Venture Capitalists Now Search Crowdfunding Sites for Opportunities

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When crowdfunding sites like Kickstarter and Indiegogo began taking off, some thought they would make venture capitalists obsolete. That has not been the case so far. And crowdfunding sites have actually served as an opportunity for professional investors to easily find new startups to fund.

A report released last week by research firm CB Insights found that about 9 percent of the 443 hardware projects that have reached the $100,000 threshold on crowdfunding platforms have also raised venture capital.

It’s easy to see why this trend has been beneficial for venture capitalists. Thousands of projects and startups looking for funding are all gathered neatly into categories that users can browse through easily. And on top of that, they can gauge how each project might fare in the marketplace by measuring their success on crowdfunding platforms.

Peter Moran, a partner at venture firm DCM spoke about gauging interest through crowdfunding platforms with Bloomberg Businessweek:

“We consider that an extremely helpful data point about whether the public wants a device.”

Though DCM hasn’t yet invested in any projects or startups post-Kickstarter, he said it’s definitely a growing trend. He and his colleagues monitor these sites regularly for potential opportunities.

So for startups considering using crowdfunding platforms, this means there’s potential for even more funding beyond that initial campaign goal.

Certainly, there are startups that turn to crowdfunding because it allows them the freedom to run their businesses without having to answer to investors.

But for others, venture capital can simply serve as the next step in their growth process.

For example, both developers of smartwatch Pebble and gaming console Ouya had to seek venture funding just to meet the demand created by their initial crowdfunding campaigns.

So for some startups, crowdfunding has simply been the launchpad for even larger growth through venture capital. While crowdfunding might work to establish that a market exists for their products, it doesn’t provide them with the resources needed to scale.

Searching Photo via Shutterstock

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Annie Pilon Annie Pilon is a Senior Staff Writer for Small Business Trends, covering entrepreneur profiles, interviews, feature stories, community news and in-depth, expert-based guides. When she’s not writing she can be found exploring all that her home state of Michigan has to offer.

9 Reactions
  1. People are crowdfunding for just about anything these days. It’s quickly become a multi-billion dollar global industry. Is anyone here attending #GCCB2014 – it’s the largest & most educational global crowdfunding event where you can learn how to raise money through crowdfunding for practically anything!

  2. It makes sense for venture capitalists to explore crowdfunding sites for potential projects to invest in. However, it makes me uneasy, and I’m not sure why.

    • Maybe it is because these people can somehow mess up the system because they have another goal.

      • Yes, maybe that’s it. There’s something about venture capitalists wanting to be a part of some of these projects that reminds me of Simon Cowell.

        It really is up to anyone how they choose to fund a project, however, including support from a VC.

    • I think some people using crowdfunding sites might have reservations about using other types of funding because with crowdfunding they keep full control over their business/projects. But with professional investors they might want input on everything (not uncommon, but still). I think it definitely makes sense for VC’s to monitor these sites, but each business just has to consider the pros and cons based on their particular situation.

      • I’d be flattered if I was crowdfunding a product and was approached by a VC. But I don’t think I’d accept. I’d take it as re-confirmation that I’m definitely on the right track.

        With the amount of VC money invested, I totally understand why some would want a say in how things run. But like you said, pros and cons.

  3. Shameless plug: using an aggregator, it’s much easier to find an interesting project across platforms.

    Disclaimer: I have a vested interest 😉