it seems the founders are not aware of the real needs. While many companies are using these platforms purely for marketing, pre-sales and building buzz many of the projects are way off base. Even successful funding such as Ouya produced long delays and to a great extent, disappointment. There are worse outcomes such as MyIDKey too.As an investor and interested party, I would ask you what you would suggest to improve the quality of submission and outcome. I do not want to limit those using the platform, rather I want to see better formed funding requests. Perhaps offering advisory services would be a good addition to these efforts?

    1. fredwilson

      this is a great comment. a few things1) there are actually multiple phases of a crowdfunded project: concept stage, funding phase, creating phase, shipping phase, post shipping phase. the ideal words for each phase might be different but you get the idea. what we need is the platforms to categorize and display the phase each project is in on the page2) then we need data on how many projects are in each phase and the success rates of getting to the next stage, by category, year, creator, etc3) there is a big difference between a project that ships late and one that doesn’t ship. we need to understand that and the causes of delays4) i have seen the data on this and you would be surprised how high the success percentage is, if you accept delayed projects that do ship as success. it is well north of 80% and in the high 90s in many categories

      1. Robert Heiblim

        Thanks Fred, I would like to see that information on the sites. It would also serve to encourage funders as each milestone was met, allowing further raises rather than concerns about progress since it would be more transparent. These are great suggestions, and yes I do know that many of these end up shipping but I want even more to.

        1. fredwilson

          I totally agree and I think it’s going to happen. It has to

        2. William Mougayar

          The passage of time reveals a lot of that. It would be great to see a post-campaign analysis, say 1-2 years after.

          1. ShanaC

            William, I’ll email you, because I know of a campaign that has yet to go live(it will be a while) depending on what happens they may open up

        3. David Semeria

          That’s a great idea: instead of raising the full amount initially, set an amount for each stage and only get the funding for the next stage when you’ve completed the previous one.The crowding funding platform could act like an escrow account, returning funds to backers if the milestones are never achieved.

          1. awaldstein

            Agree.I think this is kinda already happening on platforms like CircleUp and AgFunder where the investment community is more sophisticated and are accredited investors.Makes sense there.On Kickstarter I see more emotional support as the MO and bifurcating these while they make sense the audience may not be correct.Don’t know, just responding with the idea here.

    2. leigh

      it would be good if they could also reject projects — that one that was about potato salad? it ruins the integrity of the model.

      1. fredwilson

        The rejection should come from the backers. That’s the whole point of Crowdfunding

        1. leigh

          hum….ya probably, but then the human race that wants to fund potato salad to the tune of 50K but doesn’t want to give to life or world changing projects depresses me immensely.

          1. William Mougayar

            100% agreed. people are fickle.

          2. Kyle Shipley

            To be fair, I think we’ve probably seen the one and only highly successful potato salad project. Maybe that $50k could’ve found a better home, but I wouldn’t be surprised if many of the potato salad backers are more likely to donate to other projects in the future.Even if they don’t, a non-trivial amount of our time and money goes toward being part of various communities (school, work, religion, Meetups, etc.). I think the potato salad is just another illustration of the power of our desire to belong.

          3. leigh

            Ya, if this were the yr 2000, someone somewhere would be trying to get funding for a portal for Potato salad lovers based on that campaign 😉

          4. LE

            It’s not that people want to fund potato salad it’s that something that is a paradox or ironic or funny or weird or different stands a much greater chance of getting attention which leads to people making a funding decision. Out of sight out of mind.

        2. LE

          I think her point is that a store has to have a certain product mix that complements the other products. At a certain point if a product is out of whack to much it harms the other products and the image of the store. I don’t know if this is the case or not on kickstarter I’m just supporting the theory of the above point that leigh is making.For example Fake Grimlock is welcome on AVC. But now let’s pretend that 50% of the comments on AVC start to mimick Fake Grimlock and use all caps and single sentences. That could be a potential problem as it changes the atmosphere of the blog and might impact it’s value in the eyes of readers.Likewise the restaurants that you eat at are not going to serve you instant coffee and wait until you as the diner tell them “oh this coffee is really bad”. They will make a decision up front as to whether “instant coffee” fits into their business concept.Not saying that potato salad rises to this level of “wrong” btw. Just that you can’t always rely on “rejection from the backers” and not set any limits. (Sounds very liberal though..)

    3. William Mougayar

      According to this report, only about 9-10% of crowdfunded hardware projects continue and raise VC funds.

      1. Twain Twain

        Thanks for sharing that.Rob Coneybeer of Shasta Ventures discussed crowd-funding vs traditional VC money at Web Summit as well as how he ended up investing in Nest. Really smart and direct guy — the type of investor a hardware/IoT founder should hope for.Anyway, he observed that given the amount of effort involved in launching a crowd funding campaign and keeping track of the many investors, the team sends signals in the marketplace to the VCs that may not be favorable or good for the team from a protecting IP and proprietary technology perspective.He was pro-Nest’s approach which was that no one knew what they were working on (they didn’t crowd fund) until the thermostat was actually in marketplace.

        1. William Mougayar

          Yup. If you have the money to start on your own (like Tony Fadell did), and you are sure that you’re building something kick-ass, then do it. Thing is with hardware projects, you got to come up right with a working product the first time you ship. You can’t iterate like software.

      2. Jonathan Sandlund

        Only…? I’d argue 9-10% is exceptional given the avg. non-KS VC hit rate of 1-2%. (And in Hardware, may be more like 0.5 – 1%).

  8. BillMcNeely

    So what your saying you should PLAN and BUDGET for the crowdfunding project, not just wing it right? 🙂

    1. fredwilson


  9. Tom Labus

    A little desperation is good for stoking creativity

  10. Guest

    Raising $1M and you get to $950K. Get nothing. That sucks. #WorkFundingBalance

    1. fredwilson

      but that almost never happens. the crowd gets behind something like this and pushes it over the hump. that’s the whole point of crowdfunding.that’s why i wrote this post. the keep what you raise folks use this scenario to scare creators into using their weaker model. but this scenario doesn’t materialize because the power of crowdfunding is when the crowd gets activated and invested in the success of a project.understanding the emotions and behaviors behind crowdfunding is really important

      1. William Mougayar

        The underlying assumption is that your dollar “goal” is correct. I hope the funding platforms are being more strict about validating campaign goals before approving them.

      2. LE

        the keep what you raise folks use this scenario to scare creators into using their weaker model.An example of things heading in the direction of “you can only be as honest as your competition” and the possible lowering of the high road and better model that kickstarter has.If your competitors are all out there espousing a particular less ideal product or service, and enough of them are doing it, the market won’t always be smart enough to figure out what the truth is. Especially when the newly hatched are part of the equation.

  11. Thomas Cornelius

    This post is a must read for every founder who considers crowdfunding. It represents the thought process and position money should take in the funding process. You want to build your house, but you only have money to build a foundation, no walls, windows, etc. – you know the right answer and right call to action – stop and reflect!Go back to the drawing board, recognize why the product or solution does not have the appeal to get your initial funding. Not getting funding from the crowd is just a signal, not the end of road for you. It is an important signal that if analyzed properly should guide you as a founder (not funder) to find the right path.

  12. Semil Shah

    When it comes to startups raising, what’s your view of the trend in seed rounds to have “rolling closes” on notes? Oftentimes folks collect what they can and keep moving on.

    1. William Mougayar

      I’m seeing that too. Uncapped, right?

      1. Semil Shah

        Nope, uncapped is pretty much a nonstarter. People really hate that. But capped is definitely the soup du jour.

    2. fredwilson

      I am very uncomfortable with Notes in general. I don’t like them and never have. Joanne does almost all of her angel investing via Notes and she has convinced me they are ok. But I prefer a priced and fully raised equity round at every layer of the capital stack

      1. Semil Shah

        Yeah, notes is the lingua franca for seed but when any pro gets involved, things get priced (A, etc.).

        1. fredwilson

          We do seeds. In our most recent fund, USV 2014, we have done five investments so far. Three seeds, one early A, one Classic A. All were priced except one where we did a YC structure that I forget what it’s called. It wasn’t something we were excited about but we tried it and we will see how it goes.

          1. William Mougayar

            Are you refering to the SAFE- Simple Agreement for Future Equity?…

          2. fredwilson

            yes, we did one of those. hoping for the best but bracing for the bugs

          3. Semil Shah

            What’s nice with SAFE is you get Pro Rata baked in, but the problem is higher caps and shorter runways to get the As people want. Like Suster blogged about a while back, this stuff seems to be going in cycles.

  13. Pranay Srinivasan

    I’ve seen a lot of Apparel Kickstarters / Indiegogos ( one’s a all or nothing and the other is a pay-as-you-go) – IMHO, the industry and the segment that the founders are advertising / fundraising for, needs to be HIGHLIGHTED by the Platform.So in case of clothing or textiles, usually, its not a all or nothing problem simply because unit economics dont work around infrastructure, they work around piece volume. So if you’re crowdfunding Glow in the Dark Tees, theres a material difference between hitting 1000 units mark and 100 units mark but its still only in the unit cost, NOT the completion probability.So if the platform told its backers: “Look, this industry can complete the campaign *Even* if it doesnt hit its mark so everyone who committed could get their tee albeit at a slightly higher price.”Contrast that with something like Tile or Lockitron where the platform says “Look, if these guys dont get the $500k, they cant machine the components, they cant invest in the hardware, and NOBODY will get their product on time.”IMHO, that education should be mandatory.

  14. Michael Brill

    I really don’t know why keep what you raise exists. With stretch goals on all or nothing, you address any potential advantage keep what you raise might provide, you have a mechanism for more transparency for use of funds, and eliminate the “what if I’m the only one that funds this” friction of keep what you raise.There is no joy in seeing your credit card bill for a project that raises 5% of its goal.

  15. kirklove

    Agree with the overall premise, but 2, 3, and 4 can be equally argued from the other side. It’s a matter of perspective and you’re pimpin’ the way you prefer. Which is fine. But you can’t state them as fact.And you know how much I love Kickstarter (tons) – but there have been plenty of occasions that have eroded the advantage you outlay in Item 1.Hopefully, they take your advice to be much more transparent. That would go a long way to improving trust I think.Related: I’d love for Kickstarter to publish some type of info on folks who’ve run multiple Kickstarters (% of fulfillment or reviews). Something akin to the Ebay feedback system would be nice. IF and when I buy on Ebay that rating matters to me and certainly eases my mind when handing my money over to a complete stranger.

    1. fredwilson

      I think product improvements can lead to the transparency you and everyone else is itching for.The “all or nothing raises a lot more money” can’t be argued. It is fact. It’s like a 10x more powerful model. Keep what you raise is weak and lame

      1. kirklove

        You know the numbers much better than I. Just wary of that big caveat of “except in the charitable giving category”. I’d imagine (don’t know) that number is rather large and could add to the argument for the other side.

    2. LE

      I’d love for Kickstarter to publish some type of info on folks who’ve run multiple Kickstarters (% of fulfillment or reviews). Something akin to the Ebay feedback system would be nice.My argument against that would be that it creates a positive halo that disadvantages new entrants to the model and makes it harder for them. Both attention wise and also because money that goes to those (who have had their ticket punched) wouldn’t go to a new entrant.This is different than ebay or amazon ratings which is more a traditional system of merchants and buyers where it makes sense (ie survival of the fittest).

      1. kirklove

        I don’t see it that way. I’d love to know what people thought of their experience with a KS that I’m involved with.

        1. LE

          What’s good personally for you or me is not the same as what’s good for kickstarter as a business model (if I understand your point that is).One interesting thought. On linkedin, from the start, they cap the number of visible “contacts” someone has at 500. You don’t see more than that (but you could figure it out if the contacts are public and you want to do the math of course). There obviously was a reason for that. In the early days a contact actually meant something. (Now it doesn’t I have about 400 that I haven’t approved as people just troll and try to link up with everyone wasn’t like that in the olden days). So they were I’m guessing trying to make sure that people’s popularity in some cases wasn’t discouragement to people starting out. Didn’t want the mountain to be to high, just a bit high.

  16. Kyle Shipley

    I agree with the premise about stronger projects coming out of the all-or-nothing model. I do wonder about the viability of some failed projects, though. It seems like if you fail, you have 3 options:1. Abandon the project.2. All-or-nothing: Reduce scope / pivot and run another campaign.3. Keep-what-you-want: Reduce scope based on the amount you’ve earned. [1]#3 seems more efficient than #2 for some cases. Although per your argument, having a slightly higher barrier to entry might be a good thing for crowdfunding overall.[1] Within reason. If you earn 10% of your raise, you should probably abandon. But 75%? Not sure. Are we losing great “almost” projects?

    1. ShanaC

      Anything serialized could probably adapt at the 75% mark

  17. ian_peterscampbell

    I think Keep What You Raise seems less honest. If you tell me that you need $1000 for a project, but then raise only $500 and decide to keep it, then either a) you weren’t being honest about how much you needed or b) you aren’t confident that you can complete the project but are deciding to keep the money.I guess there’s some wiggle room for c) you make the difference up out of your personal funds.

  18. Mario Cantin

    It depends on the expectations of the backers.You’re firmly established in your point of view as a VC, I think.If all the crowdfunding platforms are operating on the “all or nothing” model, someone will come along and use the alternative model as a differentiator, for one thing.There are other motivations that could come into play as well.If the platform is used to fund a project by a rehabilitating individual, for example, to give them a sense of belonging to the community, as a backer, I don’t care whether the keep-what-you-raise model is used. My motivation is adapted to the particular situation at hand, in this case.It may be lame as a model, but it’s also the case that there are many underdogs in the world who could benefit from having a voice and an opportunity.Time will tell.

    1. fredwilson

      yeah, i consider medical giving to be charity. i know its is a bit different. your point on that is well taken.

      1. LE

        medical giving to be charityCharity is great when the money comes from people who can afford to be giving away their money because they have enough of it. What I hate to see is people who don’t have a pot to piss in giving away their money to charity.

  19. LE

    Keep what you raise often attracts dabblers.I would add the word “trifler” here which I remember being used in business ads in trade publications when I growing up. Literally in the ad “no triflers”.Definition of TRIFLER. a person who lacks experience and competence in an art or science “he was never taken seriously as a comic book artist, with most illustrators regarding him as a mere trifler” … Synonyms hack, hacker, inexpert, jackleg, trifler.Actually “jackleg” I like that.

  20. lunarmobiscuit

    Sorry Fred, but your VC bias has got this totally wrong. None of the fundraising markets are “all or nothing” nor should they be.On the other side of the table, sitting next to the entrepreneurs, theirs needs are never as cut-and-dry as “$XX,000 or go home”. The reality is far more often $X is minimal, $Y would speed up progress, and $Z would be ideal, often with Z being 3x-10x bigger than X.In my accelerator, I now advise my entrepreneurs to make this explicit. To produce not one master financial model, but that plus a “budget” with columns for use of funds of $X, $Y, and $Z.Then for Kickstarter or Indiegogo, use $X as the target, aiming to surpass it to $Y or $Z.For Angels, show them the budget, closing first money at $X, rather than collecting $Z in commitments.And back in my day of raising money from VC’s, more than twice we picked the equivalent of $Y as our goal, but left the round open when $Z of interest appeared.Kickstarter models most of this with the informal “stretch goals”. Angels and VCs with those “add ons” to the current round. Funding simply isn’t ll-or-nothing.

  21. Steve Miller

    This is a really awesome thread. I recently backed “Carla Hall’s Southern Kitchen” which raised about $260K to open a Nashville style hot chicken restaurant in NYC. The biggest question I had before committing to fund (other than when can I eat the chicken) was whether Carla was raising the right amount of money.Opening a restaurant in NYC is really expensive. . .Will $260K cover Rent, Buildout, Supplies, Staff, etc. Maybe it’s too tall an order because of the diversity of projects on Kickstarter, but I wonder if it would be possible to build in basic budget templates that creators can use to show funders that they’ve thought through all the main costs of each project.I think the “all or nothing” model is definitely the way to go. . . It would be helpful to understand that the “all” proposed by the creator is really enough to build the project. But that’s also the beauty of crowdfunding. . . $25 to me is still a pretty good risk to take regardless of whether or not there’s a bottoms-up budget in place.

    1. LE

      Opening a restaurant in NYC is really expensive. . .Will $260K cover Rent, Buildout, Supplies, Staff, etc.Probably not. But I guess that depends on where the location is and the size of the restaurant among other factors. My guess is that 260k isn’t enough but perhaps she will then get additional investment from others. That must be the plan. What landlord is going to lease to her with only that kind of funding which has got to cover fit out and/or renovation and a bunch of other things as well.I don’t think raising the money shows that the concept will work in NYC or anywhere or that she can actually pull it off. For one thing we don’t even know how many of the backers even live in NYC and would be customers or what their motivations are for funding it. Why start in such a difficult place? Why not refine the concept somewhere else first and work out the bugs at a lower cost structure?I wouldn’t fund it for many reasons at least one is it’s fried basically unhealthy comfort food. I eat unhealthy food from time to time like anyone (“time to time” = “extremely infrequently”) but there are many people who survive on this fried shit.

      1. Steve Miller

        you have clearly never tried Nashvillle spicy fried chicken, my friend.

  22. Terrence Andrew Davis

    SETI gets an absolutely undeniable message in 2014. If no more messages come, does it become invalid and we forget?

  23. Marc Bush

    Fred – why the exception in the last paragraph for nonprofits?There’s often different expectations in nonprofit fundraising – for both the funder and the recipient – than in the private sphere. My feeling is that the first three points above – ‘all or nothing’ is preferred by donors, pushes donors and fundraisers, and leads to stronger execution/follow-through – hold for nonprofits.There are a number of nonprofits for which the ‘all or nothing’ model has worked very well – DonorsChoose, Kiva (micro-lending to entrepreneurs in developing countries), endurance events (think Team in Training, breast cancer walks, etc). I think that we’ll see a lot more of this – and ultimately by some of the larger, more traditional nonprofits, in the future.

    1. fredwilson

      i just think it is different sometimes when it is a good cause

  24. Tristan Louis

    Hi Fred. I’d throw in another exception, which is crowd-funding for identity purpose. In a lot of kickstarter cases, I often give $1 not because I’m cheap but because I want to encourage the creator with some form of acknowledgement that while his/her idea may be priced at a level I don’t agree with it, I see the project as potentially worthwhile and would love to follow its development.Similarly, our recently launched Chip-in contribution feature on Meetup (see… is a “keep what you raise” type feature because in that case, the organizer may not yet have decided how to best use the money. So we’re introducing the idea of money in the ecosystem through a keep what you raise component to allow the organizers to start thinking about they could create even better meetups. And that isn’t lame. That is COOL 🙂

    1. fredwilson

      i agree

  25. Mike Maney

    Keep what you raise is just another word for an allowance.All or nothing is an investment.

  26. Rob Leclerc

    Keep What You Raise disincentivizes backers from committing early, making it harder to overcome campaign inertia.

  27. cleanuphitter

    tom hanks in BIG = Fred.

  28. Mariah Lichtenstern

    Well, at least you have a solid POV. I’m working in this space now. Not sold on all or nothing given that 60% fail, but that is partly due to our model / risk mitigation on that end. Nevertheless, I hear your points.

  29. ShanaC

    I actually think this model works poorly for serialized content. The ending of many dickens novel would be different in a Kickstarter model than a keep what you raise model. Neither are well suited for how dickens wrote. Or how say a web series could be funded (in blocks of episodes)Hybridization and subscription models for fundraising would work well for serialized things

  30. mlr3000

    “4) All or nothing raises more money. The amount of money that is raised every year in crowdfunding via the all or nothing model dwarfs the amount of money that is raised in the keep what you raise model”This point is a bizarre selection on the dependent variable argument. It doesn’t prove anything, nor does it make your argument.First, most platforms don’t allow “keep what you raise” so, of course, all or nothing raises more money.Second, most crowdfunding projects choose “all or nothing” for any number of reasons, which goes to the heart of the dependent-variable nature of this argument. Of course the more popular type of project raises more money than the less popular type.Third, all-or-nothing projects that are truly successful often far outraise their goal. They are “keep what you raise” in a way that not many venture rounds are. “Hey, entrepreneur, we’re going to keep raising the valuation so we can give you more and more and more money without affecting your dilution!”It’s certainly fair to advocate all or nothing for the reasons you argue (and others). But the “it’s better because there is more of it” isn’t one of them. Especially when you are arguing that it’s better because funders like it more and therefore there’s more of it which is what makes it better! Holy circularity Batman!

  31. SarahFairymeed

    Alayne Fleischmann Is the biggest liar in history and is trying to bring down the economy and a lot of good men with it.!

  32. pointsnfigures

    Was talking about this with my family last night with regards to charities. One point that came up-The Groupon model was all or nothing. If enough groupons didn’t sell, the deal didn’t go.

  33. Nick Ambrose

    “A founder can’t go out to raise $5mm and then say to the investors “well we only got $2mm of capital committed, but we are going to close on that next week.” That just doesn’t fly.”A company I previously worked for did just this (different numbers).I think it really hurt the company considerably (and this was not my understanding of the state of the funding when I started).A company that wants to raise $X but raises it as X/3 three times spread apart is NOT the same as on that raises it all in one go …

  34. Shripriya

    Not sure I agree with this one. Many filmmakers who are starting out need to fund their films. But they don’t yet know enough people and/or the people who can give larger sums in order to get their films made.Would they rather have 30% of the funds needed? Sure. Will the film be crappy because they don’t have the rest? No. They get it through loans. This puts an additional burden on them in terms of repayment, but they do it.In this case, should they take a loan out (student debt) for 100% of the cost of the film or 70%? Clearly the latter.Also, the fact is that when a project gets to the 90% mark on All Or Nothing, the person raising the money funds the last 10%. Not directly, but through a friend or through a relative and then they pay them back offline. I’ve seen it on so many projects. That is the sad truth about may projects “making it”.While I agree with some of your points, I don’t agree that Keep What You Raise is lame. There is a use case for it. And a good one.

    1. fredwilson

      you can do a all or nothing campaign for a portion of your filmmaking budget that’s what a lot of filmmakers do on kickstarterkeep what you raise is weak and ineffective. it doesn’t leverage the all important game mechanics that make crowdfunding work

  35. Lee Lorenzen

    What about using crowd-funding as a technique for getting out of personal debt and developing the nest egg (e.g., $5,000 in savings) that allows a person to have a bit of a personal safety net as they embark on their first (or next) start-up adventure?I’m listening to @reidhoffman “the start-up of you” book and he emphasizes having a Plan Z that isn’t you ending up homeless and starving. So, if I have a network of folks who can’t yet invest in my Plan A start-up (due to accredited investor rules or my inability to work on it due to my day job conflicts) but who are willing to “fund” me by getting me in a position to Aim+Fire, Aim+Fire and Aim+Fire a few times in a new start-up, what is wrong with that?When I did my first start-up Ventura Software, I had to borrow $5,000 from my parents so that I could buy my 33% of the S-corp company. After this step, one of my other founders and I were able to find family-member investors who put up a total of $100,000 for 10% of the company (after we had built a prototype and stepped the valuation up from $15,000 post-money to $1,000,000 post-money). This $100,000 was all we needed to get our little S-corp to profitability (and ultimately to a successful partnership with Xerox that generated $36 million in S-corp distributions between 1986 and 1990).Needless to say, our family members enjoyed the 36x return — but I like to believe they would have still welcomed us home for the holidays because they had invested money that they could afford to lose and have us stay friends. :)Without that first $5,000 from my parents, I would have been nowhere. However, not every prospective entrepreneur has family members who could write that first check (almost completely on faith). So, a crowd-funding model would be an opportunity for an organized round of “funding” from one’s friends. That being said, in today’s world, I would have been really bummed if the @fredwilson “keep what you raise is lame” rule had stopped me from moving forward with my Ventura Software plans when I had only $4,500 in flexible funding from Indiegogo.The best approach might be a “failed to fund” project automatically drops into a “flexible funding” backup project where all of the prospective funders can decide if they are still in. Alternatively, when the funds are committed, they could be committed with a “all-or-nothing” or “keep-what-you-raise” flag — which provides more “signal” to other funders about what is happening and the level of commitment out there. There could also be a secondary threshold where the funder says “x amount or nothing”.

  36. leigh

    Not sure how I feel about the serious legs — sony walkman failed in research. I can’t imagine what Twitter’s kickstarter woulda looked like.

  37. Semil Shah

    I hear ya, but at least in the Valley right now, rolling closes is SOP. All investors do it.

  38. fredwilson

    Well I haven’t faced that yet. But it would be a signal. Not necessarily a deal breaker though

  39. William Mougayar

    Do they hold the cap or are u seeing cap movement too during a rolling close?

  40. LE

    You can make numbers say anything. [1][1] Doesn’t it work that way in the music and entertainment business?

  41. Semil Shah

    Some folks try to do that, but unless there’s a huge material change or a lot of time has passed and there’s demand, that’s less common now (it seems).

  42. LE

    sony walkman failed in researchIn additional to other possible rebuttals of this (ie people don’t know what they want and all of that) it assumes that the research was even done correctly.This is an interesting paradox that I first noticed with medical tests.If someone gets a bad outcome on a test what do they do? They take another test to see if the first test is right. Same with getting a 2nd doctor’s opinion for a condition. However if they get a good outcome (or the doctor says “no need to worry”) they rarely do a 2nd test to verify that the test was right! Or consult another doctor at least if the symptoms don’t persist and aren’t in some way to debilitating.

  43. LE

    Twitter has benefited greatly from major media attention and adoption and as a platform for celebrities. Which happened as a result of things coming together that in no way were predicable. Take that away from it and you have nothing and literally something that a only small (relative to the world) group of people would use and find valuable. Which was the way it was at the start when I first heard about it and Mike Arrington would complain about it being down all the time. The other big thing I remember at the start were people saying “why do I need to know that someone just finished eating their lunch”.Twitter survives now on it’s own fumes because people and the media are always mentioning twitter. Think about how much Anheuser-Busch [1] spends on marketing to get people to continue to buy their beer. Think how much bread you could sell with a big marketing budget? Twitter gets all of that at zero cost! All that exposure![1] http://www.businessinsider….

  44. LE

    I am totally onboard with the concept of free samples.There is a local bakery/cupcake shop that opened in our area a few years ago. The young girl who ran it was placing ads in the local shit paper.I told her “ok so what you do is take some of your cupcakes and walk into those office buildings all around here and give them to the office workers along with a coupon whatever”. Impossible to believe that that is not going to drum up business. She liked the idea but I don’t know if she ever executed on it.

  45. ShanaC

    A) always remember this as you get biggerB) remember as you get bigger you may need to move beyond one touch of eating bread. And that should be modeled in too

  46. LE

    Give her an incentive to do it, if you’re curious about the result. For fun, if that’s your kind of thing.It is. I could easily spend full time doing things like this which to me is fun and effortless.To me though the end game is always “what do I get for doing this”. If it’s “makes me feel good and makes me feel smart” I’d rather concentrate on things that “make me feel good” that also put money in my pocket. I could spin this into a side consulting business (god knows people have told me that multiple times) but I’m already doing that in another area and don’t have enough time for that as it is.What I find also is that with small business people they don’t have the bandwidth (and the money in some cases) to even implement agreat idea. I gave the concrete contractor a few good ideas when he did work for me and he really liked them (not bs he did). But he’s not going to do them because they involve a few steps and he’s busy and all of that (he didn’t say I just know the psychology of people like that they are going from job to job stayin alive and all. The local lighting mfg. that has a location on a major road (Rt 73) with a boatload of traffic I said “eh your signage needs vast improvement here’s what you do and your retail counter will explode”. He agreed but then his father in law didn’t want to spend the money. For a stupid sign. On a major road. Best retail location ever.The local Panera bread sells these awesome souflees. They run out frequently but a few times I’ve asked and they say “oh there are more baking in the back” but the case is empty. So I say “why don’t you put a little tent card saying “we have more baking in the back just ask”. Manager says “wow really good idea thanks” (and it was) but never made the little tent card. And so on. After all he wouldn’t be a manager at a Panera if he was a doer would he?

  47. ShanaC

    I’m more likely to buy flour from you..I’m the proud owner of a sour named uncle yeazy

  48. ShanaC

    For the record, it is hard to get good quality flour with information about how the flour works

  49. ShanaC

    I use their white whole wheat – I’m thinking of moving to unfortunate is I am not sure what things like Ash mean. I wish they would explain on the label.