Can Crowdfunding and Venture Capitalism Work Together?

0
1654

Is traditional financing losing its relevance in the modern business world? When a company like Coolest can raise more than $13 million through crowdfunding, with a large portion of that funding coming from advanced orders, some might say that the answer is a resounding “yes.” The only problem is that this isn’t exactly true. Venture capitalism still has a place in the modern financing market. More importantly, it even works together with crowdfunding.

Here’s why VC isn’t dead at all: it’s a natural evolution for business growth from a crowdfunding success.

Take the Case of OneBowl As Evidence

OneBowl is a project that was on Kickstarter which featured a bowl and strainer combination. It would be a plastic injected project, which meant that the $60k which was earned from the crowdfunding campaign would be just enough to cover the necessary costs of tooling and creating the mold. The difference was that as OneBowl talked with their backers after the campaign, they spoke about developing manufacturing partnerships, acquiring capital financing, and even sourcing distribution.

It all came because of the successes of one Kickstarter campaign. Something that would have traditionally taken several months or even years became something that was achievable in just weeks. Why could this happen? Because OneBowl was able to prove their concept.

That’s what has always set people back in the VC world. Start-ups and beginning entrepreneurs just didn’t know what it took to prove their ideas to the general market. They didn’t have a clue that they’d need hundreds of thousands of dollars just to test out an idea enough that they could get some VC funds coming in. With crowdfunding, proof of concept doesn’t require tons of cash at all. It requires innovation more than anything else.

More Than $300 Million of VC Was Raised From Crowdfunding

Venture capitalists are taking notice of crowdfunding successes at an ever-increasing rate. If your next crowdfunding campaign is able to raise $100k or more successfully, then it has a 10% chance of raising some form of formal venture capital as well. In the first 6 months of 2014, more than $300 million in formal VC was raised through the direct successes of crowdfunding. That’s money that just can’t be ignored.

Will this reduce the “unique factor” that crowdfunding campaigns have on platforms like Kickstarter or Indiegogo? Possibly. There’s always a chance that the investment world could become diluted to the point that it becomes ineffective. With smaller backers getting involved on the crowdfunding level and larger VC funding coming after success is experience, however, the two worlds look like they’ll cooperate more than they compete

Crowdfunding isn’t for amateurs. VC funding should be transparent. If we keep these things in mind, then we can all do some great things.