I recently i discussed with a person I met during a meeting for startups, about an idea he had for a simple electronic device that he plans to launch via Kickstarter. As in most of the cases, the budget is very small and he is looking for partner-designer to take over the design part of the project.
I already have my day job in a design studio and this will be a side project. This means that until now I did not have to deal with contracts, agreements and so on, so this is the first time I really have to be involved into a partnership. Furthermore, the fact that is a Kickstarter project, I believe that makes it a more particular case compared to a regular Client/Manufacturer - Designer relationship.
With this person, we did not discus in detail yet about any payment/royalties for my contribution . However it is clear that I will not be paid upfront as there is no budget. So, for this project, beyond all the other issues related to such a project, to define my compensation is one of my main concerns (for example, do we agree to get a part of the money from the Kickstarter campaign or from the sales if the rooducts is produced? In the later, do I need to be part of the company that will have to be formulated or I can still be paid as an external consultant?)
I have already downloaded template contracts for ID design services but I have found nothing related to crowd funded projects. I was wondering if other designers on this forum have a relevant experience if they could share some tips and tricks about their insolvent in crowd funded projects from the perspective of a “businessman” rather than the one of the designer-product developer.
I had a conversation with a CEO friend a while ago when I was considering something similar. It depends on how you’re treating the Kickstarter.
If you’re looking to really treat it as a true crowdfunding option and the benefit from the endeavor is that you come out of it with tooling, software, etc. but break even on cash. Then there won’t be any profit to split at that stage, and you’ll have to negotiate a percentage of the profits afterwards, either indefinitely or for the first 10,000 units (for example).
If you’re looking to treat it as a presale (e.g. cost is higher than it will be after kickstarter, but there’s some added perk that won’t cost you much extra), then you’ll want to get a percentage of either all units sold, all units sold through kickstarter, the first 5000 units sold through kickstarter (for example), or units sold through kickstarter plus the next 10,000 units (for example). The third option in this case could also be expressed as a lump-sum (a percentage of the kickstarter target).
I agree with NURB, don’t do it. You need to get paid up front. I have had people that want to give me a percentage to do all the work up front and then once it sells I get a cut and I always say NO. You could spend months working on a project to get nothing in the end. What if the Kickstarter project gets only $10? If you really want to do it, at least wait until the project is fully funded and then this person can pay you from the kickstarter funds.
I’m not sure why you guys are so quick to squash an entrepreneurial spirit… Admittedly in my first read through I thought it was going to be with a friend, so now I see it as a bit more risky, but as long as he realizes this and makes sure not to get screwed out of significant time or money, then it can still be a good deal. There was no mention of the scope of the work apart from “simple” so maybe it’ll be a fun exercise if nothing else. Maybe he can scale back his investment a bit, but I see no reason not to invest if it seems like a good deal (make sure to run the numbers based on your own estimates, not theirs! and consider it an investment, meaning you’ll either lose what you’ve put into it, or gain more than you put into it, don’t invest $5000 worth of hours when, if successful, you’ll only get $2500 return).
Now I understand the wariness, designers have been screwed over in the past, but that doesn’t make it a black and white issue. If you assume they’re untrustworthy in all business decisions (and you should, there are some great salesmen out there), and you still feel it can be done, then by all means do it, just have an exit strategy. There can be other benefits of the venture on top of pure work in, cash out. I’ve been a part of two startups so far, both had great ideas, interested experienced investors, and a great team, but failed because of poor management from key stakeholders. I lost a bit of time invested, but was constantly checking in with mentors, and got out before things really started to go downhill. In both cases I went to the point of looking over the contract, knowing it was going downhill because hey, if I only have it put in a few more hours to keep a stake, it could always bound back, though that wasn’t the case so I got out. However I made a ton of contacts and friends who have established and profitable ventures of their own, and I know what not to do in case I ever want to take a similar leadership position in the future.
This is like any investment. Determine the monetary investment and determine a rate of return that is acceptable for you.
So let’s say if you were paid up front, it would be a $10,000 proposal. That is your principle. 8% is a minimum standard rate of return for private equity. Then you need to determine a timeframe, let’s say 2 years, compounded monthly, you will get $11,800 out of the deal. It can be taken as a lump sum or broken into payments or royalties. That is for you to negotiate.
Thank you all for your comments, information you shared and proposals. Really helpful.
My initial thinking was more close to the attitude that mirk is suggesting. I see it is an “investment” as a chance to get involved in this so much talked kickstarter experience as a partner but not one who really has to run everything and get involved with all the tiny details of it. The person who proposed the project, is not someone i really know, however i tend to be quite “open” to people and at least seems someone i could trust, but in any case, i was thinking to get a contract made by a lawyer (where i live it should not be something really expensive), in order to have written down on paper agreements as well the right to demand my share in the future (if any ). I am not sure though if lawyers though are really experienced with the nature of kickstarter so i was thinking to show him a standard contract of a Client-Designer agreement and explain the way kickstarter works so this contract could be adjusted accordingly.
The downside is that, at least at this point, there are not any concrete decisions on numbers, selling price etc so that i can better understand what should i ask as % per sale. For, let’s say approximately, a product that will have a retail price of about $30-50, how much do you think would be a fair amount for the design of 2 hardware electronics?
Also, as i prepare a document with my tasks, in the creative-design field, what other tasks you can think of and in which phase of a kickstarter project would you place them. This is a way also to brake down the project so i can see step-by-step how the collaboration and the project are going so i will control the amount of time and effort i put. My thinking is the following:
Product Design – (pre ME will be done by colleagues at work that are ME guys and work on these products everyday and have great experience to consult on ME design, tooling and cost).
(indicative-screen shots) Smartphone App
Video (will be outsourced to another team )
Website (to be outsourced )
Working Smartphone App (to be outsourced the full design + programming, based on my directions)
Instructions manual (if necessary)
Am I missing something or do you have any comment on the above?
The reason a few commenters were so quick to say “DON’T” is because this is a very common scenario that nearly all designers/engineers/businessmen come into contact with at some point, and one that predates Kickstarter.
It’s about probability:
What are the chances that the success of the product generates profit that exceeds your number of hours spent on the project?
What are the chances that your partner doesn’t somehow scam you?
My two answers would be: slim and completely unpredictable, respectively.
None of us is saying “it’s impossible” or “all profit-sharing scenarios are disastrous,” but in a majority of situations, it’s not worth it. Even if you do everything right and your partner is a fair, ethical guy, the cost/benefit rarely lands in your favor.
If a man has an idea for a project, he should be “man enough” to fully invest in that project. If your partner was truly dedicated, he’d recognize that in order to secure talent, he should compensate that talent, either by way of project sums or hourly wages.
I agree with everything you said except this. If this is true, it completely invalidates the concept of investment from other parties.
Now I’m not qualified to defend the entire concept of investment, but from my perspective it’s a nice symbiotic relationship. The controlling party divides some of the risk, and the investing party gets to piggyback on the potential success. I read a Jon Ronson interview a while ago with a guy who chipped in a thousand bucks or so into Amazon when it was starting and he won’t have to work ever again. It’s obviously an extreme example, and a gamble to some degree, but it entirely depends on the investor’s ability to judge the odds.
alexandros, my only other advice would be to try this exercise. First, assume you are doing everything and hold all the equity. Then dole out percentages to your partner based on what they’re doing (5% for having the idea, 10% for running the kickstarter campaign, etc.). Then flip it and assume they’re doing everything, taking percentages for yourself. They should match up. If they don’t you’re probably undervaluing yourself, which is easy to do in your first negotiation.
iab has suggested one method of calculating your return for indefinite royalties. If you’re going to get a lump-sum, the simplified calculation we were taught in business/economics classes is to divide your expected return at 100% confidence, by your actual confidence and ask for that. Eg. for what would normally be a $10,000 proposal, with an average success rate in the first year of 75% (Startup Business Failure Rate By Industry - Statistic Brain):
$10,000/0.75 = $13,500 (approx)
Don’t use 75%, it’s just a starting point, you’ll have to evaluate it yourself.
@hatts, true, the chances to generate profit are slim. However, i am looking at this project as an experimentation. I hope that i do have the experience to balance a reasonable amount of hours put and a good result. @mirk, thanks again for your input and for the negotiation tips you mentioned. By the way, the link you posted is very interesting. Thanks. @chevisw, i agree with your point of view and that is the way i am trying to approach the project. Yet, i understand the voices that say not to get involved. Sometimes, even if the logic says “no” it is good to have a first hand experience with failure. As long as this failure does not have irreversible consequences, through this process i do hope i will learn some things.
Thank you all, and i will try to keep you all posted with the evolution of the project. Still, of anyone else has hands on experience as a member of a kickstarter product development team, please post your story.