EC1 Capital

What do VC's think about crowdfunding?

Do VC's think it is good, bad or just ugly?
Julian Julian Sat 28th Jun 2014 14:38
https://www.flickr.com/photos/jamescridland/

This is a copy of an article I wrote that first appeared on TechCityNews.

I have to admit that when crowdfunding first came on the scene I was skeptical that the startups listed where the ones that could not raise investment from angels or early stage institutional funds and were therefore of a lower quality. I also did believe that being listed on a crowdfunding site would ‘damage’ the reputation of the startup if they then tried to raise from institutions later.

Now that crowdfunding is more mature and established I think it is an excellent resource for both entrepreneurs and for investors.

Crowdfunding and Kickstarter are two different offerings, general crowdfunding sites just provide cash for equity and Kickstarter allows a startup to pre-sell product for cash up-front at some form of discount or recognition for the customer.

In the early days of crowdfunding there was concern that there would be too many investors listed in the cap table but now I believe that only one entity in the cap table represents all the small investors.

The best thing about these sites, especially Kickstarter is that you can immediately see if there is market demand for your proposed product, with crowdfunding you really only see if there is investor demand.

In addition, Kickstarter is non-dilutive.

As an investor we look through such sites to spot interesting opportunities especially those who have exceeded their funding targets, it’s a great signalling opportunity.

However, most professional tech investors these days are quite hands on, either via operational help or commonly helping in terms of recruiting or follow on financing and usually this time commitment is given for free in addition to capital injection. This is more like a partner approach than a participant.

I think crowdfunding is a viable financing alternative for all types of industries and can only grow to be a bigger force in early stage financing and startup validation.



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