Successful Crowdsourcing Projects Attract Interest from Venture Capitalists
Kickstarter was the starting point for many companies which have eventually gone ahead and raised mega bucks from venture capital companies. Oculus VR is one such company. Startups that succeed in winning investor confidence on Kickstarter also attract venture capitalists who see such crowdsourcing websites as a platform for ideas that have the potential to catch on.
CB Insights, a research firm has found out that hardware projects raising $100,000 or more on crowdsourcing platforms like Kickstarter and Indiegogo have raised $321 million in venture capital. 443 projects which have raised $100,000 from these crowdsourcing platforms have also received venture funding.
Crowdfunding – The goose that lays golden eggs
In crowdfunding platforms, venture capitalists have found a goose that lays golden eggs. When crowdsourcing become popular, people started to speculate that at the rate the platform was picking up steam, some day it might even replace venture capital as the prevailing source of cash for startup companies.
Venture capitalists, on the other hand, made the best of the opportunity and found ways to make the platform work for them rather than losing business to it. They browsed through the projects and found companies worthy of investing in. Peter Moran from DCM, a venture capital firm, put the sentiment well when he said that such platforms (crowdsourcing sites) provide a relevant data point to gauge the level of public interest in a device.
Crowdsourcing will not overtake venture capital anytime soon
So why has crowdsourcing not become an alternative to venture capital yet? The thing is, it is not easy to build a gadget company even if you manage to raise money on crowdsourcing platforms. Famous Kickstarter projects like Ouya, which makes gaming consoles and Pebble, smartwatch maker have received so many orders on Kickstarter that they had to take the help of venture capitalists to create the infrastructure they needed to satisfy supporters.
Kickstarter itself does not have any problems with its star startups offloading equity to venture capitalists. Justin Kazmark, a Kickstarter spokesperson said that creators on Kickstarter have creative freedom to make products as they want. Some may decide to stay independent and others may decide to go to a larger stage or work with other companies.
Original crowdsourcing investors lose when the company becomes a success
Looking at the success of some of these companies, some people have become ambivalent about their investments. One person who invested in Oculus VR when it was crowdsourcing said that if he knew the company was going to become so big (Facebook acquired it for $2 billion), he would have probably bought equity in the company rather than pay $300 to get a VR headset, which has become obsolete now.
You might say that the original crowd that backed the idea got a bad deal. The venture capitalists who came in later and put $91 million into the company after it had already made a name on Kickstarter ended up getting a heavy profit on their investment. It is a clean example of how crowdfunding platforms are the recruiting grounds for venture capitalists.