Posts from Kickstarter

MBA Mondays: Revenue Models - Peer to Peer

We've covered advertising, commerce, and subscriptions so far in this series on business models. And while they are the big three of Internet business models, they all existed well before the Internet. They are not Internet native business models.

If there is one thing I have learned investing in Internet businesses over the years it is to pay attention to things you can't do without the Internet. And that describes peer to peer pretty well. Like the Internet, a peer network empowers the edges and devalues the middle. I like peer networks very much.

If you look at the revenue model hackpad, you will see a list of some interesting peer network businesses, including our portfolio companies Lending Club and Etsy. They all take a similar approach to revenue generation. They connect one or more people together to conduct a transaction and take a fee for doing so. In Etsy's case the transaction fee is 3.5%. In Lending Club's case, the fee is generally 4% to the borrower and 1% to the lender. In Kickstarter's case, the fee is 5% to the project creator if the project is successful.

But there are ways to generate revenue outside of the transaction fee in peer networks. Etsy is a great example. In addition to the 3.5% transaction fee, they charge a 20cent listing fee, a payment fee for payments processed on their direct checkout service, and they have an advertising marketplace so sellers can promote their items on Etsy. It is possible to sell on Etsy and share less than 5% of your revenue with Etsy. It is also possible to sell on Etsy and share more than 10% of your revenue with Etsy. It all depends on how many of their services you are using to run your business.

I like this approach very much. I think the basic fee for participating as a seller in a peer network should be as low as possible. This allows the marketplace to develop as much liquidity as possible. Increasing transaction fees will push sellers out of your market into other ones. The better approach to increasing revenues is value added services that sellers can avail themselves of but are not required to. If these services allow sellers to sell more or if they make selling easier, sellers will adopt them and your take rate can ultimately be much larger than your transaction fee.

The purpose of the revenue model in a peer network should be two fold. First it should incent as many participants in the peer network as possible (ie the lower fees the better). Second, it should produce enough revenue so that the business will produce significant profits at scale.

The thing about peer networks is most of the value is created by the participants in the network. The business doesn't do that much. It provides the basic infrastructure so that the market can work. It provides trust and safety and governance. And it provides customer service and support. The participants in the network do most everything else. That means these businesses can and should operate very efficiently at scale.

Craigslist is a good example of a peer network leveraging the power of the model. I have no idea how much revenue Craigslist makes and how many employees they have. But I would not be surprised if it were a $200mm annual revenue business with $150mm or more of annual profits. And yet it is capturing a tiny amount of the economics in its peer network. It should easily be the case that billions of dollars a year are transacted because of Craigslist. So what you see is a huge amount of transactional volume, a relatively small percentage of which is captured in terms of revenue, but a huge percentage of the revenue that is collected drops to the bottom line. That is what a peer network business model should look like.

And it scales really well. Because so much of what a traditional business would do is being done by the peers on the network instead of the company. Compare an online retailer with Etsy. An online retailer needs to have buyers and merchandisers. It needs to have inventory and warehouses. It needs to ship and track. It needs to spend a large percentage of revenues on marketing, customer acquisition and retention. Etsy doesn't spend much money on those things. Their sellers do. And as a result, their sellers keep more than 90% of the value of the transaction as opposed to giving up 50% as a wholesaler.

So peer networks are powerful businesses that when constructed well have great defensibility and staying power. The key is keeping the take rate as low as possible and incenting participants to transact with you instead of someone else. If you can do that, you can build a large and sustainable business with this model.

#MBA Mondays

Arduino, 3D Printers, Kickstarter, and BitCoin

AVC regular Dan Ramsden posted a thougtful essay on GigaOM yesterday. After I read it, I sent Dan an email and I said "do you think big beats little in this phase we are in?" Dan replied that he did and asked me what I thought.

I think David beats Goliath all day long if you are focused on the right sectors. Clay Christensen has shaped my thinking on this. You just need to look for sectors where the incumbents can't and won't adapt to new emerging models and where the innovators look like and are being derided as "toys".

I told Dan that Arduino, 3D printers, Kickstarter, and Bitcoin are four "toys" that I think will radically reshape some big industries in this decade. Of course it may not be Arduino as we know it. Or it may not be Bitcoin as we know it. I will avoid commenting on Kickstarter since we are investors there.

The leaders in 3D printing today may not be the leaders in 3D printing tomorrow. All you have to do is look at the big guys suing the little guys to know that there is a lot of innovation and change afoot in 3D printing right now.

I have said this before. The more I hear people laughing at, deriding, and dismissing something the more I think it is likely to be a big deal. I remember when the common refrain about Twitter was that nobody wants to know what someone had for lunch. Well maybe they do. And maybe Bitcoin will be accepted in Starbucks someday. And maybe your phone will be made from Arduino components and the cover will be 3D printed. And maybe the movie you are going to see in the theater today will have been funded on Kickstarter.

Maybe is a powerful word. If maybe represents something big and powerful then it is worth chasing that maybe. And it is worth funding it too.

#VC & Technology

Book Review: Makers By Chris Anderson

I took two flights across the country this week so in addition to a lot of catching up on email, I read a book. It is called Makers and it was written by Wired editor in chief Chris Anderson. This is the third book that I've read by Chris. The previous ones were The Long Tail and Free.

Chris writes books about the same things I blog about and USV invests in. We are certainly in sync in terms of the themes and memes that we are paying attention to.

Anyway, Makers is about "the new industrial revolution" that is brought about by personal manufacturing devices and web scale creation and innovation. It's about the intersection of companies like Etsy, Kickstarter, and Shapeways (all USV portfolio companies).

I suspect that there is nothing totally new to all of you in Chris' book. But he frames what is going on very well and I find these frameworks provided by folks like Chris and Steven Johnson and others to be incredibly helpful as we deal with a firehose of information and investments and try to find signal through the noise.

If you are interested in the revolution happening in personal manufacturing and are curious about what it means for innovation, startups, and even the economy and society, pick up a copy or put it on your Kindle. It's a quick read and a good read.


Wireless Charging

The Gotham Gal wrote a post on monday in her Woman Entrepreneur Mondays series on Elizabeth Ormesher who is building a startup called Everpurse. She is starting with a Kickstarter project and attempting to raise $100,000. Here's the video explaining her idea:

I bring this up because apparently Apple thinks that wireless charging is not easier. I would beg to differ. I think wireless charging is the future. And I think we will make more progress with wireless charging faster than we will increasing battery life, at least in the near term.

I just backed the Everpurse project (no reward for me) because I love the idea and I love the concept of wireless charging.


Cause & Effect

I've been reading sci-fi and thinking about sci-fi's relationship to technology innovation. I posted last week about Twitter and the Metaverse and noted that Neal Stephenson had imagined things in the early 90s that happened almost twenty years later.

But of course it is possible that many of the things that are built by technologists are reactions to reading sci-fi and wanting to realize the fertile imaginations of sci-fi authors.

So it's not entirely clear exactly who is inspiring who. Like most things, it is likely a bit of both. Technologists create new things. Writers are inspired and create stories that reflect these emerging new technologies. Technologists read those stories and are inspired by them.

It's a virtuous circle. Technology innovation doesn't occur in a vacuum. It happens in a dialog with society. And sci-fi writers are but one example of the way society impacts technology.

I think that's one of the reasons that many of the most interesting bay area startups are choosing to locate themselves in the city. And it is one of the reasons that NYC is developing a vibrant technology community. Society is at its most dense in rich urban environments where society and technology can inspire each other on a daily basis. Steven Johnson wrote about this phenomenon in his excellent Where Good Ideas Come From.

So if you want to know what is going to happen next in the world of technology, you need to be thinking about society and where it is going, how it is interacting with technology, and how it is inspiring technologists. Which is why I am reading a lot of sci-fi this summer.

#Books#VC & Technology

The art of important work, of making a ruckus and of inventing the future

Entrepreneurs teach VCs, not the other way around. And I was lucky early in my career to back Seth Godin, who taught me a lot. When I met Seth, he was writing books and building a web company. I backed that web company, Yoyodyne, which exited to Yahoo! a few years later. But books were always Seth's passion and he's written a bunch of them. He's also deconstructed the book publishing business and pushed it to do things that were considered unacceptable. I recall when he put out a free pdf of one of his books six months before the book came out. And increased the book's sales numbers in the process. He did that in the 90s.

It is old news now that Seth is doing a Kickstarter for his next book. I've thought for a long time that authors should take their advances from their avid readers on Kickstarter instead of from book publishers who will lock them up and hold them back. In something like four days, Seth has taken an advance of $216,000 and there are 26 days to go. Who knows, he might get a seven figure advance if this keeps going like this.

I am sure Seth is happy to take the big advance he is getting. But I am also sure that he is doing this, like everything he does, to make a bigger point. And in Seth's words, this is the bigger point:

But what is the book about?

It's about the connection economy and the value created when we give up doing what we're told (and avoiding what we fear) and start making art instead. The art of important work, of making a ruckus and of inventing the future.

Making art is writing a song and recording it with your friends in your bedroom. Doing what we are told is getting a label deal for your music. There is a big difference and they are not at all related to each other.

Making art is a fundamental part of being human. Consuming art is a fundamental part of being human. I am doing the consuming part as I write this. I may be doing the making part too but I am not sure.

The digital revolution has made it easier for all of us to make art and consume art. It is challenging the notions of "doing what we are told." And while I am biased because of our investment in Kickstarter, I think that Kickstarter is opening up the possibilities for artists to make the art they want to make and take it to market the way they want to to as well.

Once Seth gets his advance, he is free to do what he wants with his book. He will have thousands of people that he will need to send the book to (the folks who backed his project) but beyond that he can do what he wants. He can make the book freely available. He can decide never to publish the book. He can make it into a movie. He can make a ruckus and invent the future. It's all up to him. Artistic freedom and control.

And in a weird way, that investment I made in Yoyodyne back in the mid 90s allowed me to understand Kickstarter. Seth started programming my brain with new ways to think about making and commercializing art way back then. I've taken those new ways of thinking to other places, made them my own, and so when Perry came to see me back in 2009, I was open to his ideas in ways that I might not have been had I not had the experiences I had.

There are special entrepreneurs who teach you so much. Seth and Perry are two of them. I've been blessed to work with dozens in my career. Like Seth and his big advance, it is not the money that is the big payoff in the work that I do. It is the people and the ideas that enter your life and change your world. It is the art of important work, of making a ruckus and of inventing the future.

#VC & Technology

Feature Friday: Follow Friends On Kickstarter

Our portfolio company Kickstarter soft launched a feature this week that I've been begging for since the early days of the service. It is called Follow Friends and it looks like this:

Follow friends
As you can see, I am following a total of 123 friends and they have backed a total of 2,220 projects. However, it's not the projects they have backed in the past that is the big deal. It is the projects they are backing in real time. When they do that, I get an email letting me know they backed a project, with a link so I can go join them. That's the feature I've wanted since the early days of the service.

My friend Whitney built a hack that did this a while back. He called it Kisttr and I used it along with a bunch of friends. It worked well but Follow Friends is the fully implemented and integrated version of this simple idea.

Of course, this is nothing new for web services. This is state of the art actually. It's amazing that Kickstarter has gotten so huge without a social fabric.

I'm excited to see how Kickstarter evolves this social fabric now that they have it. I think this simple feature just made Kickstarter so much more awesome. Thanks Kickstarter team for finally giving me my #1 feature request.


Update On The Teen Art Gallery

The art world is in NY this weekend for the annual Armory Show. Art is everywhere you look right now. And so I thought I'd use this moment to give you all an update on the Kickstarter project I posted about a month ago.

The Teen Art Gallery project was successful. They raised $10,230 against their goal of $10,000. A photo finish it seems. Congratulations to the entrepreneurial teenagers behind this project.

And so now they will be able to put on the two gallery shows they raised the money to support.

The first show will be on the evening of Thursday, March 29th at Rogue Space in Chelsea. Details are here.

I don't know these kids. But I hope to meet them someday. They are taking matters into their own hands and making stuff happen at an early age. I love seeing that.



One of my favorite people in the tech business is Anthony Volodkin, founder and operator of the Hype Machine. Anthony's a media hacker in the greatest sense of the word. He builds apps that allow us to discover and enjoy new things.

And his latest project, really just an experiment, is called Kickstumbler. I found out about it this morning. Think stumbleupon meets kickstarter. Give it a try.

But the coolest thing of all is this linear video version of Kickstumbler. I'm going to point my big screen TV in the family room at video kickstumbler tonight and just sit back and enjoy all the awesomeness.

Thanks for building this Anthony.


The Teen Art Gallery

This is the kind of thing that happens in the age of the Internet and Kickstarter. My daughter Emily told me one of her friends was involved in opening an art gallery and they are using Kickstarter to raise the funds to make it happen.

In their own words, the "Teen Art Gallery is an organization run for teens by teens that features young artists, ages 12-19, in New York City galleries."

If you go about 2mins into this video below, you will see that the teenagers have built an entire organization, filled with themselves, to run this business. Entrepreneurship in action!

They are raising $10,000 to fund two gallery shows this spring in NYC. They've raised almost $4000 so far and have 25 days left. So it's crunch time. The Gotham Gal and I have funded this project and I thought some of you out there might want to join us.

It's youth, art & entrepreneurship all wrapped up into one. And that's a good thing.